Vietnam faces "middle income trap", foreign experts propose solutions

(Dan Tri) - The goal of becoming a high-income country by 2045 is a bumpy road that Vietnam must face, but it is also a driving force for Vietnamese people to unite to realize their aspiration for prosperity and enter a new era.

Graduating with a bachelor's degree from the Academy of Finance in 2020, Dao Hoa (26 years old) decided not to find a job in her field of study but chose to work in tourism . Hoa's family objected but she still insisted on starting a career this way. "People's income is increasing, spending money on tourism, especially luxury tourism, will increase," Hoa said about the reason for choosing the job. 3 years later, Hoa is still persistent with her job. More and more customers come to her, some of them spend hundreds of millions of VND for a vacation at a luxury resort. Hoa said she sees opportunities in her job when Vietnamese people are getting richer and richer.

In fact, over the past 15 years, Vietnam's economy has developed strongly and achieved many positive results, most clearly demonstrated through rapid growth associated with poverty reduction. As Mr. SD Pradhan - Deputy National Security Advisor of India commented in the Times of India : Vietnam's economic growth is likened to a "miracle". However, after many years of miraculous development, Vietnam's economy is showing signs of slowing growth, human resources have not met market demand, the legal and administrative systems still have many barriers for businesses, the social security system has not met the needs of society... And especially, the income gap between Vietnam and the world is increasingly different. In 2023, the world's average GDP will reach more than 100,000 billion USD, equivalent to 12,000 USD/person - this figure is nearly 3 times that of Vietnam. Many experts assess that internal difficulties and external challenges are putting Vietnam at risk of falling into the middle-income trap. In the next 20 years, will Vietnam be able to break through to avoid the middle-income trap and become a high-income country? This is probably a problem with many unknowns that Vietnam needs to try to find a way to solve in order to reach the set goal by 2045.

The World Bank has classified middle-income countries at around 1,136-13,845 USD/person/year, according to the 2023 update. These are divided into 2 groups: the lower middle-income group and the upper middle-income group. The lower middle-income group is around 1,136-4,465 USD, the upper middle-income group is around 4,466-13,845 USD. After surpassing the 13,845 USD mark, it is considered a high-income country. The middle-income trap is a term used to describe the stuck situation of many countries that have escaped poverty, joined middle-income countries but have spent decades unable to rise to the group of high-income countries (over 13,000 USD/person/year). Analysis of data from 124 countries over the period 1950-2010 shows that a country that has been in the lower middle-income level for 28 years or more, or a country that has been in the upper middle-income level for 14 years or more, is in the middle-income "trap".

"Growth based on foreign direct investment (FDI) and official development assistance (ODA), abundant labor , trade agreements, natural resources or locational advantages will eventually end. The middle-income trap occurs when economic growth is not created by the efforts of the people or the Government but only thanks to available advantages," he said. According to the expert, countries can achieve middle income by liberalization, privatization and global integration, but to achieve higher income requires policy reform efforts to promote the development of the private economy. Regarding the cause of the middle-income "trap", he said that lack of competitiveness is the main reason why a country "falls into the trap". That is, the country cannot improve technology, produce high-value products, participate in the global value chain, etc. Besides, social issues are also another cause. Economic growth can be slowed down if society is unstable due to inequality, corruption, environmental pollution, etc. "In addition, political and military issues such as internal or external conflicts, ethnic conflicts, terrorism, political struggles also have a great impact on the economic development of the country," the expert said. Professor Kenichi Ohno cited research by Professor Tran Van Tho, saying that there are two types of middle-income traps: First is the low middle-income trap - here policies are not really strong enough for the private economic sector to develop. Laws, policies and policy institutions must be improved and government intervention must be limited to create momentum for the private economic sector to develop. Second is the high middle-income trap - despite supportive policies and a favorable business environment, the private economic sector is too weak to achieve productivity, technology and innovation and cannot compete globally. "Professor Tho believes that Vietnam is in the lower middle income trap, which is the first case," said Mr. Kenichi Ohno, adding that in nearly 30 years of research in Vietnam, he has found that support policies from the Government have not yet brought many results even though Vietnam has grown remarkably in the past 3 decades. According to him, the main growth driver of our country still comes mainly from human efforts, FDI capital, ODA capital and remittances.

According to the expert, Vietnam is at risk of falling into the middle-income trap if policies are not improved. Vietnam needs to accelerate GDP growth to 8-10% instead of 4-6%. "Vietnam needs a major breakthrough in policy and this needs to come from strong action and commitment from the country's major leaders," Professor Kenichi Ohno emphasized.

From now until 2045, Vietnam has more than 7,000 days to achieve the target of an average income of more than 13,000 USD. To realize this aspiration, Vietnam's GDP must grow steadily at 7-8.5%/year - this is considered a high growth target in the context of a volatile and challenging world. Experts say that to maintain a high and steady growth rate in the next 20 years, the Government will need more solutions and efforts. Therefore, the way of doing things and the direction in the current context will play a decisive role for future goals. Professor Kenichi Ohno assessed that Vietnam has had remarkable achievements over the past 3 decades such as rapid income growth from a low level, reduced poverty rate; attracting FDI and successful trade policies (WTO, ASEAN, FTA, TPP, RCEP...); shifting the structure from agriculture to industry and services; the "rise" of some domestic corporations such as Vingroup/VinFast, Viettel, FPT ... However, the problem of Vietnam is that growth is slowing down at the middle-income level too soon instead of accelerating and depending heavily on FDI for exports, technology and economic restructuring. The participation of Vietnamese enterprises in the global value chain is still vague. The modern transportation system (especially the urban railway network) is slow to develop. Besides, there are problems with the environment and protection of natural resources ...

"The middle-income trap is an important issue for the economy that 108 countries are facing. There are many ways for a country to overcome the middle-income trap and the expert assessed that Vietnam is in an ideal position to escape this trap," said Dr. Fred McMahon. According to the expert, Vietnam is still a country with a relatively low income and this is an "advantage", which will help Vietnam easily catch up with modern economies. In addition, the Government has also continuously launched many policies to support growth. However, to overcome the middle-income "trap", he said that there needs to be further innovation in the Government's institutions and policies, especially economic policies must become more competitive. "The market economy (economic freedom) is also the driving force behind the average GDP growth of countries. Except for some oil-dependent countries, all high-income countries are economically free, even countries starting from low income like South Korea. For Vietnam, the market economy has not really developed strongly," the expert assessed. To rise above the average income level, Vietnam must plan its development path in the direction of maintaining a high growth rate in a sustainable manner. In particular, Vietnam needs to have the capacity to cover and have a suitable development vision and effectively implement measures to realize the vision.

This can be learned from East Asian countries. In addition, attention must be paid to the implementation process instead of just drafting and approving policies. It is especially necessary to monitor and revise when necessary until the desired results are achieved. In addition, Professor Kenichi Ohno noted that Vietnam needs to strengthen its study of policies from developed countries to develop its own policies for the country. For example, Japan has learned how to promote the industrialization process and Singapore has learned how to promote labor productivity from other countries by carefully researching, comparing and adjusting to national conditions. "Efforts to learn from international experiences of Japan and Singapore should be repeated in Vietnam to improve the quality of policies, instead of organizing too many conferences and seminars on the same topic without bringing specific results," he said. In addition, the professor also emphasized the importance of the private economy for national economic development. Mechanisms and policies play an important role in enhancing the flexibility of the private economy and coping with external "shocks".

Citing many Asian countries, Dr. Fred McMahon said that government policies helped South Korea and Singapore - two countries with few natural resources and heavily affected by World War II - rise to high-income status despite a series of challenges. "Meanwhile, Venezuela, Nigeria - with huge oil reserves, or Brazil and Indonesia - with large domestic markets and favorable locations - are still stuck in the middle-income group," shared the head of the research group on economic freedom at the Fraser Institute, Canada.

For these economies, the negative impacts of the Asian financial crisis (1997-1998) and the Covid-19 pandemic (2020-2021) were only temporary. "Meanwhile, Malaysia and Thailand - starting from the same level as Taiwan (China) and South Korea in the 1950s. However, these countries grew slowly to reach high income, both are stuck in the middle-income trap. The Malaysian and Thai governments have also officially acknowledged this," he said. According to the expert, the difference between the economies arises from the continuous accumulation of skills, knowledge, technology and capacity for innovation by people and businesses. In addition, Professor Kenichi Ohno said that in Asia, the emergence of leaders such as Chiang Kai-shek (Taiwan, 1949), Park Chung Hee (South Korea, 1961), Lee Kuan Yew (Singapore, 1965) and Deng Xiaoping (China, 1977) marked a historic turning point for the economy. On the contrary, less successful countries such as Malaysia, Thailand, Indonesia, the Philippines... did not have leaders of the times even though these countries had changes in leadership.

"The military coup of Park Chung Hee in 1961 forced South Korea to take action. He directly controlled economic policies, established the Economic Planning Board and drafted the five-year development plan. In particular, the relationship between the government and businesses was very close and cooperative. Incompetent and corrupt officials were forced to resign," the expert said. In the 1960s, under the strong development policies of the State, large corporations such as Samsung, LG and Daewoo boosted exports. By 1970, South Korea targeted heavy industries. These corporations were involved in the steel, automobile, shipbuilding and electronics industries. Raising the question "what creates a strong private economic sector and a competent government?", the expert said that it is the consistent thinking of the entire country from leaders, experts, businessmen, workers, farmers to students.

"Japan in the 1950s and 1960s and South Korea in the 1960s and 1970s were full of nationalistic thinking, which is why all the people and the Government worked together to promote growth and industrialization," he emphasized. As for Japan, from a country heavily devastated after World War II, Japan rose to become one of the countries with the largest economies in the world. In the period 1955-1973, Japan's economy grew rapidly, averaging about 10% per year, which was considered a "miracle" that was difficult for any country to achieve later. Japan increased the import of high technology, shortened the gap, gradually industrialized, improved productivity, and then exported technology back to the world. Japan focuses its resources on industries that create high productivity and high value instead of low-value industries such as agriculture , while increasing the production scale of many industries, creating high value and high productivity for goods. The lessons of Japan and South Korea are mentioned by many people as an example to encourage Vietnam to be able to create miracles and realize its desire for prosperity by 2045. Accordingly, by 2030, Vietnam will be a developing country with modern industry, with GDP per capita reaching 7,500 USD. By 2045, Vietnam's goal is to become a developed, high-income country. At this time, GDP per capita will reach over 13,000 USD, far exceeding the 4,280 USD level of 2023.

Dear readers, Our country is entering a new stage of development, a new era full of promise with intertwined opportunities and challenges. After more than 35 years of renovation, Vietnam has achieved great achievements, the economy has grown remarkably, people's lives have improved significantly, and its international position has been increasingly enhanced. However, besides the successes, we are also facing many difficulties and challenges such as: climate change, fierce international competition, the gap between rich and poor, environmental pollution, concerns about social ethics... In that context, it is extremely important to clearly recognize the characteristics, opportunities and challenges of the new era. The series of articles "New Era of the Vietnamese Nation" in Dan Tri newspaper will deeply analyze key issues, contributing to clarifying the big questions: How is the new era of the Vietnamese nation understood? What are the important milestones and events affirming the transformation of the country? What are the opportunities and challenges for Vietnam in the new era? How to take advantage of opportunities, overcome challenges, and develop the country quickly and sustainably? What is the role of all classes of people, especially the young generation, in building the country in the new era? We hope that this series of articles will contribute to arousing the belief, aspiration to rise up, the spirit of solidarity, the will to be self-reliant and self-reliant of the entire nation, together building a rich, prosperous and happy Vietnam.

Content: Thanh Thuong

Design: Patrick Nguyen

Dantri.com.vn

Source: https://dantri.com.vn/kinh-doanh/viet-nam-truoc-bay-thu-nhap-trung-binh-chuyen-gia-ngoai-neu-giai-phap-20241025201748768.htm