Viet Nam 2045

Pathways toa High-Income Future VIET NAM 2045TRADING UP INA CHANGING WORLD Pathways toa High-Income Future @2024 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of the World Bank with external contributions. The findings, interpretations andconclusions expressed in this work do not necessarily reflect the views of the World Bank and its Board of ExecutiveDirectors. The World Bank do not guarantee the accuracy of the data included in this work. The boundaries, colors,denominations and other information shown on any map in this work do not imply any judgement on the part of theWorld Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities ofthe World Bank, all of which are specifically reserved. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, the World Bank, 1818H Street NW, Washington DC, 20433, USA, Fax: 202-522-2625; email: pubrights@worldbank.org. Cover design by Le Bros, photo credit @shutterstock.com TABLE OF CONTENTS Abbreviations9Acknowledgments11Summary12Introduction221. Global trade and investment generated significant development dividends252. Emerging constraints of the current export model29A dual economy with limited linkages between FDIand domestic firms32Limited supply of high skills is an increasingly binding constraint34Emerging infrastructure bottlenecks threaten the competitiveness ofViet Nam’s manufacturing sector413. Global trade shifts are posing risks but also opportunities for Viet Nam44Geo-economic fragmentation is creating new risks and opportunities for Viet Nam44The global demand shift to Asia creates opportunities for Viet Nam to diversify its export markets47Disruptive technological change has accelerated shifts to digital service trade and automation484. Towards Vietnam 204558Policy package 1: From tariffs reduction to deep (regional) trade integration58Policy package 2: From a dual economy to integrated domestic value chains66Policy package 3: From labor-intensive final assembly to skill- andtechnology-intensive high-value activities69Policy package 4: From strong basic education to a high-skilled workforce73Policy package 5: From carbon-intensive manufacturing to low-carbon and resilient exports795. Making the high income transition inclusive84Skills and locations for new job opportunities84Ensuring that skill upgrading benefits all86Labor mobility to take advantage of GVC opportunities88Stronger protection for those who lose jobs or miss out on the new opportunities89Conclusion and summary of policy recommendations90References94Appendix97 FIGURES Figure S.1: Viet Nam’s FTA strategy has focused on breadth over depth13Figure S.2: Domestic value added in exports by sector (million USD), Viet Nam, 2005-2014Figure S.3: Servicification of exports remains limited in Viet Nam15Figure S.4. Demand for skilled labor in tech-intensive manufacturing industries16Figure S.5: A carbon-intensive export production… … heavily exposed to climate risks17Figure 1: Global trade plays a crucial role in Viet Nam’s economy23Figure 2: An evolving export growth model to reach Viet Nam’s 2045ambitions of becoming a high-income country24Figure 3: A fast evolving and increasingly complex export basket26Figure 4: GVC firms create more jobs, are more productive, and pay higher wages27Figure 5: GVC benefits were geographically concentrated29Figure 6: Rapid export growth was driven by quantity not quality of exports……with relatively low export value-added per capita30Figure 7: Job activities in exports, Viet Nam and peers31Figure 8: Few but mighty exporting FDI firms are driving all of the employment growth in Viet Nam33Figure 9: Rising wages erode cost advantage35Figure 10: A limited supply of skilled workers and jobs.36Figure 11: Growing infrastructure needs will require connectivity and power investments42Figure 12: Viet Nam’s past economic growth was carbon-intensive…...Partly driven by the export sector43Figure 13: Reshaping of global trade44Figure 14: Industrial policies are prevalent in Viet Nam’s major export destination markets45Figure 15: Trade shifts46Figure 16: Global demand is shifting to Asia48Figure 17: Advanced economies invest more in automation…… and emerging economies start to deindustrialize at lower levels of income than in the past50Figure 18: Robot adoption is disproportionally benefitting higher-educated workers51Figure 19: Robotics in rubber and plastics has driven export value added growth,suggesting the robots are acting as complements to labor and not substitutes52Figure 20: Viet Nam’s growth remains driven by capital accumulation53Figure 21: Productivity – Investment space to achieve high-income status by 204554Figure 22: An illustrative GVC upgrading pathway56Figure 2