Vietnam's upper-middle-income status: Opportunities to elevate FDI attraction
WVR - Becoming an upper-middle-income country is a commendable achievement, but it is only the starting point. Vietnam will need to transition from the advantage of low-cost labour and capital expansion to advantages based on productivity, technology, skills, and institutional quality.
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| Vietnam's upper-middle-income status: Dr. Ha Thi Cam Van, Senior Program Manager for Economics at RMIT University Vietnam discusses on significant opportunity and challenge. (Photo: Courtesy by author) |
The World Bank (WB) has officially classified Vietnam among the upper-middle-income countries. Vietnam's gross national income (GNI) per capita reached USD 4,970, surpassing the minimum threshold of USD 4,636 according to the WB's new classification.
The classification is a significant opportunity but also a challenge for the country. Dr. Ha Thi Cam Van, Senior Program Manager for Economics at RMIT University Vietnam, shared her insights on this matter with The World and Vietnam Report.
What does Vietnam's transition to an upper-middle-income country mean for its economic position and the confidence of international investors?
The WB's official reclassification of Vietnam from a lower-middle-income to an upper-middle-income country, effective from July 1, 2026, marks an important milestone. The new classification is based on the 2025 per capita GNI using the Atlas method.
The upper-middle-income threshold for fiscal year 2027 ranges from USD 4,636 to USD 14,375 per person, while Vietnam's per capita GNI reached USD 4,970. It is important to note that this is GNI, not GDP per capita. According to the General Statistics Office (Ministry of Finance), Vietnam's GDP per capita in 2025 reached 5,026 USD, with a total GDP of approximately USD 514 billion.
This milestone reflects a long-term improvement in the economy's scale, income, and production capacity, while also reinforcing Vietnam's image as an expanding market with higher purchasing power and the ability to accommodate investment projects with significant capital, technology, and skill requirements.
However, income classification is not a measure of confidence and does not automatically enhance the business environment's quality. Investors will still assess policy stability, electricity and infrastructure availability, labor quality, administrative efficiency, and property rights protection.
In your opinion, what opportunities and challenges will Vietnam face as it joins the upper-middle-income group?
The new income status provides an opportunity for Vietnam to shift from attracting foreign direct investment (FDI) primarily based on labour costs to attracting higher value-added activities such as research and development, design, component manufacturing, technical services, finance, and digital technology. A higher-income domestic market also allows private enterprises to expand and invest long-term.
However, the linkage between the FDI sector and domestic enterprises remains limited. According to a WB report, foreign enterprises account for about 73% of Vietnam's total export turnover, while the percentage of enterprises linked to global value chains has decreased from 35% in 2009 to 18% in 2023. This indicates that while Vietnam exports a lot, the value held by domestic enterprises remains relatively low.
The risk of the middle-income trap arises when wages and production costs increase, but productivity, technology, and management capacity do not improve correspondingly.
The WB estimates that to become a high-income country by 2045, Vietnam needs to maintain an average GDP per capita growth rate of about 6% per year and a labour productivity growth rate of about 6.3% per year.
This is a very high requirement, demanding substantial changes in the growth model rather than merely increasing investment capital.
Vietnam's GDP growth in the first half of the year reached 8.18% – the highest level in many years. What does this result reflect about the economy's resilience and growth drivers?
According to the General Statistics Office, GDP in the first half of 2026 increased by 8.18% compared to the same period last year, higher than the 7.63% growth in the first half of 2025. Total social investment capital reached VND 1,807.8 trillion, up 12.9%. Merchandise export turnover reached USD 266.52 billion, up 21%, while imports reached USD 283.17 billion, up 33.4%.
These results indicate that the economy has relatively good resilience to global trade and geopolitical fluctuations. Investment, industrial production, exports, and services all played important roles. However, imports increased faster than exports, resulting in a trade deficit of about USD 16.65 billion. Part of the import increase may reflect high demand for machinery, raw materials, and components for production, but it also shows that the economy still relies heavily on imported inputs.
Additionally, the consumer price index (CPI) in the first half of 2026 increased by 4.38%. Therefore, it is necessary to assess growth quality through productivity, real income, the ability to create quality jobs, and business health, rather than just looking at GDP growth rate.
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| GDP in the first half of 2026 increased by 8.18% compared to the same period last year, higher than the 7.63% growth in the first half of 2025. (Photo: Hoang Oanh) |
As Vietnam enters a new development phase, what do you consider the most important growth drivers in the next 5-10 years? How should innovation, digital transformation, green economy, and high-quality human resource development be promoted?
The most important driver must be productivity growth. Digital transformation needs to be integrated into the core operations of businesses, from data management, automation, logistics, and supply chain management to product development and customer engagement. Innovation policies should also shift from supporting inputs to helping businesses adopt, apply, and commercialize technology.
The second driver is upgrading the value chain. According to the WB, services currently contribute only about 12% of Vietnam's total export value, and only about 7% of the value of processed and manufactured exports. Meanwhile, only about 5% of the manufacturing workforce is classified as highly skilled, and about 10% of the population holds a bachelor's degree. This is a significant bottleneck for sectors like semiconductors, artificial intelligence, automation, and specialized services.
Green transformation must also become a competitive driver. Clean energy, modern and energy-saving power grids, carbon markets, and green finance will increasingly determine access to international markets. Finally, human resource development must be more closely aligned with business needs, especially in STEM, engineering, management, and digital technology fields.
As Vietnam becomes an upper-middle-income country, it will gradually lose access to some international concessional loans. What requirements does this pose for mobilizing domestic resources, institutional reform, and enhancing the efficiency of public and private investment?
It should be clarified that transitioning to an upper-middle-income group does not mean concessional loans will immediately cease. In fact, Vietnam has not been a member of the International Development Association (IDA) – WB's concessional lending window – since the end of fiscal year 2017. Therefore, the transition to more market-like funding sources has been underway for several years.
This requires developing the domestic capital market, expanding long-term funding sources for infrastructure and businesses, and controlling financial risks. Public investment needs to shift from disbursement targets to socio-economic efficiency, based on project selection, cost-benefit appraisal, transparent bidding, and post-investment evaluation.
For the private sector, it is crucial to create a level playing field, reduce compliance costs, and increase access to land, credit, and technology.
With the goal of becoming a high-income country by 2045, what breakthrough reforms should Vietnam prioritize now to realize this development aspiration?
The first priority is to improve institutional quality and execution capacity. Policies need to be stable, predictable, and consistently applied across ministries, sectors, and localities. Reform is not just about issuing more regulations but also reducing overlaps, shortening procedures, and enhancing accountability.
The second priority is to develop a strong domestic private sector capable of becoming suppliers, innovators, and leading enterprises in the value chain. Vietnam needs to ensure fair competition among private enterprises, state-owned enterprises, and FDI enterprises; and develop a domestic supplier program and supply chain finance.
The third priority is to reform higher education, vocational training, and the research system to align with business needs. This should be accompanied by reforms in land markets, capital markets, public investment management, and the decentralization of responsibilities between central and local governments.
Becoming an upper-middle-income country is a commendable achievement, but it is only the starting point on a new journey. Vietnam will need to transition from the advantage of low-cost labor and capital expansion to advantages based on productivity, technology, skills, and institutional quality.
