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Remarks by Minister of  Planning and Investment Bui Quang Vinh at the Vietnam 2035 Report Launching
Updated: 3/21/2016 2:19:08 PM GMT + 7

Dear H.E. Vu Duc Dam, Deputy Prime Minister, Socialist Republic of Vietnam,

Mr. Jim Yong Kim, President of the World Bank Group,

Ladies and gentlemen,

Vietnam has been known as the world's success story for economic development and poverty reduction. For just more than four decades of peace and unity, and just 30 years after Doi Moi, Vietnam has transformed from one of the poorest countries in the world to a middle-income nation. Since 1986, per capita income has nearly quadrupled as poor households slumped from over 50% to less than 5%. Achievements resulted from the nation's reforms are undeniable and are the driving force for Vietnam to overcome many challenges in the last three decades. However, Vietnam is still a poor country, and we can't rest on our laurels with what we have achieved, especially when we take a look back in comparison with other neibouring countries with similar conditions.

Where is Vietnam in the regional and global map? Little do many of us know that in the early 19th century (1820), Vietnam had a respectable position in the region in terms of the size of the population and economy, which were larger than the Philippines and Myanmar combined, and 1.5 times that of Thailand. Vietnam's then per capita income is comparable to the world's average. Yet, our current (2014) per capital income only equals one fifth of the world average (USD 2,052 vs. USD 12,000), a little more than one third of Thailand's (USD 5,977), and more than one fifth of Malaysia's (USD 11,307).

Any comparisons may be inappropriate though, given the fact that Vietnam's history is filled with various wars against external forces and struggles to reunite the country and now that we have had some 40 years living in peace and 30 years of economic reforms. These are long periods, equivalent to the time needed for nearby countries such as Korea, Japan, Taiwan and others to lift themselves from poor farming nations into advanced economies. And the need for innovation and development has become even more pressing than ever for Vietnam.

The need and urge for reform.

First, Vietnam is approaching the end of the golden population (1970-2025), which means we have only a maximum of ten years in a period where the country's population has the largest portion in the working age before that begins to diminish.

Second, the momentum from the former Doi moi period is producing less and less effect. Added to that, the remaining advantages driving growth based on increased investment, cheap labor and natural resources are no longer the great leverage as they used to be.

Third, Vietnam is taking a deeper dive into the world's economy, and as we accept integration, we have to take on competition. Enhancing competitiveness for the Vietnam's economy is therefore a vital need.

Given the three reasons discussed above, Vietnam needs to reform further and more effectively if we don't want to fall behind, let the economy fall into persistent stagnancy and find ourselves in the low-middle income trap.

In July 2014, Prime Minister Nguyen Tan Dung and World Bank President Jim Yong Kim came up with this initiative for starting the Vietnam 2035 review. Prime Minister Dung subsequently tasked the Ministry of Planning and Investment to work closely with the World Bank, assembling leading Vietnamese and international experts to prepare the Vietnam 2035 report. Nearly two years later, the report has been completed and is comprised of seven chapters with in-depth insight into three pillars for development and six major reforms, along with various important recommendations to help propel Vietnam into an upper-middle income country by 2035.

Pillar 1: Economic prosperity must go hand in hand with sustainable environment.

First, Vietnam must secure high and sustainable growth in the next two decades, with an annual per capita income increase rate of 7% (or a GDP growth rate of 8% per year), so that by 2035, it will have a per capita income of USD 15,000-18,000. To do this, the only way is to improve productivity. When it comes to productivity, as the famed Nobel laureate economist Paul Krugman summarized: "Productivity isn't everything, but in the long run, it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” Vietnam's productivity growth has continuously declined since the late 1990s, resulting in the country's productivity now at very low level compared to other countries in the region. More strikingly, the productivity of even the private sector in Vietnam has also continuously fallen to a currently very low rate. Three main causes exist:

(i) The structure of the economy and workforce in Vietnam is obsolete: Workers in the informal sector greatly outnumbers those in the formal sector, as more than 44% of the country's active workforce are in agriculture – a low added-value sector.

(ii) The underpinnings of the market economy are slow to improve, which adversely affects property ownership and blunts competitiveness in commodity markets.

(iii) Markets for factors of production, including capital, land and natural resources do not follow a market-based distributing mechanism, but rather an administrative command system.

Second, we must highly focus on spurring the domestic business sector (mostly the private sector) both in numbers and quality, considering it as a mandate of the entire government system. The health of domestic firms is the wellbeing of the economy. In the immediate term, we need to upgrade competitiveness and efficiency of domestic companies through improving and consolidating the market economy foundations, especially in relation to ownership, and introduce policies promoting fair and sound competition in access to capital, land, resources and information.

Third, we need to strongly promote entrepreneurship. The government should create an enabling environment, establish centers providing guidance and training for startups, furnish knowledge and funding through the formation of venture capital funds and venture investment banks to support these businesses, so that we can create a new wave of startups and boost entrepreneurship in the society. How well businesses are doing must represent the nation's status.

Fourth, to maintain high growth for sustained periods, we need to further increase reforms and promote learning and innovation. Both companies and academic research institutions do not seem to be sufficiently inspired to pursue a productivity boost agenda. Having in place a national innovation system is the way to go to improve productivity in Vietnam.

Pillar 2: Equity and inclusiveness (equality for all)

In addition to fast development along market mechanisms and principles, aggressive competition may widen the rich-poor gap and opportunities to access to fundamental social benefits. Thus, in addition to policies that promote fast and robust economic development, we must have in place strategies to guarantee fairness in development, as well as the opportunities to access to basic social services for everyone, especially vulnerable and marginalized groups, such as ethnic minorities, people with disabilities, the poor and so on. That is also where the primacy of socialism is enshrined and where the government comes in to steer the market economy toward a socialism-oriented path, and also a necessary move to successfully implement the United Nations' action plans for Millennium goals beyond 2015.

To ensure equity and inclusiveness, apart from continuation of on-going agendas, reforms in search for the formation of a solid middle class and other efforts through the population aging program should be strengthened. These initiatives place an emphasis on institutional reform and providing development opportunities for all as indicated in the United Nations' objective: "leave no one behind”.

Pillar 3: Upgrading the government's capacity and accountability

First, the sluggish productivity and poor environment for the private sector to thrive remains a problem of poor governance. Historical weaknesses, commercialized public services, localization, fragmentation and lack of public monitoring add to the issue.

Second, the government's performance rests on three supporting mainstays: (a) the government should be well organized, with truly competent and disciplined officials, and real efforts to handle emerging issues to create a more coordinated, vigorous governance system and nurture talents; (b) market principles should be more efficiently applied in economic planning and policy making based on a clear delineation of the public and private sectors, steering away from conflicts of interest, better protecting ownership (especially in relation to land), enforcement of market competition and rationalizing the government's role in the economy; and (c) further increasing accountability through the establishment of effective controls and state of balance among the three prongs of power, creating a common legal framework that champions citizenship. There is a need to safeguard access to reliable and timely information for the public and increase the role of the media.

Third, Vietnam's current legal framework has provided certain space for citizens to get involved in public sector management work. "A government that is of the people, because of the people, and for the people”, "The people know, discuss, do and monitor” are vibrant statements in the Constitution. In real life, however, there is still a gap between these promises and actually how citizens can get involved in governance. How the voting system works and civil society organizations to get involved has not really ensured true representation of the people.

Several key positions and intents of the report have, in concise forms, been included in the socioeconomic mission by 2020 in the National Party Congress' document, Term XII. Meanwhile, the Ministry of Planning and Investment has been taking a close look at these findings and recommendations to update the next 5-year socioeconomic development plan for 2016-2020, which will be submitted to the National Assembly for approval in March 2016.

The recommendations made in Vietnam 2035 are long-term in nature, thus it requires the government to have in place monitoring and evaluation efforts for follow-ups and to make adjustments where needed.

Vietnam is at a crossroad of reform and development. Opportunities and advantages abound, but challenges and obstacles are not significant. To achieve the aspire of a prosperous, innovative, just and democratic Vietnam, our best choice is to take on further reforms guided by the views above. Failure to follow through with such reforms will prevent us from enlisting the opportunities that come our way, nor can we overcome challenges, while we may risk of falling behind even further, or the middle-income trap. We believe that current and future generations of Vietnamese have the will, power and competence to make the reforms we want a success.

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