Vietnam has been a poster child of economic development over the past two decades, rising from the ashes of war to become a global manufacturing hub and lifting millions of its citizens out of abject poverty. However, with a fast-aging population and given the ongoing fracturing of the global trade system, momentous technological disruption and the rising threat of climate change, Vietnam's continued rise is far from certain. The country will need to reinvent its growth model and invest strategically in order to continue along the path from rags-to-riches.
Vietnam hit a historic and much anticipated milestone on October 8, 2025. After years of hope and speculation by Vietnam-watchers, the country is officially on the cusp of graduating from the club of “frontier markets” to play in the “emerging market” big league, alongside Asian behemoths like China, India and Indonesia. FTSE Russell’s announcement that the country was set to be upgraded to emerging market status was cheered by investors, propelling the country’s VNI benchmark stock index to a record high. That the stock market index of a trade-dependent country like Vietnam is up 33 percent (as of October 10, 2025) since the start of the year, in the midst of the global trade dislocations triggered by the U.S. Trump Administration’s tariff war, is remarkable.
The upgrade from frontier market status—a designation that prevents many passive funds from buying shares of locally listed companies—is expected to unlock billions of dollars in foreign portfolio investment as well as boost its IPO market, although it is still subject to an interim review next year.[1] More important though, is the significance of this development in signaling Vietnam’s “arrival” into the mainstream from the “Wild West” fringes of the global equity investing universe. The fact that this landmark announcement coincided with the fiftieth year of the reunification of the country only accentuates its symbolism.
And why shouldn’t there be cause for celebration? In fifty years, Vietnam has gone from being an impoverished, war-ravaged and traumatized nation to a middle-income economy, the most preferred destination for export manufacturing away from China and home to a booming, tech savvy and brand-conscious middleclass. Take a stroll through the bustling streets and tiny alleys of Ho Chi Minh City or Hanoi and you will see a plethora of tastefully designed craft coffee shops packed with legions of young digital workers toiling away on their laptops—software coders, graphic designers, digital marketers, and online sellers all seem to have their hands full. Cocktail bars, upmarket eateries and fashion boutiques are ubiquitous features of the urban landscape, all clear signs of rising prosperity and discretionary spending. Per capita GDP has more than doubled over the last ten years and is now approaching US$5,000 in nominal terms.
The booming Nguyen Hue Pedestrian Street in Ho Chi Minh City is lined with cafes and restaurants. Photo taken by the author.
Like with other East Asian economic development success stories before it, Vietnam has also been steadily climbing the export manufacturing ladder—from exports of footwear, apparel and furniture a couple of decades back, it has become a favored production hub for electronics and capital goods that are shipped around the world. Samsung has invested around US$23 billion in the country and has six manufacturing plants as well as an R&D Center in the country. Vietnam is now one of the world’s largest exporters of mobile handsets as well as flat panel televisions, and electronic products comprise around a third of its total export mix. With an eye on emerging technologies, the country is now also starting to attract meaningful investment in strategically important areas like semiconductor chip manufacturing and even data centers.
The gleaming skyscrapers of Ho Chi Minh City by night are testimony to Vietnam’s rapid economic emergence. Photo taken by the author.
1. Clouds Over Vietnam Becoming Another Asian Miracle Economy
So, is Vietnam destined to continue following in the footsteps of Asia’s miracle economies and become another poster child of the “rags-to-riches” story like South Korea and Taiwan? Not necessarily. Extrapolation of the country’s remarkable historical trajectory of the past three decades several years into the future would be a folly for a few reasons, each of which I delve into below, one by one, in order of importance.
Storm clouds gathering over the Central Business District of Ho Chi Minh City. Photo taken by the author.
1.1 The Dwindling Appeal of Offshored Export Manufacturing
First, the world is witnessing a potent combination of developments that are likely to render the offshored export manufacturing model obsolete over the next ten to fifteen years. Largely as a lagged reaction to globalization-induced blue collar labor dislocations, vast swathes of the rich world are turning protectionist, and raising barriers to manufactured imports from developing Asia. The very types of higher-end products that export juggernauts like Vietnam want to increasingly focus on manufacturing—such as semiconductors, high-end electronics, etc.—are the ones that rich country governments wish to make more of at home to absorb disenfranchised blue-collar workers and lift stagnating wages. Ongoing geopolitical tensions, war and the recent COVID-19 pandemic have also exposed the over-reliance of the West on imports of critical products and provided fresh impetus to Western governments’ efforts to reshore or nearshore higher-end strategic manufacturing so as to reduce exposure to future supply chain shocks, or weaponization of trade by adversary nations.
Combine growing trade protectionism with rising automation on the back of rapid advances in Artificial Intelligence (AI) and Robotics and you can see that the cost arbitrage from producing goods in developing countries for export to the developed world will dwindle over time. Even where export manufacturing does survive in developing countries like Vietnam, it is likely to become less labor intensive over time and, hence, unlikely to hoover up large pools of “surplus” labor from farms and the informal economy and drive productivity growth and broad-based wage growth. A potential future shrinkage of the trade surplus and slowdown in manufacturing employment growth are likely to drag on economic growth, or could even lead to premature deindustrialization in countries which are heavily dependent on export-oriented manufacturing. With an export-to-GDP ratio of nearly 90 percent, and with nearly a third of exports destined for the United States, which has taken a particularly protectionist stance of late, Vietnam is left exposed.
1.2 Joining the “Aged Society” Club
A second reason for caution is demographics. Since embarking on its ambitious doi moi (renovation and restructuring) program of economic liberalization in 1986, Vietnam’s fertility rate has roughly halved to touch 1.91 births per woman which is below replacement level for the third year in a row. When doi moi commenced, nearly 40 percent of the country’s population was under the age of sixteen but, now, children account for less than a fifth of the population. Vietnam is predicted to become an “aged” society— defined as having 14 percent of its population aged 65 or older—by 2034, and a “super-aged” society by 2049, when the proportion exceeds 20 percent. For the sake of comparison, Thailand—a country that is now creaking under the weight of a large and still-ballooning elderly population—became an “aged” society in 2020 at a per capita GDP of USD 7,000.[2] To get to the same level of per capita income by the time it hits the same somber demographic milestone, Vietnam would have to clock a minimum average per capita GDP growth of 5 percent over the period from 2023 to 2034, no mean feat for a trade-exposed nation navigating a turbulent world convulsing from deglobalization and trade fragmentation, and aided only by the flagging tailwinds of a multi-decade demographic dividend still in its sails.
In many developing nations, rising female participation in the workforce helps compensate for aging populations, but with an already sky-high female labor force participation rate of over 70 percent (versus 61 percent for China and only 27 percent for India),[3] Vietnam cannot count on a meaningful rise from current levels to compensate for an aging population and shore up economic growth. According to the International Monetary Fund, the country’s “high female labor force participation rate outstrips the best performers among advanced Western economies . . . and it has also succeeded in maintaining female labor force participation of some 70 percent for more than two decades—a feat unsurpassed even among advanced economies.”[4]
In short, Vietnam has largely used up its demographic dividend both from the perspective of a fast-expanding overall workforce as well as rising female participation in the workforce.
Data Source: Bloomberg, 2018.
1.3 Danger of Falling Into the Middle-income Trap
My third reason for avoiding the folly of linear extrapolation has to do with competitiveness. Vietnam’s rapidly changing export mix over the past two decades in favor of more sophisticated, high value items like smartphones and televisions would appear to indicate that it is following the path already treaded by export manufacturing trailblazers like Japan, Taiwan, South Korea and, more recently, China. But look under the hood and a more nuanced story appears. While Vietnam’s export manufacturing industry has been moving into more sophisticated categories of products, it only plays in the late stages of the value chain for such products. In smartphone manufacturing, Vietnamese factories focus on the final assembly of parts that come in from other countries. In semiconductor chips, Vietnam is primarily focused on assembly, testing and packaging operations rather than fabrication. As a result, Vietnam’s share of total value added in the final product remains rather low and also explains why the country imports almost as much as it exports—components are often imported into the country for assembly while sophisticated capital equipment and machinery needed for higher-end manufacturing also has to be procured from overseas.
China, Taiwan and South Korea all managed to increase their share of export manufacturing value added over time, moving from late-stage assembly to production of precision parts and components. All three countries also invested heavily in R&D and skill development—often supported by aggressive state-sponsored industrial policy—to move up the value chain, developing world-beating pockets of sophisticated manufacturing expertise and intellectual property assets in the process. This transition is yet to play out in Vietnam, although kickstarting it has now become a major priority under the new political leadership of the country. But advanced manufacturing cannot just be achieved with plant and equipment and low-skilled labor—technicians, engineers, and factory managers are critical parts of the ecosystem. While Vietnam’s excellent primary education system has become a model and inspiration for the developing world, the country will need to develop tertiary education centers-of-excellence and vocational training facilities to enable its transition into more sophisticated manufacturing operations. Malaysia might provide a good example of a middle-income country that has managed to develop a high-quality tertiary education system to support its success in high-end manufacturing niches and helped it achieve upper middle-income status. Without this transition, Vietnam risks falling into a middle-income trap and getting old before it gets rich.
1.4 The Double-edged Sword of Vietnam’s Geography
Lastly, climate change poses an outsized threat to Vietnam’s continued rapid rise. Vietnam is not unique in being impacted by rising sea levels and the growing frequency of adverse and extreme weather events—wildfires, typhoons, cyclones, and cloudbursts are fast becoming the norm across the globe. But according to climate scientists, South and Southeast Asia are likely to be among the worst impacted because of a combination of a particularly rapid forecasted rise in average temperatures as well as high levels of population density. The United Nations Economic and Social Commission for Asia and the Pacific has identified Vietnam as one of the eleven countries most vulnerable to climate change from a macroeconomic perspective in the Asia Pacific region, emphasizing that “over 70 % of Vietnam’s population lives in coastal and low-lying delta areas, making them highly exposed to sea-level rise and tropical storms.”[5]
Vietnam’s long Pacific coastline, hugging one of the most important maritime corridors of the world, has been a boon to its emergence as a global manufacturing hub. But it is a double-edged sword as it also exposes the country to one of the most typhoon-prone regions of the world. Typhoons regularly batter the Western Pacific but the frequency and intensity of these weather events is likely to only increase with global warming. Vietnam’s narrow and long geography also means that no part of the country is more than a few hundred kilometers, at best, from the ocean and, therefore, adequately shielded from the impact of typhoons or rising sea levels. While Northern and Central Vietnam bear the brunt of destructive storms, in the Southern region around the Mekong Delta, fertile agricultural land is gradually being encroached upon by the sea; saltwater intrusion can render formerly productive land unfit for cultivation for several years into the future.
The fact that Vietnam is the last country in the Mekong River’s journey from the high plateaus of Tibet to the Pacific Ocean has also been a gift in facilitating its manufacturing rise with a large and efficient network of river barges and small ships connecting its inland manufacturing heartland in the South seamlessly to ocean-going vessels, lowering logistics costs in the process. But being host to the mighty Mekong Delta also makes Vietnam that much more prone to salt-water intrusion. With more dams being built further upstream along the Mekong in China, Myanmar and Laos, the Mekong is likely to slow to a trickle by the time it reaches Vietnam, making it that much easier for the sea to travel further up the delta and inundate the rice basket of the country. Combine this with rising sea levels and it is not hard to imagine catastrophic damage to crop yields in the future while also threatening major industrial and population centers of the country.
Barges ply along the Saigon River, connecting inland river ports to the bustling Cat Lai port as well as sea ports further downstream. Photo taken by the author.
2. Pulling-off a Second Act to Become a Developed Nation
While the above challenges are formidable and could substantially alter Vietnam’s growth trajectory, it isn’t all gloom and doom. To begin with, the country’s current leadership seems to have realized the vulnerabilities of its growth model and looming demographic challenges and seems to be acting accordingly. A new wave of reforms is aimed at making the government’s administrative apparatus leaner and more efficient, improve the business environment—especially for small and medium-sized businesses—and encourage more innovation. The idea is that a more vibrant and innovative home-grown private sector will reduce dependence on foreign-invested low value-added export manufacturing and public spending to drive growth. Aggressive efforts to accelerate digitalization across the economy, supported by the solid existing foundation of high internet and mobile phone penetration, and a sizable pool of software developers, could improve productivity and competitiveness, and also create a more vibrant digital economy to help alleviate a potential slowdown in manufacturing activity. Efforts are also underway to build an international financial center in the country’s commercial capital, Ho Chi Minh City, to create a new growth engine within the services economy while also deepening the country’s own capital markets and improving access to foreign capital.
Upskilling programs are being implemented in partnership with global tech industry titans to help address shortages in engineering talent required for supporting the country’s chip manufacturing ambitions and also to capitalize on new and frontier technologies like AI. Vietnam is also making heavy investments in transportation infrastructure to reduce logistics costs for manufacturers, thereby retaining some degree of cost-competitiveness even as fast-rising factory wages at home and rising automation overseas eat away at Vietnam’s labor cost advantage. Improving infrastructure is also expected to accelerate urbanization, thereby shrinking the still large portion of the population that depends on farming for a livelihood, thereby reducing their exposure to climate change. Efforts are also underway to encourage more high-value added agriculture further inland and up in the highlands to reduce reliance on low value rice farming that is particularly prone to coastal flooding and salt water intrusion.
A newly built bridge across the Saigon River is among several new urban infrastructure projects that are accelerating urbanization. Photo taken by the author.
Last, but not least, the rather belated decision to relax the country’s “two child policy” at least signals an awareness of the looming threat of a fast-aging population although actually reversing the fall in fertility rates has proven to be very difficult in other rapidly aging Asian countries like Thailand, China, Japan and South Korea.
Repositioning the economy away from an outsized reliance on low-end export manufacturing to one that is driven by high-end manufacturing, innovation and services before the dying tailwinds of a multi-decade wave of globalization finally stall—and change direction—is a tall order for any country. Making this transition while battling the headwinds of an aging population and climate change is that much more challenging. Making it a reality requires a bold vision, political will and agility in both strategy and execution. But a country whose national brand has become synonymous with dogged resilience and adaptability, and where the reins of power are held rather firmly by a new leadership that is acutely aware of the looming challenges, has as good a chance as any to pull off a second act in its quest to become a developed nation.
Anirban Lahiri holds a Bachelor of Science in Operations Research from Columbia University, New York, and an MBA from London Business School in the United Kingdom. He was the Head of Research for the joint venture between the leading regional investment banking and securities brokerage arm of CIMB group and VNDIRECT, a leading retail brokerage and investment bank in Vietnam. He also founded the medical education and peer-to-peer networking platform Medisetter and grew it into the largest multichannel digital doctor community in Vietnam, eventually exiting via a strategic sale in 2025. In previous years, Anirban was a Senior Research Manager at Viet Capital Securities, a leading investment bank and securities brokerage house in Vietnam where he oversaw coverage of Vietnamese equities. Prior to this, Anirban was an Associate Director at PENM, the private equity fund management arm of Danish asset management firm, Bankinvest Group. He commenced his career as an investment banking analyst at UBS in New York and has eighteen years of professional experience spanning investing banking, strategy consulting, private equity, and new venture development with a particular focus on developing Asian countries.
[1] Phuong Nguyen and Ankur Banerjee, “Vietnam Shares Hit a Record High After FTSE Flags Upgrade to Emerging Market Status,” Reuters, October 8, 2025, https://www.reuters.com/world/asia-pacific/vietnam-shares-hit-record-high-after-ftse-flags-upgrade-emerging-market-status-2025-10-08/
[2] David Hutt, “Vietnam: Alarm Bells Ring as Birthrate Hits Record Low,” DW, January 21, 2025, https://www.dw.com/en/vietnam-birthrate-hits-record-low-2024/a-71360314
[3] Shuli Ren, “Ladies in Red Make a Bull Case for Vietnam,” Bloomberg, December 26, 2018, https://www.bloomberg.com/opinion/articles/2018-12-25/vietnam-s-big-female-workforce-is-good-news-for-investors
[4] Angana Banerjee et al., “As Women Advance in Asia’s Labor Force, Vietnam is a Standout,” IMF, September, 2018, https://www.imf.org/en/Publications/fandd/issues/2018/09/female-labor-force-participation-in-vietnam-banerji
[5] “Economic and Social Survey of Asia and the Pacific 2025,” launch event presentation United Nations ESCAP, April 8, 2025.
