FEATURED | Vietnam : Global Megatrends & External Risks-cum-Opportunities

Vietnam’s location on the easternmost edge of the Indochinese peninsula makes it a vital link between East, Southeast, and South Asia. The physical connection to these Asian regions and the maritime connections to the rest of the world have shaped Vietnam’s history and will remain crucial for its future.

 By The World Bank 
& Ministry of Planning and Investment of Vietnam

FEATURED | Vietnam : Global Megatrends & External Risks-cum-Opportunities

Image Attribute: Ho Chi Minh City, Vietnam. Source: Peter Nguyen's flickr photostream, 
used under a creative commons license

Vietnam’s location on the easternmost edge of the Indochinese peninsula makes it a vital link between East, Southeast, and South Asia. The physical connection to these Asian regions and the maritime connections to the rest of the world have shaped Vietnam’s history and will remain crucial for its future. But geography very likely will not be destiny in the same way that it was in the past. After all, the hyper-connectivity of the modern world (which Vietnam has signed on to) overcomes many of the binds of geography. Moreover, future opportunities and risks are projected to be largely supra-regional. That will require geopolitical and economic outreach well beyond the neighborhood. Four global megatrends will be important for Vietnam to consider in the next two decades:[1] geopolitical, economic, technological, and climatic.

Geopolitical Megatrends

The current shift in the world’s economic and geopolitical axis from west to east and from north to south will define the coming decades. The rise of China is particularly significant. The geopolitical shifts will, however, be even more complex. Other regional powers—including developed economies such as Japan and the Republic of Korea, and emerging powers such as Brazil, India, Mexico, the Russian Federation, and Turkey—are also likely to try to expand their own spheres of influence.

The emergence of a multi-polar world order would give rise to multiple possibilities, among them more such collaborations as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank of the BRICS states (Brazil, Russia, India, China, and South Africa). There could also be tensions or even conflicts among the rising powers, or among rising and existing powers.

Cooperative relations with a rising China will remain essential. Vietnam is one of the signatories to and founding members of the AIIB. Its infrastructure financing needs over the next several decades will run into tens of billions of dollars a year. With most bilateral partners reducing their presence in Vietnam, the AIIB could cover some of the emerging financing gap.

Of the geopolitical risks particularly relevant for Vietnam are maritime issues with China that go beyond just territorial concerns. The maritime waters have considerable economic and strategic value, containing a wealth of fish stocks and energy and mineral reserves. They are also critical for shipping and communications. With the Middle East in turmoil, the geopolitics of energy will also have implications for Vietnam both as a producer and exporter of crude oil and as a rapidly growing consumer of petroleum products.

In the midst of this fast-evolving world order, Vietnam will need to continue building its alliances judiciously with a clear eye on its long-term economic and political interests.

Global Economic Megatrends

The global economy is projected to grow at an average of 3.2 percent annually between 2015 and 2035, with continuing expansion in trade integration, urbanization, and technological advances the main drivers. The rise of China, India, and members of the Association of Southeast Asian Nations (ASEAN) matched by the (relative) decline of the United States, Europe, and Japan would be the most apparent shift in the global economic structure in coming decades.[2] China clearly is the biggest part of this story. In this report’s projections, it would overtake the United States as the world’s largest economy (in market prices) around 2032. It has been the world’s largest exporter since 2009, and the second-largest importer of goods. It is set to become an important source of investment financing for emerging economies, particularly regionally.

Trade with China already accounts for 20 percent of Vietnam’s total, up from 10 percent in 2000. The significant flow of foreign direct investment coming into Vietnam is linked, in part, to a shift in low-wage production from China. As real wages in China continue their sharp rise, many of its production bases will continue to look southward in search of lower wages—the “China+1 strategy.” Vietnam’s proximity to southern China, home to many of these production networks, gives it a meaningful competitive edge. Producers can benefit from its low wages and from being part of the Chinese supply chains at the same time—a highly attractive combination. The agglomeration of a nascent electronics-industrial cluster in the north-central parts of Vietnam (around Hanoi) is an early sign of these possibilities. Moreover, with a rapidly emerging middle class, the Chinese consumer market (the world’s fastest growing) will be increasingly attractive for Vietnamese producers.

Growth prospects in East Asia will also be underpinned by the ongoing shift toward multilateral (often regional) trade agreements. The ASEAN integration—starting with the ASEAN Economic Community that became a functioning trading bloc in 2016—can bring considerable economic benefits. Estimates for Vietnam range from a 1 to 3 percent cumulative increase in national income.[3] Even so, ASEAN integration is seen in Vietnam as a stepping stone for locking in even more promising partnerships beyond the region.[4] Especially noteworthy is the TPP. Also significant are the Free Trade Area of the Asia-Pacific and the Regional Comprehensive Economic Partnership, each in less advanced negotiations than the TPP.

The TPP agreement includes the world’s largest and third-largest economies (the United States and Japan), with TPP countries accounting for 36 percent of world GDP and more than a quarter of all world trade. Vietnam is well positioned to benefit. According to this report’s analysis, implementing the TPP could add a cumulative 8 percent to Vietnam’s GDP by 2035. Others have estimated double-digit gains for Vietnam, many times larger than for any other TPP country.[5] Vietnam could also usefully leverage commitments under the TPP to lock in policy reforms that might otherwise be politically harder to carry out.

Top-down multilateral trade integration is likely to be complemented by important subregional collaborations, including that within the Greater Mekong Subregion. Dwindling and increasingly unpredictable water supplies along with a rising demand for water and energy will require greater regional cooperation for energy and water security.

New Technological and Business Megatrends[6]

Technological innovations, fueled and supported by the information revolution, will disrupt production and trading patterns across the world. Advances in digital technologies ranging from three dimensional (3D) printing, programmable micro-controllers, and second-generation computer numerical control milling and routing make it easier and less expensive to manufacture customized high-quality products. Major advances in renewable energy (particularly solar) are posing a growing challenge to conventional and usually environmentally more damaging energy sources. Next-generation genome sequencing and other advances in the bio-medical field are set to open a trillion-dollar industry in the next decade, enhancing and extending human life. Advanced robots are being deployed on shop floors at an exponential rate, boosting productivity and driving costs down.

The information revolution is also enabling major disruptive innovations in business models. The Internet eradicates many of the information advantages of co-location and cost-sharing. Raw materials and other inputs to various degrees of pre-processing are available for sourcing on the Internet. Online platforms such as Alibaba .com, Etsy, and Maker’s Row make it possible for manufacturers to search for customers without having to spend a lot on advertising and distribution. Crowdfunding sites such as Indiegogo and Kickstarter can aid in attracting finance.

For the most part, these trends bring upside opportunities. But some unintended consequences have to be managed. Skill-intensive and labor-efficient technology is set to eliminate the more routine middle-income vocations while complementing highly skilled and thus higher-income jobs. Already, new technologies have displaced handicraft producers in numerous industries ranging from textiles to metalworking. The progress of technology may also increase inequality in society, as those leveraging technology gain higher incomes. The gap between labor productivity and wages may also widen. Some even raise the specter of premature de-industrialization in the developing world, partly because of automation.[7]

Vietnam, with its well-deserved reputation as a dynamic and adaptable economy, can view these disruptive innovations with optimism. But to maximize the benefits, long-term investments will have to upgrade the technical skill sets of the next generation, and the domestic business environment will have to be the focus. Some technologies will have associated risks that require careful management.

Global Climate Change

Climate change is among the most consequential global issues. Greenhouse gas emissions are on a path to a 3.5– 4.0 degrees Celsius (°C) warmer planet by the end of the century. Climatic conditions, heat, and other weather extremes considered highly unusual or unprecedented today could become the new normal. The impact of global climate change is already being felt, with the number of category 4 and 5 storms having risen sharply over the past 35 years. The Arctic Sea’s ice has shrunk to its lowest on record, and global sea levels have risen about 10–20 centimeters (cm) in the past century, with an accelerating rate of shrinking. Rising sea levels increase the risk of storm surges and the fluctuations in precipitation.

Vietnam has been ranked among the five countries likely to be most affected by climate change. A high proportion of its population and economic assets are in coastal lowlands and deltas. Temperature increases in Vietnam have averaged about 0.26°C per decade since 1971,[8] twice the global average.[9] On current trends, annual average temperatures will (depending on the location) be 0.6–1.2°C higher by 2040 relative to 1980–99.[10] The predictions show intensified heat and cold waves, and 28–33 centimeter increases in sea level around Vietnam’s shores.[11] Seasonal variability in precipitation is also projected to increase, with the wet season getting wetter and the dry season drier. Extreme rainfall and flooding would also become more likely, particularly in the northern region, including Hanoi, with increased risk of landslides in mountainous areas. A southward shift has been seen in the typhoon trajectory in the past five decades. If this continues, Ho Chi Minh City would be at greater risk of being directly hit. Coastal erosion and salinity intrusion are other unfolding risks likely to accelerate.

Agriculture, particularly rice production, is projected to be hit hard, most severely around the Mekong Delta, where much of the land area is less than 2 meters above sea level.[12] Climate change could reduce annual rice production by 3–9 million tons by 2050, and highly productive areas of coffee plantations may become unsuitable for the purpose.[13] The marine ecosystems in Vietnam are also likely to be severely affected. And climate change impacts are also likely to have adverse health consequences, including waterand vector-borne diseases and diarrheal illnesses.[14] Flooding would compound the risks. The poor and elderly would be especially vulnerable to heat extremes, compounded by the rapid increase in Vietnam’s elderly population.


[1]. The discussion on the four global megatrends draws on Centennial Asia Advisors (2015).
[2]. The three Asian economies are projected to contribute more than 40 percent of the increase in global GDP between 2014 and 2035, with their collective share in world GDP rising from 22 percent in 2014 to 29 percent in 2035.
[3]. ERIA 2012 and Thanh 2015.
[4]. Thanh 2015.
[5] Petri and Plummer 2014.
[6] This subsection draws on Centennial Asia Advisors (2015).
[7]. Rodrik 2015.
[8] Nguyen, Renwick, and McGregor 2013.
[9]. Intergovernmental Panel on Climate Change (IPCC) 2007 report, available from the General Statistics Office of Vietnam.
[10]. MONRE 2012.
[11]. These projections do not take into account land subsidence, which further exacerbates the impacts of sea-level rise.
[12]. Wassmann et al. 2009.
[13]. Bunn et al. 2015.
[14]. Coker et al. 2011.

Cite This Article:

“World Bank; Ministry of Planning and Investment of Vietnam. 2016. Vietnam 2035 : Toward Prosperity, Creativity, Equity, and Democracy. Washington, DC: World Bank. Page 7-11, © World Bank. https://openknowledge.worldbank.org/handle/10986/23724 License: CC BY 3.0 IGO.”

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IndraStra Global: FEATURED | Vietnam : Global Megatrends & External Risks-cum-Opportunities
FEATURED | Vietnam : Global Megatrends & External Risks-cum-Opportunities
Vietnam’s location on the easternmost edge of the Indochinese peninsula makes it a vital link between East, Southeast, and South Asia. The physical connection to these Asian regions and the maritime connections to the rest of the world have shaped Vietnam’s history and will remain crucial for its future.
IndraStra Global
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