Chairman’s Note

Private and Confidential
For SIIA Corporate Members and Advisors
March 2025

Vietnam

As we take stock of Vietnam’s political and economic landscape in early 2025, I would like to share some reflections with you as our corporate member and friend. These observations are based on developments that I have heard from the ground, especially from my February trip to Hanoi, supplemented by ongoing analysis.

The To Lam administration has been driving a wave of bureaucratic reform, shaking up the bureaucracy and creating uncertainty. Meanwhile, ambitious economic targets have been set, alongside efforts to balance growth with sustainability. Some industries and areas to watch closely include clean energy, infrastructure, and the evolving role of the private sector. However, infrastructure bottlenecks and execution at the provincial level threaten to impede the goal of double-digit economic growth. I hope this note provides useful insights as you consider Vietnam’s evolving landscape. I kindly ask that you keep these views confidential.

1. After Uncertainty, Consolidation: Vietnam has recently experienced unusual political uncertainty, with five office-holders – two presidents and three deputy prime ministers — stepping down amidst allegations of corruption. Following this, public security minister To Lam was appointed president from May to October 2024, and then, since August 2024, as party general-secretary. He is now consolidating power within the party and key government positions, with a close circle around him.

2. Reforming Bureaucracy: Reform is proceeding at a pace and scale not seen for many years. On 19 February, Vietnam’s National Assembly approved significant changes to the government structure and appointed two new deputy prime ministers. A major government re-organization will lead to one-fifth of civil servants losing their jobs and a reduction of government ministries and agencies from 30 to 22. On top of the on-going anti-corruption campaign, some believe this is politically motivated. There is unhappiness and uncertainty among officials and some established elites because these changes threaten their positions. There is a slowdown and even statis in decision-making.

3. Sprint to Growth: The 2024 growth of 7.1 per cent was higher than expected. But the To Lam administration set still higher targets of 8 per cent and even double-digit growth,to reach upper middle-income status by 2030 and high-income status by 2045. Aims include the promotion of economic development, accelerating the removal of barriers and bottlenecks hindering economic growth and paying attention to the private sector. Strategic thrusts focus on efforts for organisational restructuring, digital and technological transformation, and combating waste and resource mismanagement. There also seems to be an inclination towards the promotion of domestic consumption and development of the agricultural economy to generate sustainable GDP growth.

4. Or Balanced Development? Yet there is also recognition of the need to balance growth with equity and sustainability. It remains to be seen if what balance the administration will strike. One concrete example of the need for balance is the air pollution problem in Hanoi. In Jan 2025, air quality in the city was rated the worst in the world, and this was a shock. The causes are multiple: transport, energy generation from coal-fired plants, and also agricultural waste that is burnt. There is no easy and immediate answer.

5. Clean and green energy: A large gas fired plant — Nhon Trach 3 – is moving towards commercial operation and this will be is less pollutive than coal. The country now given its commitment to exit coal and Decision No. 266/QD-TTg, under the Global Coal-to-Clean Energy Transition Statement to achieve net-zero emissions by 2050. Another piece of good news for renewable energy investors is that Vietnam has achieved around 99 per cent electrification at a relatively low cost. But overall, prospects for greener energy have declined since the end of feed-in tariff support. A number of high profile wind power projects have been stalled, with European companies like Equinor and Orsted exiting. Furthermore, investors are hesitant in entering Vietnam’s offshore wind industry due to the lack of clear policy framework.

6. Infrastructure Lags: On top of bureaucratic slowdowns, there is insufficient reform to pricing and financing. Many infrastructure projects that are being touted are deemed commercially un-bankable. On top of this, Vietnam has been graduated by multilateral banks and no longer receives concessionary financing. Domestic funding is possible because the government has been disciplined to rein in deficits, and the state allocates some 6 per cent of GDP to infrastructure. But it is in a catch-up mode, and needs to attract more private sector financing moving forward.

7. Implementation at the Provinces: While the central government makes policies, much will depend on provincial level decisions to implement projects. There are currently 57 provinces and many do not have capacity and there are often overlapping development plans. A recent directive from the Party aims to eliminate intermediary administrative levels and potentially merge some provinces by 2025.

8. New Private Sector Actors: Recently, there is more recognition of the contribution of Vietnam’s private sector. Prime Minister Pham Minh Chinh publicly promised to improve the business environment and address bottlenecks. There have also been calls for the private sector to support large-scale infrastructure projects in major cities and stimulate growth. Some see this as a new perspective, when entrepreneurs were once stigmatized as “exploiters”, and suggest the government will identify champions, akin to the chaebols in South Korea.

9. Structural Reforms, Doi Moi II: There is increasing recognition of the need for more structural reform to speed up implementation and fill gaps in areas like finance and infrastructure, particularly in transportation. Under the To Lam administration, Vietnam pivots towards high-tech development, massive infrastructure projects and institutional reforms. However, the goals set by the current leadership remain ambitious and the changes being made are much deeper than anything since Doi Moi started.

General Secretary To Lam will soon visit Singapore, with both countries aiming to upgrade bilateral ties to a Comprehensive Strategic Partnership and fostering deeper cooperation.

As the country undergoes significant changes, ranging from political consolidation through bureaucratic reform to ambitious growth targets, the impact on the business and broader regional landscape will continue to unfold. If there are insights and perspectives you might wish to share, please let us know.

Yours sincerely,

Simon Tay
Chairman