Boosting digital-driven growth with forward-thinking policies
Vietnam assumes chairmanship of the ASEAN at a pivotal time. Together with its five partners, the alliance successfully completed negotiations on the Regional Comprehensive Economic Partnership in November 2019.
This brings Vietnam into the vital position of steering the ASEAN closer to what is likely the world’s biggest trade agreement, signalling the Southeast Asian union’s deeper integration into the global economy, trade, and investment.
This integration is increasingly critical in these uncertain times, as US-China trade tensions continue to slow down the global economy. The International Monetary Fund slashed GDP growth forecasts for most Asian economies in late 2019, predicting a growth of 5.1% in 2020, the region’s slowest expansion since the 2008 global financial crisis.
Asia remains the world’s fastest-growing region with over two-thirds of all global growth in 2019. The ASEAN, currently the world’s fifth-largest economy with a combined GDP of USD 3 trillion, is gaining ground with its surprising digital growth.
Also, the ASEAN’s internet economy crossed the USD 100 billion mark for the first time, tripling over four years. It is now on track to hit USD 300 billion by 2025 – USD 60 billion more than the previous estimation.
Vietnam is evolving into one of the most digital of all economies in the ASEAN. As the second fastest-growing digital economy in the region after Indonesia, its value is expected to almost quadruple from USD 12 billion today to USD 43 billion in 2025. Investor confidence is rising accordingly.
The country is also the third most-funded economy in the ASEAN after Indonesia and Singapore, raising almost USD 1 billion in digital economy funding since 2015. This growth has been largely driven by e-commerce and fintech, with homegrown marketplaces like Sendo and Tiki, and payments players including VNPAY and Momo.
These developments have given Vietnam confidence to set highly ambitious targets for itself. The national strategy for Industry 4.0 expects the internet economy to contribute 20% to GDP by 2025, while creating jobs and attracting high-quality foreign direct investment.
The National Digital Transformation Plan envisions Vietnam among the top-four digitalised ASEAN economies and among the world’s top 40 in the National Competitiveness Index – both by 2025. These ambitions are important for driving government, business, and consumer transformation.
However, the question is whether or not Vietnam’s dream of becoming a regional and global digital leader can translate into reality. The answer largely depends on whether and how fast Vietnam embraces digital integration into regional and global systems, given that 2025 is not far off.
The Asia Internet Coalition (AIC) commends Vietnam for its active approach in shaping its digital economy, including seeking input into policy making. However, there are several crucial issues that must be reassessed as Vietnam charts its future. A stable and predictable regulatory and policy landscape, in line with international best practices, is needed to enable digital platforms, products, and services to actively contribute to and support the digital economy goals of Vietnam.
This includes promoting cross border data flows, which is the lifeblood of the digital economy, actively promoting innovation via local collaboration with global companies, and having the right frameworks that meet global norms for protecting data privacy and security. Tariff and non-tariff barriers must also be examined, as these could hinder foreign investment and limit opportunities for local businesses.
Vietnam’s Ministry of Industry and Trade recently flagged global trends in trade protectionism and unilateral trade policy as major risks to the multilateral trade system, as well as barriers for developing economies like Vietnam. Likewise, the AIC has observed that Vietnam’s overly prescriptive approach to digital policies thus far, is not so in line with its broader and more liberal economic approach and could pose real harm to its digital economy prospects.
For example, the Vietnamese Law on Cybersecurity’s data localisation provisions raise data privacy and security issues. The lack of implementation guidelines for industry to date in this country has created great uncertainty and a lack of clarity for businesses.
US-based Brookings Institution estimates that data localisation in Vietnam could wipe out the significant economic impact of the digital economy, which by 2020 include 146,000 more jobs, USD 10 billion in business to customer sales, and a USD 5.1 billion increase in GDP from mobile internet. As Vietnam updates other important digital legislation, it should consider how proposed changes could impact innovation, opportunities for local small- and medium-sized enterprises (SMEs) and startups, as well as consumers. These include overly burdensome licensing and registration requirements, local establishment requirements, and overreaching content controls, all barriers to growth.
A recent AIC-commissioned report by The Economist Intelligence Unit finds that data localisation policies such as those in Vietnam, can restrict innovation and growth by limiting economies of scale for global providers and domestic companies, making it harder and more expensive, especially for local SMEs to scale across borders.
If Vietnam aims to produce 10 billion-dollar tech ‘unicorns’ by 2030, then artificially ring-fencing Vietnam’s economy is not the way to go. Local startups must be plugged into global technology platforms and services in order to innovate and scale.
For example, Vietnam’s sole unicorn to date, VNG Corporation, a major e-commerce, gaming, social networking, and digital payment player, is highly promising but has yet to make a regional impact like Grab or Indonesia’s Gojek and Traveloka.
Vietnamese startups have great potential but will be at the losing end in terms of exposure, knowledge, and skills development if global tech leaders find Vietnam too restrictive to invest in, and instead turn towards neighbouring countries with more favourable policy and regulatory environments.
So, why does digital integration matter to Vietnam? According to a Bain & Company report, digital integration will accelerate intra-regional trade and enable SMEs to become regional and global players, potentially stimulating GDP uplift of USD 1 trillion by 2025. To that end, Vietnam should closely watch the landmark Australia-Singapore Digital Economy Agreement for inspiration.
Currently being negotiated, it is expected to cover digital trade rules that regulate cross-border data flows and localisation of computing facilities, as well as areas such as e-payments, fintech, and AI.
It will likely set the standard for similar agreements in the future and should be viewed as a best practice benchmark for Vietnam’s own policies.
Vietnam must focus on digital integration to bridge the digital divide and accelerate both the region’s and its own domestic growth. The hardest hit from poor policy and regulation will be local startups and SMEs who lack dedicated resources to navigate a complex and burdensome regulatory landscape.
The AIC is well-placed and ready to support Vietnam in achieving its ambitions of digital-driven growth. With the right forward-thinking policies, Vietnam’s aspirations to become a respected regional and global digital economy is well within reach.