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|Jeff Paine - Managing director The Asia Internet Coalition|
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 per cent 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 $3 trillion, is gaining ground with its surprising digital growth. Also, the ASEAN’s internet economy crossed the $100 billion mark for the first time, tripling over four years. It is now on track to hit $300 billion by 2025 – $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 $12 billion today to $43 billion in 2025. Investor confidence is rising accordingly. Vietnam is also the third most-funded economy in the ASEAN after Indonesia and Singapore, raising almost $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 per cent 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, $10 billion in business to customer sales, and a $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 $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.
Nguyen Manh Hung - Minister of Information and Communications
In 2019, Vietnam announced a national digital transformation strategy in a move to develop into a digital economy and society. Some fundamental factors were highlighted in the strategy, including legislation, infrastructure, cybersecurity, and education.
The most important thing is the policy is aimed to attract talent, and accept new technologies and business models, while protecting basic human values, and those of Vietnamese culture.
In terms of infrastructure, the priority is to move towards ICT and to be the master of fundamental technologies in digital transformation such as the Internet of Things, big data, and AI.
We need to develop an additional 50,000 ICT businesses nationwide to accelerate this transformation in Vietnam. We will focus on development of various kinds of digital tech enterprises including world-leading technology firms, tech companies with many years of operation experience, and innovative startups.
Nguyen The Trung - Chairman, DTT Group
The platform economy includes transaction platforms such as Amazon, eBay, and Ladaza, and innovation platforms like the App Store and Google Play.
The first has been used for optimising transactions between sellers and buyers, while the latter platforms focus on creating an ecosystem for digital applications.
These two strands of the economy have been impacting many sectors in Vietnam, fuelling the progress of the country’s digital transformation.
The shift also enables Vietnam to integrate further into the global economy.
Despite developing countries seizing a large piece of the platform economy, Vietnam could be able to take its own advantage by learning related experiences, knowledge, and data from other countries and also combining it with the current resources to cultivate a Vietnamese platform economy.
Vu Tu Thanh - Deputy regional managing director US-ASEAN Business Council in Vietnam
Vietnam is not the only nation having trouble with creating a suitable legal framework for the platform economy.
Policymakers of other countries like the United States, Japan, and those in Europe are also researching how to better approach fresh economic models. However, different from Vietnam, their policies are more favourable for the models.
Specifically, instead of finding ways to supervise them, the Singaporean government has been applying the sandbox model that allows the new sectors to operate in a certain period. After the timeline, the authority will assess and offer specific frameworks.
Nobody goes first with fresh models, so we cannot learn experience from other countries in this regard. Hence, it is clear that Vietnam is not left behind in how to behave with new economies, so the country could be able to work with others to reach a scheme for all problems related to the platform economy.
Nguyen Tri Hieu - Economist
To develop a national data centre, the foundation for the platform economy, Vietnam has been solving many problems related to legislation, cybersecurity, and the shortage in skilled ICT human resources.
A good-quality data resource is a base to create competitive advantages for local technology firms in a battlefield with the global tech giants.
Currently, ministries and relevant agencies own many kinds of database such as corporate registries. However, these databases have yet to link to each other, only sharing partial related information.
It is necessary to put all of the data into an open database that plays as a solution for many dilemmas in the private economic sector. An open database allows all people access and use of the source, so it is important to offer mechanisms stipulating the rights and responsibility of the data owners and users.