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Vietnam Today

Making a digital future happen

Released at: 07:56, 29/04/2019

Making a digital future happen

Photo: Viet Tuan

Vietnam needs to prepare for the vital changes required in creating a digital economy.

by Khanh Chi & Nghi Do

Vietnam is working towards becoming one of the world’s top 10 largest software and digital content outsourcing countries, with about 1 million employees in the IT field by 2020, Permanent Deputy Minister of Foreign Affairs Bui Thanh Son told the “ASEAN 4.0: Entrepreneurship in the Fourth Industrial Revolution” seminar held in Hanoi last year. Indeed, a recent study by Amazon Web Services (AWS) found that the country is recording among the highest increases in expenditure on cloud computing in the world, at 64 per cent. Its immense potential in IT and cloud computing and wide smartphone coverage serve as key drivers in it materializing its dream of successfully developing its digital economy.

Digitized perspective

The digital economy has been defined as a core pillar for economic growth, creating breakthroughs for each country as the world enters Industry 4.0, according to Deputy Minister of Industry and Trade Cao Quoc Hung. Many technological solutions have been built in all sectors and brought huge new benefits. Vietnam has existing advantages to build an ecosystem for developing its digital economy, based on the internet and supporting platforms including non-cash business transactions, public services, and relevant policies (e-government, smart cities, etc.). 

Sixty-seven per cent of Vietnam’s population have internet access, putting it among the world’s largest internet users, according to figures from the Ministry of Industry and Trade (MoIT), with 70 per cent of mobile subscribers using 3G and 4G networks and each person owning on average 1.7 smartphones. The scale of the digital economy is estimated to reach $9 billion in 2018, or 4 per cent of GDP, having tripled from $3 billion in 2015. It’s projected to grow to $15 billion by 2021 and $33 billion by 2025. 

Mr. Dang Thanh Son, Partner at Baker & McKenzie Vietnam, told VET that Vietnam’s internet penetration rate, together with its spending potential and its young, aware population, demonstrate that the country is already equipped with promising building blocks to build a thriving digital economy. Traditional economy and digital economy were once two terms that were mutually exclusive. However, Vietnam is well aware that digital transformation is now no longer a choice but a “must”. The country shows the potential to boast an economy that seamlessly intertwines the traditional economy and digital economy. 

The accelerated growth of Vietnam’s digital economy ranks only third behind Indonesia and Thailand in Southeast Asia. “The prospects are clearly high for Vietnamese people and Vietnamese businesses,” said Mr. Denis Brunetti, President of Ericsson Vietnam, Myanmar, Cambodia & Laos. “The government will focus on eliminating cash, replacing it with digital transactions (e-commerce, mobile payments) within the coming years, and this is a very good vision and strategy. Vietnam has truly embraced the digital economy, and this will help the country leapfrog further stages of socioeconomic development in the years to come.”

When sharing a 2018 report reviewing current policies on data management and impacts on the economic growth and the development of small and medium-sized enterprises (SMEs) in five Asian economies, including Vietnam, Ms. Lim May-Ann, Executive Director of the Asia Cloud Computing Association (ACCA), said digital transformation is a combination of positive market trends being enhanced by government policy, rather than a sudden revolution. 

In many economies, she went on, rapid evolution into a digital economy is from the ground-up rather than top-down. In Vietnam, this is happening as well, but it is not an even distribution of digital development - the market is allowing many young people in cities to work on digitizing the economy. However, the challenge for government policies is that they must catch up to allow for digital inclusion, to allow all Vietnamese people to participate in the digital economy.

Incredible changes

Vietnam is currently witnessing digital transformation occurring across all sectors, ranging from trade and payments to healthcare, education, transport and tourism, at an impressive pace, according to Mr. Son from Baker & McKenzie. Vietnam’s transportation, e-commerce, online marketing, and online travel industries have digitalization either well underway or businesses already successfully operating off digital platforms.

Digitalization increases the visibility of the industry or business, enables it to better connect with customers, and improves efficiency and productivity. This not only leads to enhanced customer services and loyal relationships between business and customer, but also increased sales. Digitalization encourages further innovation by getting the industry or business more aware of trends and possibilities offered by technologies. At this pace, Mr. Son said, a $33-billion digital economy by 2025 is perfectly feasible.

Another area in Vietnam that has been attracting a lot of attention in recent years is its burgeoning fintech market. More than 40 new fintech companies have been launched in the country in the past five years given the country’s rising middle class and growing mobile and internet penetration rates. Its fintech market is forecast to reach $7.8 billion by 2020. While digital payment solutions account for most of the market, personal finance and corporate finance services are expected to increase greatly in number in the years to come.

The first industry to take advantage of digitalization was information, communications and telecommunications (ICT), in 1993, according to Mr. Brunetti. This industry’s digitalization transformed Vietnam by connecting everyone in the country with each other and with the outside world, driving a socioeconomic miracle that saw the poverty rate fall from 53 per cent in 1993 to less than 3 per cent in 2018, while also generating a sustained and increasingly inclusive average GDP growth rate of more than 6 per cent per annum in the same period. Vietnam has also become a middle-income economy since the advent of digital mobile telecoms, and an increasing number of economic sectors contribute to Vietnam’s GDP today.

Looking forward, he said, the future of ICT is to digitally transform all other industries, such as manufacturing, adopting digital technologies such as cloud robotics, edge computing, machine learning, artificial intelligence (AI), big data analytics, automation, virtual reality, and augmented reality. These digital technologies will make industries such as manufacturing “smarter” and more efficient, increasing workplace productivity growth and the country’s competitiveness on the international stage. Smart agriculture, intelligent transport, e-health, and e-education, among others, will also benefit from industry digitalization, creating “smart cities” or “smart nations” driven by 4G and 5G IoT capabilities. 

Retail, transportation, and services will benefit the most from digitalization, according to Mr. Trinh Duy Hoang, Market Analyst Manager at Vietanalytics, a local market researcher. These industries are estimated to expand in scale and growth speed in domestic and overseas markets in the near future, especially in IT-based services, which will record exponential growth. Digitalization in transportation would help reduce operation costs and bolster productivity.

Meanwhile, Ms. Natasha Beschorner, Senior ICT Policy Specialist at the World Bank’s Global ICT Department, noted that the digital economy must integrate the digital services of both the government and businesses, especially as cash is still the most common and credible means of payment in Vietnam.

Navigating challenges

As with many other countries, Vietnam is riddled with challenges, such as upskilling its workforce, adapting to rapidly-changing technologies, and keeping regulations up to speed in regard to technology. In respect to the last challenge, Mr. Son noted that Vietnam has been issuing policies to foster its digital economy but often such policies and relevant authorities are inconsistent or overlap with one another, and as a result lack a sense of direction. 

He recommended Vietnam continue to make efforts to rid itself of regulatory red tape to lessen unnecessary burdens on investors, both foreign and domestic alike, by adopting “regulatory sandbox approaches” for new businesses and startups. With that in mind, ensuring consistency in upcoming policies and enhancing transparency in the implementation and enforcement of regulations would make Vietnam’s path towards the digital economy it envisions smoother and more efficient.

Developing a digital economy is not a task for Vietnam only, said Mr. Dang Hoang Hai, General Director of MoIT’s Vietnam eCommerce and Digital Economy Agency (iDEA). As it has been moving so fast and has had enormous impact, many countries have started to draw up strategies for the development of the digital economy after never considering it previously, he explained.

However, he argued, though the country has issued policies to facilitate the development of the digital economy, they are separate and disconnected. “There is a lack of direction and national strategy on this matter,” he believes. “Our job is to connect these policies in a way that creates a big picture for the growth of the digital economy in Vietnam.” 

Meanwhile, according to Mr. Brunetti, the main challenge is ensuring that 4G networks continue to expand rapidly in 2019 and 2020 while accelerating the launch of secure and trusted 5G IoT networks in 2020 and onwards. 5G ought to be considered strategic critical national infrastructure, particularly since it will connect to and impact every industry and every aspect of business and social lives. Hence, it’s imperative to ensure Vietnamese operators work with trusted partners in accelerating the deployment and availability of 5G IoT networks since this is the key enabling platform for Industry 4.0 and industry digitalization.

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