Digital Economy: Vietnam’s Path to Future

The COVID-19 crisis has accelerated the digital transformation of the Vietnamese economy as more businesses in Vietnam are providing online services. The government is also stepping up the digitization of procedures and databases.

Key objective in socio-economic development strategy

Digital technology is the future of Vietnam's economy. Over the past year, the value of some local high-tech companies surged by around 200% on the Ho Chi Minh City Stock Exchange, including Digital World Joint Stock Company (Digiworld) - a provider of market development services, and Vien Lien - a telecommunications equipment firm, which soared 252.1% and 189.4%, respectively.

As the world is trying to recover from the COVID-19 crisis, it has become clear that digital transformation will play an increasingly important role in the global economy. Countries are already competing globally for digital supremacy, and the Vietnamese government has clearly indicated it wants to be in the race by making digital transformation one of the central objectives of its 2021-2030 National Socio-economic Development Strategy.

According to the World Bank's report "Digital Vietnam - The Path to Tomorrow", Vietnam is in a good but uneven position to become a digital powerhouse of the world. A comparison with a selected sample of structural and aspirational peers highlights Vietnam’s strengths and weaknesses. Today, the country is one of the most connected countries in the world, especially for its income level, with high mobile and internet penetration rates and an increasing use of information technology (IT) tools and platforms by businesses. It also hosts several of the world's leading IT corporations. However, Vietnam is lagging in several dimensions - skills, financing, conducive regulatory environment, including access to data and security - that will prevent it from making the most of the rapid digital transformation.

Encouraging digital application and investment

The World Bank believed that, to benefit substantially from the digital transformation of its economy, the Government of Vietnam will need to take several actions. Beyond upgrading infrastructure, it must encourage technology adoption and attract investments to enable small business participation in the digital economy, and facilitate skills acquisition and upgrading, data privacy, and cybersecurity. If these challenges are not addressed with urgency by Vietnamese policymakers, there is a risk that the digital dividends will not be as large as expected and, above all, will be distributed unequally, leading to potential economic, social, and political tensions.

To address this matter, according to the World Bank, the first action Vietnam needs to take is enhancing digital skills. Workers will need the right skills to take advantage of digitalization, and an uneven distribution of skills can increase inequality. The stock of qualified workers in Vietnam’s labor force is low, and the number of students registering in relevant postsecondary programs is insufficient to fill the gap. At the current pace, it will take 25 years for Vietnam to catch up with Thailand. Many businesses report increasing difficulty finding and retaining good data analysts, programmers, and modelers. Given the rapid pace of change and uncertainty about what future jobs will require, collaboration between the government and private sector could help identify and anticipate what skills are most in demand. Five complementary options could be considered by Vietnam: nurturing its young digital talents through a large-scale scholarship program to prepare students at various stages of their career for the digital age (as in Indonesia); developing programs that combine skill development for the digital economy, with financing and mentorship for digital entrepreneurs (as in Singapore); introducing technology from the early stages of education (as in the Netherlands); attracting talent from its diaspora engaged in digital sectors around the world (as in the Philippines and France); and encouraging the development of workers’ soft skills, such as critical thinking and problem solving, communication, teamwork, creativity, and management (including by training teachers in these areas and revising curricula).

Besides, Vietnam needs to nurture innovative capacity. To remain competitive, continuous innovation is imperative. The short application cycle for information and communication technology (ICT) means it can be invented, tested, and applied much more quickly than other technologies, such as those in the medical field. For the same reason, ICT can quickly become obsolete. Today, most of the support provided by the government is directed at supporting research and development efforts rather than facilitating diffusion, adoption, and adaptation of new technologies by businesses. To rebalance this policy, the government could reduce barriers to entry, especially for companies with high-technology capacity, including through the implementation of recently adopted regional trade agreements, and following the steps of countries such as Australia, Denmark, Germany, Ireland, Japan, and Portugal; enhance competition policy and implementation (Australia, Germany, and South Korea); and promote startups and small firms in the digital sector with targeted support to facilitate access to financing, information, and skill development.

Notably, Vietnam needs to promote information access, quality, and security. Vietnam currently performs poorly in terms of access to government information and the content of information provided by the government. Moreover, data portability and interoperability are limited, even after the launch of the government’s internal data portal in mid-2020. As it finalizes a draft Decree on Personal Data Protection, the government needs to strike a balance among data management, privacy protection, and facilitation of digital data flows, and learn from other countries in the region that are gradually moving from reduced data protectionism to increased data privacy (as in other ASEAN economies, including Singapore).

For example, the use of State resources for training programs does not match the needs of the market. Governments can also protect businesses from undue competition, limiting their future growth. In principle, government solutions should be developed and implemented in close cooperation with the private sector and with maximum transparency to avoid being exploited by public or private actors.

Vietnam will need to fix the above matters to set the country on the path to achieve its ambitious digital economy goals. However, according to Dr. Jacques Morisset, World Bank Lead Economist and Program Leader for Vietnam, it will be important to avoid new government failures, as well-intended but misguided government interventions could exacerbate rather than address initial market distortions. For example, the use of government resources for training programs does not match market needs. The Government can also protect businesses from undue competition, limiting their future growth. As a principle, the Government’s interventions must be designed and implemented in close collaboration with the private sector and with maximum transparency to avoid their capture by either vested public or private interests.

By Quynh Anh, Vietnam Business Forum