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Tuesday, 25 August 2020 16:15
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Difficulties and challenges in the development of digital economy in Vietnam

(LLCT) - The Politburo’s resolution No. 52-NQ/TW issued on September 27, 2019 set the goal of digital economy in Vietnam to account for 20% of GDP by 2025 and over 30% of GDP by 2030. To achieve this goal, it is necessary to build and implement an appropriate system of solutions. Based on the research and evaluation of difficulties and challenges in developing the digital economy, this article will provide suggestions to promote the development of digital economy in Vietnam in the coming period.

Keywords: digital economy, Industrial Revolution 4.0, information technology.

1. Digital economy and the digital economy in Vietnam

The digital economy, also known as the internet economy, the new economy, or the web economy, is “an economy operating mainly based on digital technology”, and especially refers to electronic transactions conducted via the internet(1). A digital economy with outstanding economic efficiency and new economic models creates fundamental changes in all economic sectors, from agriculture, industry to services; from production, distribution, and circulation of goods to supporting factors, such as transportation, logistics, finance, and banking. In the digital economy, businesses will gradually transit from the process of traditional production to a connected model of production, trade, and utilization. This will increase productivity as well as labor efficiency, and create economic scale and growth at the same time.

The digital economy is used in fields such as blockchain technology, digital platforms, social media, electronic businesses (e-commerce, traditional industries such as manufacturing or agricultural businesses using supporting digital technology, etc.), businesses involved in software and application development, digital content and media development, related services and training, as well as businesses engaged in the production and development of information technology and communication equipment(2).

Although the concept of the digital economy has been used for a long time, only since the outbreak of the Industrial Revolution 4.0 has the trend of digitalization or digital transformation strongly affected all areas of socio-economy. The economies have been changing on two aspects: (i) Production methods: resources, infrastructure, production, and business operation methods; (ii) Economic structure. In particular, it is remarkable that besides traditional resources, new developing resources such as digital resources and digital assets have been created. Information power is gradually taking over financial power. The strength of a nation is being measured by the development of high technology, information, and human intelligence. The digital economy creates sustainable growth because technology will bring virtue and effective solutions in resource utilization, solving environmental pollution issues. Meanwhile, with the low cost of entry and accessibility, the digital economy will create opportunities for more people in all sectors and regions, thereby contributing to reducing the wealth gap, solving social problems through social mood measurement, and people’s participation in the policy-making process, among other things.  Recognizing that trend, most of the developed economies in the world have come up with digital development strategies, including a focus on research and application of new technologies in production and trade to promote economic growth(3).

Vietnam is one of the countries with the fastest-growing digital economy in the region. The trend of digitalization, transformation, and application of digital technologies in Vietnam is happening rapidly and widely across many fields, from commerce to transport, banking, healthcare, education, tourism, and entertainment, creating important contributions to the country’s economic growth.  Currently, there are about 30,000 businesses making hardware, software, digital content, and information and communication technology (ICT), with total revenue of 91.6 billion USD in 2017, which is 12 times higher than the year 2010 (7.6 billion USD). The total revenue of the software industry, with roughly 10,000 enterprises and a high growth rate of 15-20%/year, reached 3.7 billion USD in 2017. Moreover, there are more than 50 Fintech companies in Vietnam providing electronic deposit and payment services. Meanwhile in digital content business, the online advertising industry achieved 390 million USD in revenue in 2016, and online game revenue was about 500 million USD(4). Vietnamese transport enterprises also launched applications to compete with Grab and Uber, such as FastGo, Be, and VATO. Regarding tourism, there is participation by a series of Vietnamese startups such as Mytour and Luxstay to compete with big companies like Booking, Agoda or Airbnb(5). Every year, there are tens of thousands of innovative startups in the digital field. Many businesses have shown their ability to carry out high-tech projects. From 2018 to the first half of 2019, Vietnam became the third-largest destination for investment in the region, with over 600 million USD. The number of investment deals is decreasing but the value is higher in 2019. Investments in MoMo, Sendo, and Topica from international investors have contributed to making Vietnam a destination for investment(6).

With the rapid growth in revenue and market size, e-commerce is now one of the most important components of the digital economy in Vietnam. Vietnamese e-commerce has grown rapidly both in form and size, becoming one of the world’s top ten most potential markets for e-commerce growth. In 2017, there were 21 start-ups in the field of e-commerce receiving foreign investment with a total investment capital of up to 83 million USD, the highest among all industries receiving foreign investment. The trend of mergers and acquisitions among e-commerce businesses in Vietnam has also grown steadily both in value and number of deals. In 2018, e-commerce in Vietnam grew by 30% with a total retail sale of 8 billion USD. With the strong current growth rate, Vietnam’s e-commerce industry growth is forecasted to be 30-50% per year; the market size could reach from 13 to 15 billion USD in the year 2020.

Vietnam has a fast-developing network of telecommunications infrastructure and information technology. The internet is modern and widely covers the country with high user density. Currently, about 72% of the population uses smartphones; 68% of Vietnamese people watch videos and listen to music every day on mobile devices, and 70% of mobile subscribers are using 3G or 4G. According to the data of Miniwatts Marketing, Vietnam currently ranks 13th in the top 20 countries with the largest population using the internet in the world. In 2018, Vietnam reached 41/100 points, ranked 14th in the ranking of cloud service coverage.

Also, after more than 10 years of implementing the e-government, Vietnam has connected document management systems of ministries, departments, and localities with the Government Office. The innovative and creative start-up ecosystem has begun to form. More than 3,000 start-ups have been established in the past 2 years, along with 40 venture capital funds and angel investor networks.

2. Difficulties and challenges in the development of the digital economy in Vietnam

First of all, the legal and institutional environment for digital economy development in our country is weak, lacking coherence, comprehensiveness, transparency, and constructiveness. Several laws are unable to keep up with the rapid transformation of business models in the digital economy. Due to the fast-moving development of science and technology, digital economy, new business methods, and innovative ideas, the state management agencies have been quite confused in managing digital business activities. For example, there is the issue of managing and collecting taxes from online commerce activities, especially business through social networks and cross-border services; ensuring the rights of workers and consumers through the internet; and handling and resolving disputes and conflicts over activities as well as interests of entities participating in business, commercial and civil activities in a digital environment. Just like in the traditional business environment, if we do not have a good legal environment to resolve disputes and conflicts, then digital businesses will move to a more secure place. Besides, if the management policy is too tight, foreign enterprises with strong financial power, the ability to do business across borders, and un-governed by Vietnam’s policies, can create unequal competition with domestic enterprises.

Second, human resources have not met the requirements of the digital economy. Human resources, especially information technology personnel – the most important factor in the competition and development of the digital economy – are few in quantity and not yet guaranteed in quality. Vietnam is in the shortage of high-quality labor force, especially in the fields of information technology, high-quality communication, and new technology such as artificial intelligence (AI). Vietnam’s education has not kept up with the rapid development trend of the digital economy and the creative economy of the Industrial Revolution 4.0. This issue, if not properly focused in the coming time, will be a great obstacle for the development of the digital economy in the country. Additionally, in the next 15 years, about 50% of jobs in developed countries is projected to be replaced by automation processes; this rate is higher than in developing countries such as Vietnam because the labor force’s added value is low compared to the world average. Therefore, the demand for the training and educating of human resources to meet the requirements of the digital economy has become urgent.

Third, the telecommunications infrastructure is below the requirements. In a digital economy, data is a resource. From data, digitalized models will create optimal personalized services and effectively utilize idle social resources. However, the data system in Vietnam is still scattered, unable to share and interconnect. Therefore, Vietnam faces a big challenge in building a common national database system. Currently a number of ministries, departments and agencies have built their own databases, but the ability to connect them is still limited. Vietnam currently has only 9 dedicated data centers for businesses, far less than neighboring countries like Thailand, Singapore, and Indonesia. This is an important bottleneck to solve since having a good source of input data is a basic foundation to create advantages for domestic technology enterprises, helping them to solve the problem of how Vietnam can compete fairly with multinational public services and technology across the world.

Fourth, the assurance of network security, confidentiality, and information security in our country is still at risk. The digital economy is based on information technology. While the internet poses a great risk for information security, finance, and data privacy of digital economic stakeholders, Vietnam is one of the countries with the most cyber-attacks and is also vulnerable to cyber-attacks. According to the Vietnam Cybersecurity Emergency Response Teams (VNCERT), there were a total of 10,000 cyber-attacks on Vietnam’s internet in 2017, causing a loss of 12,300 billion VND. According to research statistics from Kaspersky Security, Vietnam was in the top 3 most cyber hacked countries in the world in 2018. This shows a huge vulnerability for Vietnam to ensure network and information security. This problem will hinder the goal of making the digital economy one of the main pillars of our economy. In particular, in an increasingly connected world, as digital technology becomes more common, preventing and resolving cyber-attacks becomes an urgent issue because it is not only a matter of security and safety in the economy and information security of individuals and businesses, but also the matter of national security and interests.

3. Solutions to develop the digital economy in Vietnam in the coming time

On September 27, 2019, the Politburo issued Resolution No. 52-NQ/TW, which set the goal for Vietnam’s digital economy to contribute 20% of total GDP by the year 2025 and over 30% by 2030. In order to achieve this goal while limiting the difficulties and challenges for the development of the digital economy in Vietnam, we need to focus on the following solutions:

First, building and perfecting the institutions, policies, and laws to create a favorable environment and space for innovation, entrepreneurship, and digital economic development. In particular, it is necessary to reform administrative procedures and create mechanisms and policies to adjust the operations of organizations, individuals, and businesses that are compatible with the digital economy. It is also needed to develop policies supporting the mobilization of resources, including tax incentives for the software industry, hi-tech parks, and software parks.

Creating a favorable legal corridor for start-up activities, investments and businesses in a digital economy environment; building, encourage, and ensuring a fair and healthy playground for different types of businesses and economic sectors in the startup environment, investment, rights, and tax obligations; reforming and improving the legal system according to the requirements of international integration and development of the digital economy; and complying with international standards in the digital economy environment. While building the legal corridor for digital operations, it is also needed to take into account the development trend and the impact of digital currencies, such as Bitcoin and Libra Coin, or the expansion of the Forex market in economic transactions and virtual financial markets. Furthermore, it is essential to perfect the legal system and strongly reforming administrative procedures related to the digital economy, such as the development of electronic documents or digital signatures.

Develop and implement policies to connect the domestic science and technology community with foreign countries, especially the Vietnamese community abroad. It is necessary to firmly restructure FDI inflows, as well as screen, select and classify the investment structure towards high quality projects and high-tech industries, with long-term commitments to create great added value, orient toward on-the-spot R&D and transfer of advanced technologies to Vietnam.

Second, improve the quality of education and training labor force for the digital economy. The shortage of information technology human resources is considered to be one of the major challenges for the development of Vietnam’s digital economy. Therefore, along with changing the curriculum to keep up with new technology trends, as well as accelerating the socialization of information technology education by allowing students to approach this field early, it is also needed to change educational methods towards increasing self-study and lifelong learning. Besides upgrading and completing the infrastructure, Vietnam needs to focus on investing in science, technology, and education and focus on the importance of education and training innovation as required by the Industrial Revolution 4.0 and the digital economy. This includes developing a strategy for training and attracting national and international technology talents and developing human resources in technology – especially information technology both in quantity and quality – innovating, updating and acquiring global training programs and textbooks associated with the trend of digital economy development, especially the training of labor forces in information technology, financial technology in the digital age, and creating conditions for students at all levels to access the information technology knowledge and core technology areas of Industrial Revolution 4.0. Furthermore, there should be promotion of international cooperation in training, educating, and building a workforce for the digital economy to be capable of protecting, supporting, and promoting the interests of Vietnamese enterprises in the environment of international integration into the global digital economy.

Also, Vietnamese businessmen need to focus on fostering and adapting knowledge to meet the requirements of the digital economy and to integrate into the global market. Having knowledge and ideas about the digital economy is important but having integrated thinking and adapting to the international digital economy market and the Industrial Revolution 4.0 is even more important for the existence and development of either large or small enterprises in dealing with the increasingly fierce international competition through cyberspace.

Third, planning and establishing plans about the development and application of information technology, then promulgating regulations and standards for information exchange among agencies and units to create linkages and synchronism in the process of investment and infrastructure development based on information technology application. Promoting the e-Government Program, including transport and tourism, to accelerate the application of information technology in all fields. Accelerating the digitization work in all departments and sectors including the construction of national data infrastructure; drastically reform administrative procedures related to digitalization, cyberization, and information transparency.  Besides, it is necessary to build electronic payment infrastructure by supporting non-cash payment, the development of e-commerce, electronic contracts, and digital signatures. To facilitate the development of e-commerce, the national electronic payment system, electronic document authentication, and transaction verification platform, management, and monitoring mechanisms to settle disputes and handle violations in e-transactions should be completed soon.

Fourth, concentrating on the protection of economic security, information security, and network security through supervision, prevention, and control of cybercrimes and hi-tech crimes. Focusing on ensuring information and network security, not only at the national level but also at each department and unit at all levels, as well as at every enterprise, especially the financial-monetary system and digitalized government agencies. Along with building and developing a modern telecommunication infrastructure to be a cornerstone of the digital economy, it is necessary to ensure network safety and security to facilitate equal opportunity for citizens and businesses to easily access digital content development. Moreover, ensuring safety and cybersecurity will help Vietnam gain trust from foreign partners as a safe place for business investment. This is also an opportunity for Vietnam to develop products for network security.

There should be proactive exploration and participation in mechanisms and initiatives for international and regional cooperation in the fields related to the development of the digital economy, especially cybersecurity and data confidentiality, privacy, and prevention and fighting against cybercriminals. In this aspect, it is important to promote cooperation and linkages in multilateral institutions at the regional and global level, such as within the United Nations and ASEAN community, to develop common rules of coordination and conduct, as well as agreements and conventions on related issues arising from the development of the digital economy to ensure information and network security.

This study identifies generalizations about the digital economy and digital economy in Vietnam; at the same time, this paper points out difficulties and challenges for the development of the digital economy in our country, and from there, it offers solutions to promote the development of the digital economy in Vietnam in the coming time. This is an urgent issue that needs to utilize resources and create the environment and favorable conditions to promote the development of the digital economy, contribute to creating new content and motivation for the country’s renovation and successfully implementing the process of industrialization and modernization, soon turning our country into an industrialized country towards modernization.

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Endnotes:

(1) What is digital economy?, https://unitrain.edu.vn.

(2), (4) Think Tank Vinasa: Vietnam in the era of digital transformation, The Gioi (The World) Publishers, Hanoi, 2019.

(3) Pham Viet Dzung: “Digital economy - a breakthrough opportunity for Vietnam”, http://www.tapchicongsan.org.vn.

(5) Trong Dat: “Digital transformation and the current situation of digital economy development in Vietnam”, https://vietnamnet.vn/vn.

(6) Duy Anh: “Worth USD 12 billion, Vietnam is a hidden place of startup unicorns”, https://vietnamnet.vn.

Dr. Bui Thanh Tuan

Department of Science, Strategy and History of Public Security,

Ministry of Public Security

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