Its digital economy contributed some 16.5 per cent to Vietnam’s GDP last year, boasting annual growth in excess of 20 per cent. It is anticipated that Vietnam will emerge as the leading ASEAN country in digital economy growth by 2025. The pivotal challenge for the country lies in how to effectively harness this forthcoming wave to yield optimal value and efficiency.

In a recent report presented at the 2024 Vietnam - Asia DX Summit, Mr. Tran Minh Tuan, Director of the Department of Digital Economy and Digital Society at the Ministry of Information and Communications (MoIC), highlighted the widespread economic slowdown resulting in many countries experiencing their lowest growth rates in recent memory. Nevertheless, data from the 2018-2022 period for numerous prominent countries reveals a striking discrepancy between growth in the digital economy and growth in the overall economy, in the former’s favor. Even countries with the highest per capita GDP now view the digital economy as a key growth engine, with growth rates two to three-times higher than those of the overall economy.

For example, in the US, average GDP growth over the past five years stands at 1.9 per cent, while its digital economy grew by an average of 6.3 per cent. The digital economy has made a substantial contribution to the overall economy, primarily driven by online services like e-commerce, digital content, and cloud computing, which constitute 40-50 per cent of the digital economy.

In China, digital technology is increasingly pivotal in enhancing workplace productivity across the industrial and agricultural sectors. Its digital economy currently accounts for 24 per cent of productivity growth in the industrial sector and 10.5 per cent in agriculture. Over half of all countries and territories worldwide, both major and minor, have now introduced strategies for digital transformation and sectoral digitization, with more than ten, including Vietnam, unveiling strategies for digital and social development.

Emergence of the digital economy

Mr. Tuan said that under the National Strategy for Developing a Digital Economy and Digital Society by 2025, with an Orientation to 2030, issued in 2022, the landscape of Vietnam’s digital economy has been taking shape for more than two years. Key points in its digital economy include the scale being primarily contributed to by products and services in information technology (IT), which account for up to 60 per cent of its digital economy, revenue in the IT industry in 2023 reaching $138.5 billion, with over 45,500 digital technology enterprises, and revenue from foreign markets earned by over 1,400 Vietnamese IT enterprises coming in at $7.5 billion..

The contribution of the digital economy to new sectors accounts for only 40 per cent of the digital economy as a whole, with the main contribution being in longer-standing sectors such as e-commerce, digital content, and banking and finance. In developed countries, the average scale of the IT digital economy is growing at only 7-8 per cent each year, while Vietnam has recorded 10 per cent a year. Mr. Tuan, however, believes that in order to achieve the goal of Vietnam’s digital economy accounting for 30 per cent of GDP by 2030, growth in its digital economy must reach about 20 per cent annually. According to calculations by the MoIC, its digital economy contributed 12 per cent to GDP in 2020 and by 2023 was contributing 16.5 per cent, with growth in the order of 20 per cent a year.

Ms. Dao Phuong Lan, Investment Director, South East Asia Market, and Chief Representative of the Hanoi Representative Office at Temasek International Pte. Ltd, highlighted the significant advancements in the digital economy across Southeast Asia in recent years. Of particular note is Vietnam’s consistent position as the fastest-growing digital economy in the region for two consecutive years, in 2022 and 2023. Temasek International’s research shows that key sectors such as e-commerce, transportation, food, online tourism, online media, and digital financial services play pivotal roles in propelling digital economic development.

She emphasized the ongoing shift from offline to online financial services, a transformation deemed to be irreversible, which will continue to drive Vietnam’s digital economic growth. Its digital payment adoption rate is also among the fastest-growing in Southeast Asia, with a projected steady increase of around 13 per cent from 2023 to 2025 following approximately 19 per cent from 2022 to 2023.

Mr. Tuan underscored the government’s directive in 2024 to focus comprehensively on four key pillars to sustain the prominence of the digital economy. These pillars include the information communications and technology (ICT) industry, digitization across economic sectors, digital management, and digital data. Acknowledging data as a fundamental production factor for all economic activities, the IT industry is poised to drive the digitization of all economic sectors, while digital management strategies aim to enhance online public services and streamline administrative processes through data-driven decision-making and the implementation of virtual assistants for civil servants.

Shortcomings and new approaches

Despite the strides forward being seen in Vietnam’s digital economy, there remain obstacles and also opportunities for innovation.

Firstly, while nationwide digital transformation is crucial, the absence of groundbreaking projects curbs the momentum needed to spur digital economic growth.

Secondly, limited data sharing and openness hinder practicality, failing to unlock substantial value. Without robust data, digital transformation and management are unattainable.

Thirdly, the sluggish rollout of national digital platforms impedes access to accurate, comprehensive, and clean shared data, which are crucial for progress.

Fourthly, as AI becomes more widely adopted and cost-effective, it presents both opportunities and challenges for workplace productivity and cost reductions in the digital economy.

Lastly, some leaders at ministries, departments, and localities are yet to prioritize digital economic development, which underscores the need for enhanced resource allocation and commitment to drive progress forward.

To overcome the existing limitations and challenges, the Department of Digital Economy and Digital Society has introduced four novel approaches.

The initial strategy involves constructing digital transformation infrastructure, organized into three tiers: the foundational level, encompassing telecommunications, the internet, and digital infrastructure, guaranteeing expansive bandwidth, superior quality, and a progression towards eco-friendly, secure, and intelligent standards.

Positioned within the core of digital transformation infrastructure are national digital platforms, analogous to vital transport infrastructure like roads and railways, serving collective welfare and ensuring seamless economic operation. These national digital platform clusters are bifurcated into two categories: the fundamental core national digital platforms and sector-specific national digital platforms, both overseen by governmental bodies. According to Mr. Tuan, digital platforms designated for digital transformation must exhibit openness, employing open standards to facilitate diverse application development across various technologies and providers. These platforms must also operate on a nationwide scale. Examples of infrastructural digital platforms encompass citizen identification and electronic authentication platforms, electronic news platforms, and other data-sharing platforms.

At the apex of the strategy lies the application layer. Vietnam’s digital platforms are prioritized to address specific challenges and bottlenecks within individual industries and sectors. Moreover, data derived from these platforms within each domain should contribute to the national pool of shared data. Establishing data integrity and devising scenarios for effective data utilization to tackle industry-specific challenges are pivotal for driving progress and directing focused implementation efforts in 2024 and beyond.

“By the end of 2024, we anticipate that every industry and sector will produce a minimum of 3-5 streams of high-quality data and present numerous data application scenarios for each sector, initiating trial implementation,” he continued. “For instance, in agriculture, this may entail activities such as source tracing and early disease analysis.”

Embracing the next wave

Despite the ongoing challenges in the regional market, particularly regarding capital mobilization and divestment, Temasek International has predicted the emergence of the next phase of digital economic growth. Vietnam, according to forecasts, will continue to lead as the fastest-growing digital economy in Southeast Asia to 2025. The total gross merchandise value (GMV) of its digital economy is expected to surge 20 per cent, leaping from $30 billion in 2023 to $43 billion in 2025. Over the period from 2023 to 2025, this growth will be propelled by the expansion of e-commerce and online tourism.

E-commerce is set to witness an approximate 22 per cent increase from 2023 to 2025, with expectations of it reaching $24 billion in 2025. Meanwhile, the tourism sector has seen a handy recovery this year, with online tourism projected to grow by over 20 per cent by 2025, reaching a GMV of around $7 billion.

Additionally, other sectors such as logistics and digital media are experiencing significant advancements. Digital media, driven by domestic demand and the rise of domestic enterprises accessing global markets, particularly in the mobile gaming sector, is on the rise. Forecasts suggest that Vietnam’s online media sector will expand by 11 per cent, with an estimated GMV of approximately $7 billion by 2025.

Temasek International’s report also indicates that the digital economy will remain a primary catalyst for development across Southeast Asia, including Vietnam. GMV is projected to grow more robustly than GDP in regional countries. In Vietnam, the report emphasizes that manufacturing and exports will be pivotal for advancement. Local publishers will play a vital role in driving growth in media, digital technologies, and domestic tourism, paving the way for broader development. Furthermore, non-cash payments are expected to continue flourishing in Vietnam.

In the foreseeable future, as outlined by Mr. Tuan, there are six concrete solutions for advancing the digital economy.

To begin with, relevant ministries, agencies and localities  must devise targeted, guiding, and innovative tasks for digital economic development. These tasks should be focused on and completed within the 2024-2025 timeframe, aligning with digital transformation strategies, digital economic and social development initiatives, and Project 06.

Secondly, there should be a push to utilize shared digital platforms instead of disparate IT applications to facilitate data sharing. Central platforms should be overseen by ministries, while local platforms should be managed by regional authorities.

Thirdly, the integration of digital infrastructure platforms, such as VNeID and digital payment systems, should be prioritized in the deployment of digital applications across various ministries and localities.

Fourthly, pilot programs should be conducted to identify successful models for scaling up digital initiatives.

Fifthly, the establishment of regional digital transformation support centers is essential to aid businesses in navigating the digital landscape.

And finally, collaboration between Vietnamese digital technology firms is crucial in developing digital platforms and applications to address bottlenecks, thus propelling the country’s digital economy forward.