Science and technology, innovation, and digital transformation have become key drivers of economic growth in Vietnam over recent years, reinforced through major Party and State policies. These three pillars have not only improved productivity and growth quality but also accelerated the shift toward a more modern and sustainable development model.
To achieve annual double-digit economic growth during the 2026-2030 period, Politburo Resolution No. 57-NQ/TW, issued on December 22, 2024, identified science and technology, innovation, and national digital transformation as the main engines of socio-economic development. The Resolution marks a strategic shift from a growth model dependent on capital and low-cost labor to one driven by productivity, technological advancement, and innovation. This transition hinges on addressing three major challenges: financing, human resources, and institutional reform.
Meanwhile, Politburo Resolution No. 68-NQ/TW, issued on May 4, 2025, positions the private sector as a leading force in advancing science and technology, innovation, and digital transformation. Yet financial constraints remain a key barrier. Small and medium-sized enterprises (SMEs) account for 97 per cent of private businesses in Vietnam, but many face limited financial capacity and poor competitiveness.
In response, the Vietnamese Government has introduced financial policies to support science and technology, innovation, and digital transformation as part of its growth agenda. Funding can be mobilized through three main sources: the State budget, domestic and foreign businesses, and other organizations.
Current state of financial resource mobilization
R&D investment
Over recent years, funding for R&D in Vietnam has remained relatively limited in scale, though it has shown signs of improvement. According to reports from various organizations and the Ministry of Science and Technology, Vietnam’s R&D expenditure stands at just over 0.4 per cent of GDP, or only one-quarter of the 2 per cent target stipulated under the Law on the State Budget.
By comparison, global R&D spending stood at 2.62 per cent of GDP in 2021, or more than five-times the level in Vietnam (World Bank, 2021). Relative to regional peers such as Singapore, Thailand, and Malaysia, Vietnam’s R&D spending remains low, ranging from one-quarter to one-half of those countries’ levels.
By economic sector, the State sector continues to account for the largest share of R&D spending, though its proportion has gradually declined, to 48.94 per cent in 2023. The non-State sector has expanded rapidly and now plays an increasingly important role, accounting for 40.99 per cent in 2023. However, funding mobilized from foreign sources remains modest and has gradually declined as a share of total R&D investment over the years.
By funding source, the business sector represents the largest contributor to R&D investment, accounting for around 58 per cent of the country’s total R&D spending in 2023. However, relative to GDP, business expenditure on R&D in Vietnam stood at only 0.2 per cent. Meanwhile, R&D expenditure by higher education institutions remains disproportionately low relative to their role in science, technology, innovation, and digital transformation, particularly as much of university research funding still originates from the State budget.
Businesses remain the largest investors in R&D, with spending concentrated primarily among domestic private enterprises, followed by State-owned enterprises (SOEs). R&D investment by foreign-invested enterprises, however, remains limited.
In terms of funding sources, most R&D activities undertaken by businesses are financed internally, with enterprise funding reaching VND24.6 trillion ($946 million), equivalent to 74 per cent of total business R&D expenditure.
Financial support uptake
The government has introduced a range of financial support policies for businesses, including incentives for technological innovation, credit support programs, technical consulting, and project implementation assistance. However, according to the National Agency for Science and Technology Information’s enterprise innovation survey, the proportion of businesses receiving support remains modest, primarily through technology innovation programs (23.3 per cent of surveyed firms) and credit support policies (24.1 per cent).
By business size, small enterprises have received more support across all categories than larger firms, while medium-sized enterprises have received comparatively less attention. This suggests that government support policies have, at least initially, focused on smaller businesses.
Significant support for SMEs has come from the SME Development Fund, established in 2019 under Decree No. 39/2019/ND-CP, dated May 10, 2019. The fund provides preferential loans to innovative startups, firms participating in industrial clusters, and businesses integrated into value chains. However, disbursement levels and the value of indirectly-approved loans through commercial banks have steadily declined. Both the number of supported projects and the value of financial assistance fell between 2019 and 2023.
Assessment and policy implications
Progress made and remaining constraints
Vietnam has adopted a policy requiring a minimum of 2 per cent of State budget expenditure, recently increased to 3 per cent, for science and technology research, including both infrastructure investment and recurrent research spending. However, implementation has remained challenging in practice.
Financial policies supporting enterprise R&D and science and technology activities have delivered some initial results. A proportion of businesses have accessed government support, including funding for technological innovation, credit programs, technical assistance, and project-based support. These policies have also encouraged firms to allocate resources to R&D, making the business sector the largest contributor to national R&D spending.
Vietnam has introduced several strategic initiatives aimed at reforming the mobilization and use of resources for R&D and innovation, particularly following Politburo Resolution No. 57. However, more concrete implementation policies are needed to translate these strategic priorities into practice.
Despite progress, significant limitations remain in policies designed to mobilize resources for science, technology, and innovation in Vietnam. Total R&D expenditure remains low at around 0.5 per cent of GDP, far below levels seen in South Korea, China, Malaysia, and Thailand. Both the scale of R&D investment and the balance between public and private funding remain weaker than in many middle-income economies in the region.
The analysis also shows that financing for science, technology, and innovation activities in Vietnam continues to depend heavily on State budget support. Though regulations require at least 2 per cent of total State budget spending to be allocated to R&D, this threshold has never been fully met in practice.
Ministry of Finance data (2025) shows that the highest allocation was in 2024, reaching only 1.97 per cent. Limited funding spread across numerous projects has resulted in relatively small average grant sizes. In addition, much public spending on science and technology is channeled through ministries and agencies, generating considerable administrative costs and procedural burdens, despite recent improvements.
Public investment in R&D infrastructure also remains limited, with capital expenditure accounting for less than 50 per cent of total public R&D spending. As a result, infrastructure for prototyping and scaling new technologies remains underdeveloped, leaving many innovation initiatives stalled at the laboratory stage. This limits researchers’ access to complete innovation cycles, hinders commercialization efforts, and reduces Vietnam’s attractiveness to high-tech projects, which require supporting ecosystems including suppliers, laboratories, and testing facilities (World Bank, 2025). Weak public research infrastructure also limits businesses’ ability to rely on public-sector experimental support for innovation.
Low levels of R&D investment from both the public and private sectors have further constrained the development of training and research infrastructure, particularly in high-tech industries. In practice, Vietnam’s private sector has yet to become a major driver of innovation, as many firms continue to rely on imported technologies or incremental improvements rather than original R&D outcomes.
Businesses, particularly SMEs, continue to face major barriers in accessing State-backed financial support funds. Loan application procedures remain complex and costly, while interest rates and repayment terms are often viewed as unattractive. Businesses also have limited awareness of State support policies for R&D, science and technology, and innovation. At the same time, opportunities for firms to participate in public science and technology projects and programs remain limited.
Tax incentives for innovation have had only modest effects. While businesses do invest in innovation and R&D, many fail to formally record these expenditures in ways that qualify for tax incentives. Broader challenges also remain, including governance mechanisms for R&D activities and research workforce capacity. Other resource mobilization policies have only recently been introduced and still lack clear implementation guidelines.
Policy recommendations
To strengthen a growth model driven by science and technology, innovation, and digital transformation in Vietnam, stronger policy reforms are needed to mobilize financial resources. Several policy priorities are proposed.
First, establish co-financing mechanisms for business R&D, under which the State would fund 30-70 per cent of project costs, with enterprises contributing the remainder. This would help share risks and improve SMEs’ ability to test new technologies.
Second, pilot government procurement or purchasing mechanisms for innovative products developed by businesses, creating market demand for startups. Tax incentives for R&D should also be expanded in line with policies that accept higher investment risks in science, technology, innovation, and digital transformation.
Third, simplify and streamline disbursement procedures for SME support funds, while introducing low preferential interest rates of around 2-3 per cent, drawing on the experiences of South Korea and China, and extending loan tenors. The governance of support funds should also shift toward market-based principles.
Fourth, strengthen awareness campaigns and guidance for businesses on tax and financial incentives related to R&D, science and technology, and innovation, while simplifying access procedures.
Fifth, introduce stronger support mechanisms to help businesses integrate into global and domestic value chains, enabling access to advanced technologies and resources for R&D and innovation. Support should also be expanded for intellectual property registration and the transition to science and technology enterprises, making firms eligible for government financial assistance.
Sixth, reform public sector financial management for science and technology activities by simplifying State budget procedures and placing greater emphasis on accountability for final outcomes, while reducing administrative intervention.
Seventh, strengthen public-private partnership mechanisms in R&D and innovation. However, careful attention must be paid to technology selection, as international experience shows that poor choices can lead to wasted resources and missed opportunities.
Eighth, increase State budget investment in technology infrastructure, including both hardware and software systems.
Ninth, invest more heavily in human capital development for R&D and innovation.
Tenth, establish stronger mechanisms to promote meaningful public recognition of researchers and research achievements, moving beyond symbolic or purely ceremonial approaches.
(*)Associate Professor Vu Sy Cuong is from the Academy of Finance.
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