Over the past few years, Vietnam has become a rising star in Southeast Asia. The favorable economic climate has also fostered the emergence of the digital economy and an expanding startup ecosystem. The recent wave of the pandemic has also solidified digital trends that accelerated Vietnam’s path to the next digital economic powerhouse in Southeast Asia.
Even though its history spans thousands of years, Vietnam has only started to open its economy since 1986, the year when the Doi Moi reforms were announced, and has evolved quickly ever since. According to the World Bank, Vietnam now has over 745 listed companies on the stock exchange which accounted for 68.6% of its Gross Domestic Product (GDP) in 2020. Below is a snapshot of milestones and significant events that have shaped the Vietnamese economy for the past 35 years.
Current Stable Macro Environment
After 35 years, the Vietnam economy has been thriving and attracting many foreign investors. In 2020, Vietnam was one of a few countries globally that recorded a GDP growth of 2.9%. Vietnam’s GDP per capita grew to US$2,800 from a mere US$422 in 1986.
Looking further into Vietnam’s GDP growth drivers, Vietnam has been shifting away from agriculture and towards industry and services which currently account for approximately 75% of the country’s GDP. In the past decade, exports by domestic firms have risen by 137%, while those by foreign-owned companies have surged by 422%.
Another contributor to Vietnam’s economic growth is the golden population structure. As the economy grows, urbanization also follows as it reaches 37%, forming major cities including Ho Chi Minh, Ha Noi, Da Nang, Hai Phong, Bien Hoa, and Can Tho.
Ultimately, a positive macro environment has made Vietnam an attractive destination for foreign investors. Vietnam was named one of the world’s top 20 host economies for FDI with an inflow of $16 billion, surpassing other peers and trailing Singapore and Indonesia. In 2021, despite severe COVID-19 implications, planned FDI investments in Vietnam resiliently grew 22% Y-O-Y.
Proliferation of The Digital Economy in Vietnam
Moving forward, the digital economy is expected to play an integral role in maintaining the momentum of the country’s growth. Even still in its early stage, the digital economy of Vietnam is demonstrating tremendous potential driven by: government support, the fast-paced digital adoption of the population and ultimately the pandemic which accelerated digital trends.
Government’s effort to embrace digital transformation
Acknowledging the importance of the digital economy, the government has made various initiatives to encourage growth in this space. In 2020, Prime Minister Nguyen Xuan Phuc signed Decision No.749/QD-TTg to approve the National Digital Transformation program by 2025 to set out goals for the country until 2030.
This includes improving the internet infrastructure and accessibility to 5G services, digitizing the government, and applying technology to various social-economic sectors. By 2030, the government anticipates that the digital economy will account for 30% of Vietnam’s GDP, an ambitious target considering that the digital economy currently accounts for 8.2% of GDP. Nevertheless, this shows the government's optimistic view on Vietnam’s digital economy and the willingness to support the digital ecosystem. Tech-savvy population and rising digital trends
Vietnam is among the top 10 countries with the highest number of smartphones with 63.1 million smartphones in use. Nevertheless, digital penetration in Vietnam is trailing behind other peers in the region with 73%.
However, the country is expected to catch up with regional peers because the majority of the population in Vietnam is young and within working age, indicating tech-savvy consumers who will also be more receptive towards switching to online services. Together they shape the digital economy’s growth and direction based on their online behaviors. According to the report by Google, Bain & Co., and Temasek, Vietnam’s e-commerce GMV is expected to grow at a 31% CAGR which outperforms other ASEAN countries and will raise its e-commerce GMV to $26 billion in 2025. Tiki, Vietnam’s local e-commerce player, and Lazada, another regional player, are trailing after Shopee and facing stiff competition for second place in terms of the market split. Sendo, another local e-commerce player, is standing in fourth place and focusing on consumers in lower-tier cities.
Another trend that emerges among the young population is the cashless payment trend. With over 40 licensed e-wallets operating in Vietnam, the digital payment market is bustling faster than ever, with winners starting to emerge such as Momo, Shopeepay, ZaloPay, Viettel
Pay, etc. Pandemic’s Acceleration of Digital Adoption
While existing trends persist, the pandemic has accelerated the adoption rate as social distancing measures unlock new consumer habits. Vietnam has undergone four waves of COVID-19 since 2020 with social distancing measures limiting in-person activities such as going to school/work, shopping, seeking non-COVID medical care, and going to the bank. Once consumer behavior turns into a habit, it becomes stickier, so even when restrictions are lifted, they will likely continue to use online services for their everyday needs.
Even though the digital economy still has plenty of room for improvement, it has yielded impressive results with GMV in 2020 reaching $14 billion, implying a 30% CAGR rate since 2015. The potential of Vietnam’s digital economy has captured multiple venture capital funds' attention, resulting in an active investment environment for technology companies over the past few years. From 2018 to 2020, capital invested in Vietnam amounted to US$1.2 billion. In addition, aligning with the overarching trends of the digital economy, investments flow mostly into FinTech (payment), Retail, and Education. The majority of the deals were pre-seed, seed, and Series A.
Venture capital funds continue to show their commitment to the market as Vietnam's venture capital fund alliance was recently formed with the participation of 17 venture capital funds committing to invest $800 million into startups from 2021 to 2025.
Vietnam is Becoming The Next Startup Hub in SEA
Seizing opportunities in the digital economy, the startup ecosystem in Vietnam is evolving and expanding rapidly, positioning Vietnam to be the next startup hub in Southeast Asia.
As previously indicated, the stable macroenvironment in Vietnam is primed to support the development of the digital economy and startup ecosystem. With high GDP growth, Vietnam also has a burgeoning middle class with increasing disposable income which indicates a higher demand for better life quality. According to the Global Innovation Index 2021 ranking by World Intellectual Property Organization (WIPO), Vietnam ranks as the most innovative country among the lower-middle-income countries, ranking higher than neighboring countries of Indonesia, Thailand, and the Philippines. According to research conducted by the World Economic Forum, Vietnam is one of the top 10 countries with the most engineering graduates (100,390 in 2015). According to MOET, Vietnam had 505 scores from reading comprehensive, the 13th highest score out of 79 participating countries and territories. This result is extraordinary given that Vietnam is among the lower per capita income participating countries (US$ 4098 in 2010 PPP dollars). Vietnam is also one of the largest recipients of remittances in the world; They are expecting that Vietnam will have 8 unicorns by 2030.
Existing Unicorns and Soonicorns Paving The Way for Others
Vietnam currently has three unicorns, proving that the current digital climate in Vietnam is suitable for startups to thrive in upcoming years.
VNG: Founded in 2004 as Vinagame before changing its name to VNG in 2008, the company has transformed from the first Vietnam online gaming company to one of the leading IT and entertainment services providers in the country.
Sky Mavis (Axie Infinity’s developer): Founded in 2018, Sky Mavis is the fastest company to achieve unicorn status in Vietnam. Momo has closed its series D and is becoming the next FinTech unicorn of Vietnam. Tiki is the first local e-commerce player in Vietnam that is reaching unicorn status in 2021 after securing its series E funding. In the span of seven years, KiotViet has grown to serve more than 110,000 MSMEs across Vietnam today. Having successfully raised for its series B, KiotViet is growing aggressively and expanding its offerings to digital payments and merchant lending, proliferating the prosperity of Vietnam’s MSMEs.
The digital economy will be one of the main factors driving Vietnam’s economic growth for upcoming years. Backed by a solid macroeconomic foundation, progressive government, and an increasingly tech-savvy and young population, the digital economy offers a lot of potentials for startups to explore and create values. With its current impressive momentum, Vietnam is on track to become the next digital economic powerhouse in Southeast Asia.
Insider, V. (2021, November 4). Vietnam Will Be the Next Digital Powerhouse In Southeast Asia. Here’s Why - Vietnam Insider. Vietnam Insider. https://vietnaminsider.vn/vietnam-will-be-the-next-digital-powerhouse-in-southeast-asia-heres-why/?fr=operanews.