Vietnam Needs to Boost R&D Spending

In the Asian Development Outlook (ADO) 2020 released by the Asian Development Bank (ADB), Vietnam’s total trade is now valued at twice its GDP, having swiftly emerged as a significant value chain hub in Southeast Asia for the manufacturing of information and communication technology (ICT) hardware and electronics.

In 2019, Vietnam’s exports of information and communication technology (ICT) were estimated at US$91 billion, accounting for 34.4% of all goods exported.

Vietnam had 38,861 ICT companies in 2018 and currently boasts 2,000 tech startups. Investment by large multinational companies and other foreign investors is greatly attributed to this rapid growth, but local companies are also growing quickly, notably in e-commerce and financial technology (fintech). For its part, the Government has applied new policies and regulations to encourage this development. The growth of the digital economy provides new opportunities for knowledge-intensive employment. The net revenue of firms offering software, digital content, and ICT services increased from US$7.7 billion in 2015 to US$11.5 billion in 2018. Their combined contribution is 11.1% of net revenue in the ICT industry, an important employer. The number of jobs in ICT manufacturing grew from 533,000 in 2015 to 718,000 in 2018. In the same period, employment in the software industry, digital content, and ICT services grew by 36% to reach 255,000 jobs.

Vietnam ranked 42 among 129 countries in the Global Innovation Index 2019, staying on par with top economies classified as upper-middle income. This ranking reflected high ICT exports and imports. Vietnam has other advantages that should enable it to move up in the index. It has strong primary and lower-secondary education, a young population, abundant labor, and ample credit, with outstanding bank loans estimated to equal 135% of GDP in 2019.

Some factors nevertheless hold back the national innovation system. According to ADB, gross domestic expenditure on research and development (R&D), both public and private, equaled only 0.53% of GDP in 2017, far below 1.44% in Malaysia and 0.78% in Thailand a year earlier, which clearly illustrates that Vietnam needs to step up its spending on R&D.

In addition, universities in Vietnam rank lower than in upper-middle-income countries in Southeast Asia in quality and quantity, as measured by gross enrollment ratio. Although Vietnam compares favorably in the number of students in tertiary education overseas and has 55,000 students enrolled domestically each year in tertiary ICT programs, these future graduate numbers may be insufficient to meet surging demand from rapidly growing ICT industries. Ensuring more and better fresh graduates is critical for Vietnam to leap ahead in technological innovation.

On the other hand, while the financial sector has grown steadily and innovative fintech is being adopted, the current legal framework has not kept pace with the development of fintech products and services. An enabling regulatory framework to nurture the application of fintech would help Vietnam to expand and deepen its financial services.

By Quynh Chi, Vietnam Business Forum