Vision 2045: Shaping Vietnam's future economy through innovation - Part I

Vision 2045: Shaping Vietnam's future economy through innovation - Part I

Over the last few decades, Vietnam has undoubtedly made its mark on the global economy as a development success story.  It has rapidly transformed from one of the world’s poorest nations, into a lower middle-income country within the span of a single generation, largely through Đổi Mới economic reforms. In recent years, Vietnam has been looking to reach even greater heights, with focus now turning to enterprise innovation and creativity,  to shape the future for a modern, developed economy. At the 2019 CEO Summit, the Vietnamese government officially announced its goal to become a high-income developed nation by 2045, with Minister Nguyen Manh Hung declaring business innovation as the solution.

Despite significant challenges faced by the global economy in 2020, Vietnam was labelled the sole economic winner in Southeast Asia after maintaining positive economic growth even at the height of the pandemic.

Figure 1 shows the historical, long-term positive growth trend experienced in Vietnam, where downward fluctuations are minimal and income per capita has been steadily rising. With most recent national accounts data released in 2020 showing Vietnam sitting at $2660 USD Gross National Income (GNI) per capita, comparable to the minimum $12,696 GNI per capita – unadjusted for inflation – needed to meet the World Bank ‘high-income’ definition, the vision for 2045 would require Vietnam to continue its pre-pandemic average annual growth rate level of 5% for the next 25 years.

On the road to recovery from COVID-19, attention once again returns to catalysing efforts to innovate, which is arguably becoming more important than ever, in the mission to unlock high yet sustainable growth during a post-crisis era. With pandemic-led disruption in the business landscape spurring the need for new technologies and business models that revolutionise existing sectors and foster advancing industries, the current context invites valuable discussion on the significance of innovation in driving Vietnam’s economic growth. Notably, research indicates that an innovation ecosystem is beginning to emerge in major cities across the country, with promising avenues for development particularly in the space of digital transformation.

This 3-part piece thus seeks to explore the extent to which Vietnam’s emerging innovation ecosystem can drive its economic growth in the next phase to becoming a high-income developed country by 2045. In reaching a conclusion, the piece examines major factors contributing to the innovation ecosystem, the key areas in which this ecosystem may drive growth, as well as relevant challenges to sustaining economic growth in Vietnam.

Building an effective innovation ecosystem: Vietnam’s promising start-up scene

The concept of an innovation ecosystem was first introduced by Moore (1993), who defines: “a loosely interconnected network of companies and other entities that coevolve capabilities around a shared set of technologies, knowledge or skills, and work cooperatively and competitively to develop new products and services”. In essence, what Moore describes is a business ecosystem that thrives by riding the waves of innovation together; enterprises operate interdependently as competitors – driving more efficient production processes and improving products and services to customers, or as collaborators – pooling together human capital, physical capital, or financial capital.

For Vietnam, its bourgeoning entrepreneurial landscape presents a very promising outlook for innovation hubs to flourish. Ranking third-highest in Southeast Asia for the rate of new start-ups, Vietnam is expected to become home to increasingly more start-ups in the near future due to the expanding number of accelerator hubs, incubators, and co-working spaces surfacing in major cities like Ho Chi Minh City, Hanoi, and Da Nang. Such workspaces and programs dedicated to nurturing start-up companies in Vietnam reflect the sharing of intellectual, material and technological resources that is characteristic of an innovation ecosystem.

The sentiment that the start-up ecosystem will play a crucial role in driving innovation is supported by evidence indicating a strong recovery from dampened investment optimism during 2020.

Figure 2 captures the fourfold increase in investment into Vietnamese start-ups during 2021. Investments not only returned to the 2019 pre-pandemic level, but greatly exceeded it to reach $1.3bn USD in funding ,stimulated primarily by venture capital funds and foreign direct investment.

Vietnam’s government also recognises its role in fostering innovation via policies; another factor contributing to the emerging innovation ecosystem being the pro-start-up initiatives that complement the growing start-up scene. In Decision 844 approved by the Prime Minister, the Ministry of Science and Technology implemented the Initiative for Startup Ecosystem In Vietnam (ISEV), with the goal of supporting innovative start-up ecosystems in Vietnam until 2025. This national initiative aims to provide support to businesses’ R&D by building a system of innovation centres, whilst partnering internationally with foreign start-up ecosystems to attract more foreign resources to support the domestic one. As such, the government has actively contributed to enabling innovation and creativity to thrive – including incentives for science and technology enterprises which would enable them free-of-charge usage of facilities and equipment at government-owned research centres as well as technology incubators.