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Structural reform helps promote e-commerce in Việt Nam’s digital future

Update: August, 03/2021 - 08:20

 

Võ Trí Thành

* Võ Trí Thành

If we must pick a winner amid the COVID-19 pandemic, no sector is better than e-commerce.

While many economic sectors are struggling due to the pandemic, e-commerce has continued to record impressive growth. Việt Nam is no exception, but this trend is demonstrated globally.

The E-commerce White Book 2021 released by the Việt Nam E-Commerce and Digital Economy Agency (IDEA) last month showed Việt Nam has the highest number of people shopping on e-commerce platforms in the Southeast Asia region, with some 49.3 million people.

The country’s e-commerce market value in 2020 increased 18 per cent to reach US$11.8 billion. This growth rate was lower than an average 20 per cent per year during 2015-19, but was still a striking number given enormous challenges arising due to the COVID-19 pandemic.

Reports from Google, Temasek and Bain & Company early this year also stated that Việt Nam is one of the most dynamic e-commerce markets in Southeast Asia.

It would not be an exaggeration to say that it is the right time for online shopping in Việt Nam. This trend is reinforced during the pandemic as we have witnessed many changes in consumers’ behaviour and shopping habits, as well as online business models of enterprises throughout the country.

However, e-commerce is not only meaningful in terms of revenue, but it is an important pillar in Việt Nam’s development process of digital economy and digital transformation. This sector has also contributed significantly to the economy, especially during the pandemic, creating jobs and incomes for nearly one million people directly and indirectly working in this field.

In addition, strong growth of e-commerce will help Việt Nam promote inclusive growth and sustainable development of farming products.

During the pandemic, stories of cooperatives and farmers selling their products online are common. People can buy lychees, longans, plums, avocados and other specialties of many provinces on e-commerce platforms such as Sendo, Shopee, Tiki and Lazada while Vietnamese lychees were exported to Germany through Voso.

The rapid development of Industry 4.0 and the digital economy has laid a solid foundation for the strong growth of e-commerce in Việt Nam. With high internet penetration rates and popularity of smart devices, Việt Nam is not necessarily a latecomer in approaching and benefiting from the digital economy. Furthermore, the COVID-19 pandemic and associated disruptions of transport and economic activities has induced Vietnamese enterprises to progressively transform themselves digitally.

Constraints

However, further development of e-commerce is subject to several constraints.

The first and most direct one is the weakness of related infrastructure, particularly the payment system is lagging with modern means of payment unapproved despite being available in other countries. For instance, the legal framework on electronic payment has not been sufficiently improved during the 2016-20 period.

Cashless payment remains modest while cash-on-delivery (COD) still prevails in shopping online. However, local telecommunications network providers will be allowed to provide Mobile Money services this month in a pilot programme after more than two years of waiting. These services will allow the use of mobile phone credit to pay for small-value goods and services. This is an improvement in creating a legal corridor to boost e-commerce of the Government but it needs to ensure effective implementation.

In addition, logistics costs are high, which undermines the attractiveness of e-commerce.

Second, current regulations and the approach to management fail to match new e-commerce models which are constantly emerging, driven by technological progress such as Grab, Airbnb, etc. E-commerce management in the specialised sectors such as health, tourism, transportation, finance and real estate also fails to be adapted.

The development of technology and e-commerce has also led to new types of transactions, many of which have not been captured by existing tax regulations.

Third, Việt Nam has limited the regulatory approach to cross-border data flows while it also lacks other legal infrastructure for digital trade.

The structural shortages mentioned above make the improvement of the regulatory approach to e-commerce an important priority for Việt Nam in promoting e-commerce and digital trade.

Việt Nam has signed many free trade agreements (FTAs) such as the CPTPP, EU-Việt Nam FTA or RCEP which is being negotiated, which all have commitments on e-commerce but the passive internationalisation of e-commerce commitments may not produce the full projected benefits, even impeding firms’ responsiveness to rapid contextual changes (such as the COVID-19 pandemic).

Therefore, it’s more important for Việt Nam to build an active structural reform strategy to promote e-commerce. It essentially aims to enhance competitiveness, growth potential and adjustment capacity. In this regard, the structural reform approach to promoting e-commerce may be self-induced by Việt Nam (self-reform) and, with the right design, can enhance both the potential and inclusiveness of its e-commerce sector.

More specifically, Việt Nam should dedicate more efforts to review and implement the plans for developing e-commerce and the digital economy; supporting the digital transformation of businesses; developing e-commerce solutions and applications towards establishing an ecosystem that is conducive to digital economic activities of people and businesses.

In addition, the country should implement parallel structural reforms in e-commerce related sectors such as information and communication technology, logistics, payment services, etc. The Government should also promote new economic models that can create more demand for e-commerce. Such models may include the sharing economy and night-time economy.

E-commerce is only one aspect, but its good performance is an important fulcrum for overall development, especially when Việt Nam is at an important turning point to develop the economy based on productivity and creativity.

*Võ Trí Thành is a former vice-president of the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. The holder of a doctorate in economics from the Australian National University, Thanh mainly undertakes research and provides consultation on issues related to macroeconomic policies, trade liberalisation and international economic integration. Other areas of interest include institutional reforms and financial systems.

 

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