Advancing Vietnam’s Digital Economy: Embracing Regulatory Sandboxes

Regulatory sandboxes are seen as pivotal tools to foster innovation while managing risks, yet their establishment in Vietnam faces hurdles and holds promise for the future. In this article, Dr. Thao Nguyen Minh from Vietnam's Central Institute for Economic Management (CIEM) sheds light on Vietnam’s regulatory sandbox scene and her recommendations to better foster regulatory innovation. This copy is also available in Vietnamese, click here to read.

By Dr. Thao Nguyen Minh, Central Institute for Economic Management (CIEM), Vietnam

 

Vietnam’s Digital Leap

Vietnam finds itself amidst a rapid digital transformation, aiming to harness technology to propel the country’s development forward. Over the past decade, the Government has proactively supported the growth of the digital economy through a series of guidelines, policies, and action plans. Notably, Decision No. 52-NQ/TW, Resolution No. 50/NQ-CP, Decision No. 749/QD-TTg, Decision No. 942/QD-TTg, and Decision No. 411/QD-TTg lay the groundwork for Vietnam’s journey towards a digital economy and society.

Vietnam is recognised as a nation with immense potential for swift digital transformation. Projections by Google, Temasek, and Bain & Company indicate that Vietnam will experience the most robust digital economic growth in Southeast Asia between 2022 and 2025. Furthermore, according to the European Digital Competitiveness Center (ECDC) in 2021, Vietnam showcased the most significant advancements in digital transformation within the East Asia and Pacific region.

According to the General Statistics Office of Vietnam (GSO), during the period from 2020 to 2023, the digital economy’s added value to Vietnam’s GDP averaged about 12.62%. This growth reflects the burgeoning IT service industries in Vietnam, encompassing wholesale, retail trade, transportation, production, and distribution of utilities like electricity, gas, and water. These sectors exemplify the positive economic shift resulting from IT integration and the emergence of tech-driven business models. However, also according to GSO, the ICT industry still dominates Vietnam’s digital economy, accounting for approximately 70%, leaving only 30% for IT applied industries.

With the National Digital Transformation Program, Vietnam aims to elevate its digital economy’s contribution to 20% of GDP by 2025, further increasing to 30% by 2030. Achieving these targets necessitates a transformation where the ICT sector accounts for 30%, and ICT applied industries account for 70% of the digital economy. This ambition presents a formidable challenge.

As new technologies and tech-based business models emerge, they often outpace existing regulatory frameworks, posing challenges for businesses seeking to implement innovative solutions. While these initiatives offer opportunities, they also carry risks. To bridge this gap and realise the digital economy’s goals, regulatory sandboxes are increasingly recognised as a valuable tool to foster innovation, manage risks, and lay the groundwork for adjusting current regulations. Regulators globally have embraced regulatory sandboxes as dynamic, evidence-based regulatory frameworks to test emerging technologies and business models.

 

Exploring Regulatory Sandboxes in Vietnam

As highlighted in the World Bank report, from 2016 to November 2020, 73 Fintech sandboxes were implemented in 57 countries. Over half of these sandboxes were announced in 2018-2019, with a significant portion established in the first half of 2020. In Southeast Asia, as indicated by the Tech For Good Institute’s Sandbox research, sandbox initiatives adoption surged since 2016. By 2023, six countries in the region had established 39 sandboxes, with most introduced in 2020. These figures underscore the rapid global growth in regulatory sandbox utilisation, especially within the Fintech sector.

In Vietnam, the push to integrate information technology across all economic sectors is gaining momentum. However, the pace of establishing regulatory sandboxes—experimental frameworks that foster innovation—has lagged compared to other countries. Since 2016, Vietnam has issued only two pilot mechanisms resembling sandboxes. These pilots aim to guide revisions to related legal frameworks.

One of these regulatory sandboxes, Decision No. 24/QD-BGTVT, also known as Scheme 24, targets tech-based business models in the transport industry. It was implemented across five provinces and cities, including popular services like Grab Taxi and other businesses engaged in contract passenger transport. The scheme permits technology companies to operate in the transport sector by facilitating connections between drivers and passengers.

Scheme 24 has played a significant role in enabling local Departments of Transport to manage passenger transport activities and monitor tax obligations more effectively. It has also created favorable conditions for passengers’ travel, while encouraging traditional taxi companies to embrace technology for improved service quality. After four years of piloting car transport, many traditional taxi companies have transitioned to platforms that connect them with passengers.

The outcomes from Scheme 24 provided valuable insights for revising Decree No. 86/2014/ND-CP, leading to the introduction of Decree No. 10/2020/ND-CP on car transport business and related conditions. This new decree, which supersedes the earlier decree. Decree No. 10/2020/ND-CP, adds regulations for business entities providing transport platforms..

Another regulatory sandbox addresses electronic money. With Decision No. 316/QD-TTg, telecommunications businesses are permitted to provide payment services through telecommunications accounts, a service previously exclusive to credit institutions under the Law on Credit Institutions. This mechanism fosters non-cash payment activities, enhancing financial service accessibility, particularly in rural and remote areas.

The implementation of the Mobile Money sandbox notably reduced cash usage in Vietnam. From 11.34% in 2021, cash usage dropped to 9.51% in 2022 and slightly above 8% in 2023 (according to the State Bank of Vietnam – SBV). These outcomes laid the groundwork for a legal framework for Mobile Money, prompting the Government to task SBV with drafting relevant legislation in collaboration with the Ministry of Information and Communications (MIC), the Ministry of Public Security (MoPS), the Ministry of Justice (MoJ), and related agencies.

Furthermore, Resolution No. 100/NQ-CP entrusts the State Bank of Vietnam with developing a Fintech sandbox. However, after three years, this decree remains in the drafting stage.

 

Challenges in Proposing and Establishing Sandboxes in Vietnam

The difficulties in proposing and establishing sandboxes in Vietnam stem from various factors:

  1. Sandboxes are issued by the Government, yet many related issues intertwine with Laws, which hold a higher legal position than Government documents, limiting the establishment of sandboxes.
  2. Regulators often adhere to stringent management practices, applying outdated regulations to new business models without sufficient flexibility or incentives for innovation.
  3. The process for approving sandboxes mirrors that of traditional legal documents, a complex, multi-step, and time-consuming process. A streamlined process tailored for sandboxes is yet to be implemented.
  4. Concerns about sandbox risks hinder regulatory support for these policies.

 

Policy Recommendations

In a landscape of rapid technological advancements, legal regulations often struggle to keep pace with evolving technologies and practices. Digital transformation has become an unavoidable imperative for Vietnam’s development. Yet, achieving its digital economy targets presents both challenges and opportunities. This necessitates a shift in regulators’ mindset to craft a regulatory framework that fosters innovation and technology development while effectively managing associated risks. Regulatory sandboxes serve to uphold the principle of business freedom, making them a fitting policy option for Vietnam.

However, policy sandboxes must transcend outdated management mindsets and be timely in their issuance to capitalise on technology innovation opportunities. The government should streamline the process for drafting and approving sandboxes, replacing the current cumbersome and time-consuming legal procedures.

Vietnam is presently in the process of drafting and consulting on a Fintech sandbox. Hence, it’s crucial to prioritise finalising this sandbox, which can serve as a model for establishing sandboxes in other sectors like energy and health. Collaboration among stakeholders is paramount during sandbox formulation and implementation, spanning public and private sectors, government agencies, and even across different countries.

Furthermore, the Government of Vietnam should explore the development of regulatory sandboxes across various sectors. Concurrently, Vietnam should promote self-regulation based on widely recognised industry standards. While sandboxes offer controlled regulatory environments for testing emerging technologies and business models, self-regulation empowers businesses to set their own standards and rules, fostering responsible business practices in the absence of formal regulations.

Regulatory sandboxes are poised to drive technology development and innovation while effectively managing risks. By focusing on policy learning, fostering collaboration among stakeholders, and tailoring initiatives to the country’s specific context, Vietnam can harness regulatory sandboxes to propel the development of its digital economy.

 

About the writer:

Dr. Thao Nguyen Minh is the Head of the Business Environment and Competitiveness Research Department, at the Central Institute for Economic Management (CIEM), Vietnam. She is an expert in business environment and digitalization. She is also the key drafter of Vietnam’s National Strategy for Fourth Industrial Revolution by 2030.

 

The views and recommendations expressed in this article are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.

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Mouna Aouri

Programme Fellow

Mouna Aouri is an Institute Fellow at the Tech For Good Institute. As a social entrepreneur, impact investor, and engineer, her experience spans over two decades in the MENA region, South East Asia, and Japan. She is founder of Woomentum, a Singapore-based platform dedicated to supporting women entrepreneurs in APAC through skill development and access to growth capital through strategic collaborations with corporate entities, investors and government partners.

Dr Ming Tan

Founding Executive Director

Dr Ming Tan is founding Executive Director for the Tech for Good Institute, a non-profit founded to catalyse research and collaboration on social, economic and policy trends accelerated by the digital economy in Southeast Asia. She is concurrently a Senior Fellow at the Centre for Governance and Sustainability at the National University of Singapore and Advisor to the Founder of the COMO Group, a Singaporean portfolio of lifestyle companies operating in 15 countries worldwide.  Her research interests lie at the intersection of technology, business and society, including sustainability and innovation.

 

Ming was previously Managing Director of IPOS International, part of the Intellectual Property Office of Singapore, which supports Singapore’s future growth as a global innovation hub for intellectual property creation, commercialisation and management. Prior to joining the public sector, she was Head of Stewardship of the COMO Group and the founding Executive Director of COMO Foundation, a grantmaker focused on gender equity that has served over 47 million women and girls since 2003.

 

As a company director, she lends brand and strategic guidance to several companies within the COMO Group. Ming also serves as a Council Member of the Council for Board Diversity, on the boards of COMO Foundation and Singapore Network Information Centre (SGNIC), and on the Digital and Technology Advisory Panel for Esplanade–Theatres on the Bay, Singapore’s national performing arts centre.

 

In the non-profit, educational and government spheres, Ming is a director of COMO Foundation and Singapore Network Information Centre (SGNIC) and chairs the Asia Advisory board for Swiss hospitality business and management school EHL. She also serves on  the Council for Board Diversity and the Digital and Technology Advisory Panel for Esplanade–Theatres on the Bay, Singapore’s national performing arts centre.

 

Ming was educated in Singapore, the United States, and England. She obtained her bachelor’s and master’s degrees from Stanford University and her doctorate from Oxford.