Linking up relevant policies for the digitalised economy

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Alongside the growth of Industry 4.0 in the country, Vietnam is attempting to boost digitalisation across many sectors of its economy. Andrew Jeffries, country director for Vietnam at the Asian Development Bank, writes about the potential of a digital economy in the long term, with the need to support micro, small, and medium-sized enterprises in pursuing digitalisation.

According to our 2021 Asian Economic Integration Report on making digital platforms work for Asia-Pacific, it is widely accepted that access to digital technologies gives individuals and households greater convenience and wider choices. With respect to the digital economy, it can trigger changes in purchasing and consumption behaviour that will in turn influence the market for digital and non-digital goods and services.

Digital revenues grew significantly in 2019 and developing Asia (excluding China) demonstrated growth above the global average in all domains, ranging from digital media and e-commerce to advertising technologies and transportation, with e-commerce and online travel agents as the most dominant subsectors.

The emergence of digital platforms has helped micro, small, and medium-sized enterprises (MSMEs) conduct online business, and afford them global reach. Many platforms simplify logistics and often even integrate supply chains and value chains across borders – making them vehicles for international trade. Their ability to aggregate, integrate, and scale has brought new efficiencies and new growth opportunities but has also introduced new challenges.

Technology adoption among MSMEs can be slow for various reasons – such as a lack of awareness, reluctance to invest, or a lack of trust in novel solutions. The insights and efficiencies that digital technology adoption brings often drive down prices and challenge traditional businesses. Their existing know-how and skills may not be adequate to launch and operate digital solutions, requiring changes in the workforce. Even large companies may need support or a nudge to digitalise.

Digital platforms

Implications for Vietnam

Since MSMEs provide a large number of jobs here in Vietnam, it is important for Vietnam’s economy and overall competitiveness to support technology adoption by the government and by businesses of all sizes. Regulators and policymakers need to connect and engage deeply with their constituencies to evolve flexible and responsive support systems that incentivise digital transformation and provide the support needed to make the digital economy inclusive and sustainable.

An appropriate response, covering competition, labour, social protection, data access, privacy, and taxation policies, all appropriate to the local context, will need to be formed to adapt to rapidly evolving technologies and business practices.

Digital platforms are double-edged when it comes to competition. While they can offer access to unprecedented opportunities for micro-businesses, they also tend to create one or very few winners due to strong network effects and large economies of scale. Authorities should craft policies that encourage fair competition and ease entry barriers. Authorities should promote interoperability across platforms to help market players collaborate and innovate to the benefit of consumers.

Meanwhile, as traditional labour relations and conditions no longer apply to digital platforms, online workers are often classified as contractors or self-employed, leaving them without social protection benefits. As youth employment is increasingly short-term intermittent or involves non-standard work arrangements, the base of social security contributions is running thin.

This widens coverage gaps, which could undermine the sustainability of existing social protection schemes and strain public finances as unemployed social assistance balloons. Thus, it is important to create a system that is inclusive and universal, portable, linked to other initiatives, and digitally enabled.

As the data value chain rests on data access, use, and sharing, it is important that regulations foster greater transparency in using, sharing, and creating value from data. It is crucial to uphold data privacy while ensuring that access to data and information is secure and not used to discriminate against specific groups and that benefits are fairly and broadly distributed. Continuous cross-border policy coordination is equally important to address cybercrime.

In addition, taxing digital platforms is challenging. There are regulatory gaps and difficulties in identifying taxable digital activities as companies develop their businesses without a physical presence within a specific tax jurisdiction, among many other issues. With increasing cross-border digital transactions, it is critically important to strengthen international tax cooperation and harmonisation to plug loopholes and properly capture profits generated by the digital economy.

While regulation, policies, and programmes are key in fostering the growth of the digital economy, infrastructure investments should not be ignored as drivers of change. It is because of public and private investments into energy and electricity supply, and telecommunications infrastructure that the use of the internet has increased significantly. Southeast Asia saw 40 million new users come online in 2020 alone, while in the 5 years prior, the increase was only 100 million.

People spend more time online than ever before – and in the context of the pandemic, this trend accelerated. This year, internet adoption in Vietnam stands at 73 per cent, close to that of Indonesia (73.7 per cent) and ahead of Thailand (69.5 per cent) and the Philippines (68 per cent).

Policy recommendations

Research in Southeast Asia has identified six key barriers to growth – internet access, funding, consumer trust, payments, logistics, and talent. The current pandemic has accelerated progress in addressing these important concerns. During the pandemic response, many countries have made significant progress, especially on facilitating digital payments and boosting consumer trust.

Digital transformation also demands new policies that can cushion the impact on labour markets. Automation and digitalisation will unsettle, displace, and make redundant some tasks that have been performed at a level of low productivity and effectiveness.

To retain competitiveness and take advantage of innovations, we should embrace the changes ahead and design policies and programmes that assist individuals and organisations in the adoption of new technologies and skills. This might also include investments in digital upskilling and digital literacy programmes, schemes to facilitate device access, and innovative learning platforms which address the needs of those who have remained offline.

As millions of new users have gained access to the internet, we must not overlook that, for many, affordability and digital literacy remain a challenge. They might be able to access the internet but choose not to. A large majority of Vietnamese digital consumers – 74 per cent – are urban.

While this imbalance between urban and rural populations is a more complex challenge that goes beyond internet access, it reflects a well-known challenge: mobile network coverage alone does not equate to users. Digital literacy, cost of devices and data plans, availability of relevant and local language content, access to electricity and transport, gender, age, and employment status all play a role in determining participation in the digital economy.

In designing policy, we need to look closely at those who remain offline and those who choose not to participate. The fact that three-quarters of Vietnam’s internet users live in metropolitan areas, a higher share than in other Southeast Asian countries, demonstrates the tremendous opportunity in the rural areas where most consumers have not yet benefitted from the digital economy.

Digital infrastructure funding will have to increase dramatically to support the digital sector. Applying a digital transformation scenario, we estimate that investments into the digital sector of around $182 billion yearly or $910 billion will be needed in Asia-Pacific over a 5-year span to deliver affordable mobile and broadband services and expand internet access and coverage. Most of these investments will need to come from the private sector, which is already very active in telecommunications, signalling an important role for policymakers and regulators for incentivising such investing.

With e-commerce and cross-border trade becoming an important growth factor, it is vital to improve trade and logistics processes and infrastructure by addressing existing barriers. Presently, the gap between the best and worst-connected countries remains wide. Important challenges that stand out and could benefit from greater digitalisation and automation are customs clearance and border procedures.

Finally, another linked policy domain is access to safe and secure digital financial services as well as payment systems. Market participants on the supply and the demand side need reliable systems, technologies, and robust regulation that can facilitate financial transactions and protect personal data, prevent illegal activities, and strengthen cybersecurity.

Source: Andrew Jeffries – VIR

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