Vietnam is expected to become Southeast Asia’s second biggest digital economy

MoMo, the most popular e-wallet in Vietnam, attained unicorn status.

Vietnam has one of Asia’s newest and most dynamic start-up scenes. Home to just 1,600 start-ups at the start of the COVID-19 pandemic, that total has jumped to more than 3,000 now, according to start-up data platform Tracxn - including the country’s four unicorns.

Driving Vietnam’s digital economy is a large, young population willing to test and adopt new technology consumer services, supportive government policies, and a surge in overseas funding.

Although Vietnam’s per capita GDP remains relatively low compared to others in the region, its economy is expanding faster than any other markets. Growth is predicted to hit 5.5 percent in 2022 and 6.5 percent in 2023, near pre-COVID-19 expansion levels, according to World Bank estimates.

Ho Chi Minh City-headquartered super- app provider VNG is Vietnam’s longest- standing successful start-up to date. Launched in 2004 as a gaming business, but now with offerings including chat app Zalo, which now has more than 60 million users, and e-wallet, ZaloPay, it reached unicorn status as far back as 2014.

Investors in this company include Singapore’s Temasek, China’s Tencent and Goldman Sachs. Riding the surge in e-commerce, deliveries and online media boosted by the pandemic, VNLife, operator of B2B mobile payment provider VNPay, became Vietnam’s second unicorn in 2020.

Venture capital deals surged to US$1.1 billion in 2021, up from $301 million in 2020 and $330 million in 2019.

By year-end, two more companies were also unicorns: game developer Sky Mavis and the country’s most widely used e-wallet, MoMo. “Strong funding is coming from Asia, especially Singapore, followed by South Korea, China and Hong Kong, and Japan,” says Mr. Kien Nguyen, KPMG Private Enterprise at KPMG in Vietnam, adding that nearly all of this money has gone to companies addressing the domestic market. Local demand should stay strong for the next two or three years before there’s any need for consolidation, or for global or regional strategies.

Mr. Tim Evans CEO, HSBC Vietnam stated that Vietnam has emerged as a hub for start-ups, closely competing with the likes of Indonesia and Singapore. With a young, energetic and educated population, high smartphone and internet penetration, and strong government support, Vietnam should maintain its position as a compelling destination for tech entrepreneurs and investors, making the country a thriving environment for potential unicorns.

The Vietnamese government provides some support for new economy firms through its National Technology Innovation Fund, and as far back as 2017 it set up a FinTech Steering Committee to formulate and submit an annual action plan to the State Bank of Vietnam on the building of an appropriate ecosystem.

But aside from ensuring that the country’s telecom infrastructure remains held by state-owned companies, and local firms (most of them private) control data services, it  has largely allowed Vietnamese start- ups a free hand to chart their own path.

“At the app level, there’s very little state involvement,” says Luke Treolar, Head of Strategy at KPMG Vietnam. “That layer of Vietnam’s digital economy is more or less completely private.” In the medium term, the big question now is whether it will adopt China’s model, with greater official oversight and tighter regulation or stick with its current open approach. For now, however, growth is expected to continue to be the main focus.

While e-commerce accounts for less than 5% of all retail sales, its value rose by more than half in 2021. “Similar rates of high growth rate can be expected for the next several years,” says Treolar. If that happens, Vietnam will have Southeast Asia’s second biggest digital economy, behind Indonesia, by the end of the decade.”