E-commerce development: three concerning institutional issues

Tuesday, Sep 10, 2024 09:48

Võ Trí Thành*

The digital economy and e-commerce offer a wealth of stories, ranging from professional to academic. However, one undeniable truth stands out: never before has the digital economy, encompassing economic activities driven by digital technology platforms and e-commerce, permeated every aspect of life – from production and business to consumption – as it does today.

While e-commerce has been discussed for years, Việt Nam's digital economy has truly taken off in the past decade. When evaluating its contribution to GDP, we often focus on sales figures. However, a more accurate measure is the added value that the digital economy and e-commerce generate and contribute to overall economic growth.

The digital economy, according to current calculations, comprises three key components. The first group encompasses the production of ICT equipment and technologies related to electronics, information and communications. The second group consists of traditional industries that integrate data and digital technologies to enhance value creation and foster development. The third group focuses on innovation and new business models, particularly driven by innovative start-ups.

Việt Nam's digital economy currently accounts for approximately 13 to 14 per cent of GDP. The nation aims to increase this contribution to 20 per cent by 2025 and 30 per cent by 2030. This ambitious target highlights the significant potential for the digital economy to drive economic growth, exceeding the average growth rate of Việt Nam's GDP.

Việt Nam's embrace of digital transformation and economic development is no mere coincidence. It represents a golden opportunity for this latecomer to catch up with the global pace of progress and keep stride with other nations.

E-commerce, a vital component of the digital economy, bridges the gap between the virtual and the real. While we often perceive the digital world as separate from our physical reality, the true power of the digital economy lies in its ability to stimulate GDP growth.

Direct employment in e-commerce is substantial, with over 90,000 individuals engaged in online business in HCM City alone, representing approximately 0.8 per cent of the city's population. Extrapolating this to the national level suggests hundreds of thousands of individuals are involved in e-commerce, creating millions of indirect jobs.

The digital economy's contribution to the national budget is also on the rise, particularly with enhanced oversight of e-commerce activities. In 2023 alone, e-commerce revenue reached VNĐ3.5 quadrillion, generating approximately VNĐ100 trillion in tax revenue, with the actual figures likely exceeding these estimates.

Beyond online business, e-commerce platforms play a significant role in retail, creating numerous jobs. Việt Nam's attractiveness, coupled with its young population, strong consumer base and Gen Z's affinity for online transactions, fosters even development and reduces income disparity. The robust growth of e-commerce in rural areas, mirroring trends in urban centres, further underscores its transformative potential.

As the digital economy evolves, it's crucial to consider policy implications, as its development not only presents opportunities but also challenges.

First, the gradual narrowing of traditional commercial and retail spaces, while a natural part of development, can have unintended consequences. This is something we must pay attention to in terms of policy, so that no one is disadvantaged or left behind.

Second, the digital economy presents challenges related to institutional frameworks, dispute resolution, consumer protection and ensuring that e-commerce benefits all stakeholders.

Three major institutional issues

E-commerce is increasingly asserting its position as a crucial component of Vietnam’s digital economy, driving economic development and leading digital transformation in businesses. — VNA Inforgraphics

To refine institutional frameworks and foster e-commerce growth, three critical issues must be addressed.

First, the development of comprehensive legal frameworks and regulations governing data, recognising its status as a new resource and production factor. All activities, regardless of technological advancements, rely on data, particularly big data.

Second, the establishment of robust electronic connection and exchange platforms that facilitate collaboration among stakeholders, while addressing issues of responsibility and dispute resolution.

Third, ensuring compliance with commitments, cooperation agreements and international standards related to the movement of goods, information flows and financial transactions.

Numerous studies in Việt Nam have highlighted the need for comprehensive improvements to achieve a breakthrough in the digital economy and digital transformation, including e-commerce. Key areas for focus include: strengthening institutions (electronic transactions, competition, intellectual property rights, property rights, consumer protection); fostering innovation and adopting new business models; and developing robust infrastructure (including logistics and digital infrastructure).

The digital economy, particularly e-commerce, represents a harmonious blend of the real economy, facilitating the flow of low-cost goods and services alongside information, data and finance. Given the complexity and novelty of these challenges, strong leadership is essential to guide this transformation.

It is also essential to take into consideration regional initiatives, as ASEAN actively pursues digital economic and trade development. Key issues requiring attention include data transfer, cross-border dispute resolution and ensuring fair competition.

Việt Nam's spending trends on e-commerce sites

Việt Nam and Thailand are the two fastest growing e-commerce markets in Southeast Asia, according to the recently released report '2024 E-commerce in Southeast Asia' by Momentum Works.

Việt Nam also surpassed the Philippines to become the third largest e-commerce market in the region.

A report by Vietnam News Agency citing market analysis firm Metric highlights the significant growth and potential of Việt Nam’s e-commerce market in the first half of 2024:

Vietnamese consumers spent VNĐ143.9 trillion (US$5.68 billion) on e-commerce platforms in the first half of the year.This spending represented a 54.91 per cent increase in value and a 65.55 per cent increase in the number of items purchased compared to the same period last year.TikTok Shop and Shopee were the primary drivers of this growth, with revenue increases of 150.54 per cent and 65.96 per cent, respectively.The robust growth highlights Việt Nam’s strong e-commerce market and the ability of sellers to capitalise on online shopping trends.Việt Nam’s e-commerce market has seen an average annual growth rate of 16-30 per cent over the past four years, the highest in Southeast Asia.

*Võ Trí Thành is former vice-president at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council. With a doctorate in economics from Australian National University, Thành 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, financial systems and economics of development. He authors the Việt Nam News column Analyst’s Pick.

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