VN’s start-ups have ambitious plans, but is red tape holding back development?

Thursday, Nov 29, 2018 10:22

A co-working space in Ha Noi. The proliferation of co-working space in the country has been viewed as helpful to the fast-growing start-up scene. — VNS Photo Bao Hoa

Banking on solid economic growth, a young population and strong internet coverage, Viet Nam has been making efforts to become a start-up nation.

The country has set its sights on having one million active businesses by 2020, and at the core of this community will be 5,000 innovative start-ups at the forefront of technology, ushering the country’s labour-intensive growth into the new age of digitisation and out of the middle-income trap.

The Government started getting serious about the issue in 2016 – marking the year as the national start-up year and putting in place the Prime Minister’s ‘National Programme for Supporting an Innovative Startup Ecosystem through 2025’, or Project 844.

According to FPT Insight, a start-up ecosystem involves several stakeholders, including the Government, which issues laws and regulations; financial institutions, investment funds and angel investors who provide capital; support services such as incubators, accelerators and coworking spaces; universities and colleges, as well as media and events to ensure the success of start-ups.

The Government has taken upon itself the duty to give the start-up scene a boost.

Pham Hong Quat, head of the National Agency for Technology Entrepreneurship and Commercialisation Development, said that for countries that were just beginning to attempt a start-up ecosystem like Viet Nam, initial support from the State would serve as ‘kindling’ for robust development.

“Experts from ministries and agencies are working with international counterparts, especially those in the Viet Nam-Finland Innovation Partnership Programme - Phase 2 (IPP2), to study and propose new financial policies for start-ups that have already been put in place in many other countries,” Quat said.

Support from authorities for start-ups has certainly changed, for the better.

Le Thanh Tam, CEO of IDG Ventures Viet Nam, the first technology venture fund established in the country as part of the US-based IDG Ventures’ global network, recounted the company’s first attempts to invest in Viet Nam more than a decade ago.

“State agencies paid no mind to us, but in the past few years, start-ups have become a common trend, albeit a dispersed and disorganised one,” Tam said.

Doan Ha Thang, a scientist and start-up mentor, said that while the start-up movement in Viet Nam had become nothing short of a spreading fever – a survey in 2017 indicating that three out of four adults fancied themselves as businesspeople, and one out of five planned to go down the start-up route in the next three years –there remained unfortunate confusion between setting up an ordinary firm and forming a start-up, the raison d’etre of which was innovation and newness.

“Each start-up must have a core technology that no one else is using, and not just imitate other start-up models, even when those very models remain fresh. In addition, if the start-up successfully capitalises on their idea and technology, it can progress into a full-fledged innovative company,” Thang said.

These innovation-driven enterprises are what the Government has been targeting, with an array of projects and bills aimed at helping the realisation of innovative ideas. Project 844 is one such policy, and there are also a number of others, notably the National Technology Innovation Fund (NATIF) under the Ministry of Science and Technology along with start-up-centric initiatives based in the country’s two largest cities. In Ha Noi there’s the platform, and in HCM City there’s the SpeedUp fund and Saigon Silicon City.

The Government has reiterated its commitment to an administration that creates the most favourable environment for a digital economy.

However, there seems to be a huge gap between the rhetoric, the regulations and the reality, according to experts familiar with the start-up scene.

Streamlined licences

Nguyen Quang Dong, director of the Institute for Policy Studies and Media Development (IPS), said that in Viet Nam’s economy, the main driving force remains the private sector.

The most important policy to facilitate start-ups – making a more enabling business environment – has not witnessed solid improvements, he said, referring to the maze of red tape that haunts would-be businesses.

Aware of these problems, Prime Minister Nguyen Xuan Phuc targeted cutting as much as half of them towards the end of 2018. However, attempts to axe the red tape have been hampered by ministries and State agencies. So far, less than 2,000 business conditions – specific requirements that enterprises must meet to be allowed to do business – out of 6,200 – have been eliminated, while only 1,700 product categories subject to specialised inspections have been streamlined out of 9,300.

On top of voicing their dissatisfaction at the slow progress, experts have also said the annulment of unnecessary business conditions was not enough, warning that the Government needed to be mindful of ministries creating new ones as ‘group interests’ and the sense of power would not be easily overcome.

Dong added that mottos and pledges aside, the Government needed to put priority on reducing policies that hindered technology businesses, citing the case of Fintech startups, who are required to go through the Ministry of Industry and Trade for approval of their apps/websites and e-commerce licences, the State Bank of Viet Nam for interbank payment, and the Ministry of Information and Communications if there’s content involved.

“Just to avoid the hassle many start-ups have chosen to register their businesses in Singapore instead, but content makers and developers still work in Viet Nam,” he said, urging for further work on a single-window system and decentralisation.

The policy expert also wanted the Government to be mindful of legal risks to technology start-ups and companies, whose operations might come into conflict with existing legislation, pointing to the inhibiting effect of the controversial draft decree on guidelines to implement the cybersecurity law from which the author, the Ministry of Public Security, is seeking public feedback.

The decree, once effective, would require basically all internet companies to store Vietnamese users’ information in Viet Nam and open a representative office in the country, which many people think would be counter-productive as stringent internet controls might shatter the hype the country is getting as a future global hub for technology.

Past legislation such as reducing income tax by half for companies in the innovation industries, or allowing firms to set aside 10 per cent of their pre-tax revenue to invest into research and development, have all faltered, given how almost none of the supposed beneficiaries actually received this support, Dong said.

The positive notes in the ecosystem – which are the proliferation of co-working spaces and universities’ starting to pay attention to start-ups – “does not mean much against red tape roadblocks,” he said.

“There is really no need to craft new legislation or policies, the Government just needs to get rid of the legal barriers it has erected itself,” Dong stated.

New market

Getting start-ups up and running is just the very stage of a long and arduous process, with the next steps dealing with realisation of the projects’ commercial viability. At last year’s Techfest, Deputy Prime Minister Vu Duc Dam said that was a need to open up the public procurement market to start-ups as well, saying that “we can’t keep asking for years of experience or whether the product has been on the market for long enough.”

Viet Nam’s recent signings of several new-generation trade pacts, including EU-Viet Nam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), mean that foreign companies will gain access to lucrative public procurement of Viet Nam – a country with one of the highest public expenditure against GDP ratios in the world. However, Vietnamese innovative start-ups have been left out and Deputy PM Dam’s words might take a long time to be fully realised.

“For hot-button issues, if the Government was willing to place an order from businesses across the country in a transparent manner, there would surely be no shortage of innovative businesses willing to try their best,” Doan Ha Thang told Viet Nam News.

“Taking Ha Noi for example, in order to salvage the quality of its polluted lakes, the city’s authorities have decided to buy an exclusive filtering system from Germany. The technology is working so it’s good, but this has inadvertently stripped opportunities from Vietnamese scientists and innovators,” he said.

He added that even with respect to market mechanisms and fair competition – and of course, strong emphasis on the quality of products and services – there should be more efforts to allow local youths and scientists to prove their capabilities. “For all the [Government’s] talk about fostering start-ups and innovation, there is still no mechanisms in place for the Government to actually use these innovations,” Thang said, pinning the blame on current bidding practices which discouraged competition and adding that he had not seen a case where a start-up solution had been taken up.

Dang Huy Dong, former deputy minister of science and technology, on the other hand, has urged “young people and young start-ups” to not just confine themselves to the 90-million strong domestic market, but to “extend their fight” to the global market of 8 billion.

Certainly, with the enterprising spirit of the Vietnamese, it would not be hard-pressed to have outward-looking and driven entrepreneurs readying to take on the wider frontier, but to do so, it’s not unreasonable to ask for a solid environment at home. — VNS

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