New legislation sets the stage for an innovative startup economy

From Vietnam News

Sunday, June 16, 2024 11:22 AM GMT+7

Vietnam is drafting legislation to promote innovative start-ups as it aims to build an innovation-driven economy in line with digital transformation and sustainable development.

A payment transaction via e-wallet for a bike rental service in Da Nang city, central Vietnam. Photo courtesy of Vietnam News Agency.

“Vietnam has one of the most vibrant startup ecosystems in the region, with a new generation of Vietnamese science and technology-based entrepreneurs and companies emerging. However, a lot of potential remains untapped due to the lack of a proper legal framework,” said Deputy Minister of Science and Technology Hoang Minh.

According to the Deputy Minister, there is a lack of consistent definitions for start-ups and innovation support centres.

Furthermore, startup companies are subject to regulations under the Small and Medium Enterprise Support Act, which has led to the misunderstanding that startup companies are small and medium-sized enterprises, resulting in inappropriate policy responses.

“Startups and SMEs differ in many aspects, including their development stages, business goals, risk tolerance, funding sources, development strategies and operations, and therefore require separate legal frameworks and policies,” Minh said.

He said the preparation of another decree on innovation and innovative start-ups is underway, adding that the decree will take the development of innovation and start-ups to new heights.

According to the Ministry of Science and Technology, Vietnam's startup ecosystem has seen two waves of investment since the early 2000s and gone through three stages of development, recording a record investment inflow of $1.4 billion in 2021.

Venture capital inflows into Vietnam have slowed to $634 million in 2022 and $529 million in 2023 due to the pandemic. However, this drop is less significant compared to the 35% decline in global venture capital in 2023.

According to the World Intellectual Property Organization's (WIPO) World Innovation Index released in September last year, Vietnam will rise two places to 46th out of 132 countries and regions in terms of innovation by 2023.

According to the 2024 Technology and Innovation Investment Report released at the Vietnam Innovation Forum 2024 in April, Vietnam maintained its third place in terms of the number of investment deals and returned to third place in total investment into startups in Southeast Asia.

The country is home to over 3,000 start-up companies and over 140 universities and research institutes engaged in innovation-related activities.

The ministry said following a period of funding shortfalls due to the pandemic, the focus is now on improving the legal framework to foster innovation and the development of innovative start-ups for international integration.

Furthermore, in order to accelerate the development of these companies, it was necessary to develop a legal framework for the operation of startup support funds and to create a transparent and safe environment for starting new businesses.

There are around 210 venture capital funds operating in Vietnam, of which around 40 are domestic, with total charter capital exceeding VND100 billion ($3.9 million).

Pham Tuan Hiep, director of BK Fund, said the decree contains limitations in terms of operating mechanisms and incentives, making it difficult to compete with foreign funds.

From innovation to national digital transformation

Decision No. 569/QD-TTg of 2022 has highlighted the development of science, technology and innovation up to 2030 as a top national policy priority, which will play an important strategic role in the coming years.

Science, technology and innovation are key drivers of growth and generating breakthroughs in productivity, quality and efficiency, and will be crucial factors in improving national competitiveness as digital transformation progresses across the country.

According to Trinh Thi Huong, deputy director of the Ministry of Planning and Investment's Department of Business Development, there are about 900,000 businesses operating in Vietnam, more than 90 percent of which are small and micro-enterprises.

Phuong believes that the majority of Vietnamese companies are not ready for digital transformation and still face barriers in implementing innovation, without fully realising the vital role it plays in the overall economy.

Phuong noted that domestic research and development investment remains modest, with such investment estimated at 0.4% of GDP in 2023, compared with 1.3% in Thailand, 2.2% in Singapore and 1% in Malaysia.

Vo Tri Thanh, director of the Institute of Brand and Competitive Strategy, said innovation, digital transformation and green transition were crucial.

“If Vietnam misses these opportunities, few new proposals will emerge,” he said, stressing the importance of improving the legal framework.

Nguyen Thi Nga, director of the Institute of Policy Management and Development Strategy, said existing policies on digital transformation and innovation are fragmented as many ministries and agencies are involved, and links between institutions remain weak.

“This makes it difficult and confusing for companies to carry out innovation activities in the context of digital transformation. There is an abundance of support available, but companies do not know how to access it,” she said.

According to Do Tien Thinh, deputy director of the National Innovation Center, mechanisms should be piloted to accelerate innovation in key emerging areas such as carbon credit exchange.

Solutions need to be developed to raise funds for innovation, such as venture capital funds and new legal frameworks for crowdfunding.

“Support for innovation and startups should be integrated with domestic and international trends such as emerging technologies, digital economy, personal data security, life balance, population ageing and environmental issues. Appropriate innovation paths should be selected according to the strengths of relevant countries and regions,” said Thinh.

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