_The Global Information and Communications Technology Industry: Where Vietnam Fits in GVCs_

# **Vietnam’s Institutional Framework for the ICT Sector**

The policy choices made by the Vietnamese government in recent years have had profound effects on the country’s industrial structure. In the 1990s, most industrial output came from either state-owned enterprises (SOEs) or foreign firms. The Enterprise Laws of 2000 and 2005 facilitated the development of many new private businesses. Furthermore, WTO accession and greater regional integration forced the government to withdraw some support from SOEs. More than 160,000 new domestic firms were established between 2000 and 2005. During these same years, SOE industrial output shrank as a percentage of total industrial output, from 32% in 2000 to 18% in 2005 (Perkins and Anh 2010). FDI remained relatively stable during this period. Domestic private firms grew despite continued difficulties associated with access to capital and land. While SOEs and private enterprises are now nominally on equal legal footing, various sources indicate that private firms are still at a considerable disadvantage when it comes to access to land, capital, and government contracts.

What follows below is a brief discussion and assessment of the key institutional features that affect the development of the country’s ICT sector. While the space for industrial policy has shrunk in recent years due to WTO accession and regional agreements, the government continues to influence the trajectory of ICT development in a number of ways. The Investment Law (2005) has helped to attract new foreign investors, many of whom have fueled the tremendous growth in electronics exports in recent years. The Law on High Technologies (2008) uses fiscal incentives to drive innovation in ICT and a number of other advanced technology areas. Finally, the government has focused a great deal on supporting the development of ICT services and ICT-enabled services, beginning with the first national five-year ICT plan (1993) and the first resolution on the development of the software industry (2000), and continuing today with efforts to increase public sector outsourcing of ICT services. While Vietnam has made significant advances in recent years, there are still real barriers to local development. These constraints will be addressed by the policy recommendations towards the end of this paper.

## **Law on Investment**

Vietnam’s inward stock of FDI reached $22.4 billion in 2013. Japan is the largest investor in the country, with $8.4 billion invested as of 2012. Other large investors include Korea ($5.8 billion), Malaysia ($2.8 billion) and Singapore ($2.6 billion).<sup>19</sup> While foreign firms have been active in Vietnam for quite some time, regulatory clarity, attractive incentives and the establishment of various economic zones, industrial zones, high-tech zones, and export processing zones have accelerated the rate of investment in the last ten years. The Law on Investment has been an important driver of foreign activity in Vietnam since it was passed in 2005. Incentives for new investors include import duty exemptions for equipment, materials, means of transportation, reduction in corporate tax, an exemption from tax on technology transfer activities, the ability to carry losses for up to five years for tax purposes, accelerated depreciation of fixed assets, and preferential access to and tax reduction on land. A government decree passed in 2006 defined key areas eligible for investment incentives. These areas include biotechnology, advanced manufacturing, ICT, agriculture, labor-intensive factories, infrastructure development and social services, among others. The law outlines investor rights and obligations, and reinforces the notion that investments and intellectual property are protected from expropriation and theft. It defines economic zones, industrial zones, high-tech zones and export processing zones, and outlines investment procedures for companies wishing to invest in one of these areas.

19 Data come from UNCTAD Bilateral FDI Statistics. Data from Korea were last updated in 2010. As of this year, Korea passed Japan as the largest investor in Vietnam.

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