Communism, inequality, fintech - all you need to know about Vietnam
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Communism, inequality, fintech - all you need to know about Vietnam

What do you know about Vietnam? You've probably heard about the war, fintech and the special cuisine, which is basically a cross between Chinese and Thai. But what about the banking sector? The history? The problems? The ruling party? Let's take a closer look today.

A brief summary
Vietnam is a socialist state ruled by the Communist Party of Vietnam. The President, elected by the National Assembly, is the head of state and commander-in-chief of the armed forces. An appointed Prime Minister heads the government.

Vietnam's main exports are petroleum, seafood, rice, footwear, wood products, machinery, electronics, coffee and garments. Between 1975 and the late 1980s, Vietnam traded mainly with other communist countries, but with the collapse of the Soviet Union, it broadened its trading geography.

At its narrowest point, Vietnam is only 48 kilometres wide. Vietnam's two largest rivers, the Mekong (in the south) and the Red (in the north), flow into the South China Sea in vast swampy plains called deltas. These regions have fertile soil for growing rice and many other crops. Most Vietnamese live in rural areas, especially in the delta regions in the north and south.

Recently, the country has experienced a wave of urbanisation - people have begun to move to the large cities of Ho Chi Minh City (formerly Saigon) and Hanoi, the capital.

A communist country, Vietnam has no official religion. But many people follow the so-called Three Doctrines: Confucianism, Taoism and Buddhism.

Historical context

Vietnam is a land of wars. In the 20th century alone, the country was shaken by 10 wars. We will focus on just two, those that have forever shaped the history not only of Vietnam, but of the world. No subjectivity, just facts.

The First Indochina War (1945/6-1954)

The First Indochina War was Vietnam's struggle for independence from French colonial rule. It began when the Viet Minh, a nationalist movement led by Ho Chi Minh, launched an insurgency against French colonial forces.

The result was liberation from colonial rule and the Geneva Accords of 1954, which temporarily divided Vietnam along the 17th parallel. The north was controlled by communist forces under Ho Chi Minh, while the south had a pro-western government under Ngo Dinh Diem. The agreements also called for national elections in 1956 to unify the country.

Unification did not happen, but the Vietnam War did.

The Vietnam War (1955-1975)

The Vietnam War, also known as the Second Indochina War, was a long conflict during the Cold War. It began shortly after the end of the First Indochina War, when the United States began supporting South Vietnam against communist forces in the north and Viet Cong insurgents in the south. This led to an escalation of the conflict and prolonged fighting.

The war sparked widespread protests and anti-war movements in the United States and around the world. It ended in 1975 with the fall of Saigon to North Vietnamese forces, leading to the unification of the country under Communist control.

The Vietnam War left deep scars, including significant population losses (more than one million widows, ten million refugees and nearly one million orphans), economic and environmental devastation, and serious social and political consequences. During the 'hard times', people struggled for drinking water and leftover food. To avoid queuing under the scorching sun, people used stones to write their names and house numbers on.

We do not claim to be historical experts, but without a minimum of knowledge it is difficult to fully understand what is happening in the country.

The Economy

Quick guide

- Economic growth: Known as an agro-industrial nation, Vietnam has one of the fastest growing economies in Asia. The average annual GDP growth rate is around 6.5%. This, combined with stable population growth and increasing wealth, makes Vietnam an attractive long-term market.

- Key economic sectors: Vietnam's priority sectors are energy, manufacturing, high technology (especially electronics), mining, metals and chemicals.

- Agriculture: Agriculture (including forestry and fisheries) remains an important part of the economy. About 40% of the workforce is employed in this sector, and about 65% of the population lives in rural areas.

- Services market: The services sector is growing rapidly and accounts for 30% of the country's GDP.

- Trade balance: Since 2012, Vietnam has maintained a trade balance in favour of exports.

- Imports: Major imports include machinery and equipment, computer and electronic equipment, textiles, raw materials and supplies for light industry, ferrous metals and plastics.

Despite the negative socio-economic impact of the COVID-19 pandemic, Vietnam stands out as one of the few countries to achieve positive economic growth in 2020. According to the General Statistics Office (GSO), Vietnam's GDP grew by 2.91 per cent that year.

Fintech

Vietnam has a rapidly growing fintech market. It offers huge opportunities for technology companies specialising in digital banking, digital payments, blockchain and cryptocurrency. There are more than 130 startups in the region offering services such as digital payments, alternative finance, wealth management and blockchain technology to a wide range of clients.

We've written before about Vietnam and how the country plans to create a fully digital society by 2030:

"In 2021, new start-up support centres were announced in Hanoi, Da Nang and Ho Chi Minh City. A year later, a plan to boost scientific innovation was unveiled, with a pledge to allocate 1 per cent of GDP to scientific research. Last year, the country pledged to introduce innovation business surveys to monitor the development of start-ups.

According to a recent report by venture capital fund Do Ventures and the National Innovation Centre, a government agency under the Ministry of Planning and Investment, Vietnam's startups have attracted investor interest in 2022.

According to the report, Vietnam ranked third in Southeast Asia in terms of number of deals and fourth in terms of deal value last year. Domestic funds were the leading investors in local startups last year, accounting for 45 per cent of the total deal value.

However, the total amount invested in Vietnamese startups in 2022 was just $634 million, down 56 per cent from the previous year's record high of $1.4 billion.

Fintech, retail, healthcare and payments are the most sought-after sectors to attract investment," the report said.

You can read the full text here.

Key growth drivers

Vietnam's fintech sector is on a growth trajectory thanks to supportive regulations, government policies and attractiveness to investors in the Asian region. It has revolutionised various financial services in recent years, attracting massive global investment.

Emerging segments

Various segments of fintech, including P2P lending, crowdfunding, digital payments, cryptocurrency assets, and inshurtech, have shown significant growth. Notably, as Vietnam is a country with a significant proportion of unbanked people and limited access to banking services, mobile phone subscriptions (150%), internet coverage (70%), and 3G/4G registrations (45%) are growing. The latter remains an untapped market, attracting fintech investors to address this challenge.

Market segmentation

Vietnam's fintech market can be divided into several segments, including digital payments (online shopping and point of sale), personal finance (digital asset management, remittances), alternative finance (P2P lending, SME lending, crowdfunding), insurtech (life, health, car and other online insurance), B2C financial services market (banking and credit services, insurance), e-commerce shopping finance and other front-end solutions.

Investment environment

Rising per capita income and a growing population make Vietnam an interesting environment for fintech investment. Vietnam's gross domestic product (GDP) per capita reached an all-time high in December 2020, growing 0.9% year-on-year. In addition, the spread of internet connectivity (70.3% of internet users in January 2021) and mobile connectivity (150% of the population) has facilitated the adoption of fintech, further driving its growth.

Digital banking transformation

Banks have recognised the importance of transformation in digital banking and since 2017, they have been actively exploring and adopting new technologies in their operations through fintech to serve their customers more efficiently and improve the overall banking experience.

In particular, commercial banks have been quick to adapt and apply new technologies in banking operations, such as mobile and QR payments, e-wallets, tokenisation and smart card payments for national cards.

These changes have helped the banking sector improve competitiveness and increase access to services for all people, especially those living in rural and remote areas. Almost all banks in Vietnam are investing in digitalisation, making fintech integration a top priority.

Main players

M_Service / MoMo ($434m).

Founded in 2007 and headquartered in Ho Chi Minh City, M_Service is the operator of MoMo, Vietnam's leading mobile wallet. This application allows users to make seamless digital payments, money transfers, bill payments and more.

M_Service is one of the fastest growing companies in Vietnam and aims to become a leading super-app. By the end of June 2022, it claimed more than 31 million users, 50,000 internal partners, and 140,000 payment acceptance points nationwide in partnership with 70 banks and international cards.

M_Service is the second most valuable private company in Vietnam, according to CB Insights and Dealroom, having raised just US$434 million and a valuation of US$2.27 billion. It is backed by investors including Mizuho Bank and Warburg Pincus.

Sky Mavis ($311 million).

Sky Mavis is a blockchain game developer (founded in 2018) with offices in Singapore and Vietnam, best known for its blockchain game Axie Infinity, a digital game with a collection element built on the Ethereum blockchain.

In Axie Infinity, players can raise, evolve, fight and trade fantasy creatures called Axies. Axies are visual representations of non-fungible tokens (NFTs) owned by players. Each Axie has its own unique appearance and characteristics that cannot be replicated.

Axie Infinity launched in early 2018 and is now one of the most profitable blockchain games. In February 2022, the NFT Axie Infinity reached $4 billion in total revenue and had an average of 2.7 million active players per month.

Sky Mavis raised US$150 million in a Series C round in April 2022, bringing its total funding to around US$311 million, according to data from Dealroom and CB Insights. The company is valued at US$3 billion, making it the most valuable private tech startup in Vietnam.

Trusting Social (US$214 million).

Founded in 2013, Trusting Social uses artificial intelligence (AI) to provide credit scoring, identification and customer engagement solutions for the credit industry. The company aims to democratise financial services and increase financial inclusion, combining big data technology with social media and mobile data to enable lenders in emerging markets to serve consumers that traditional credit bureaus cannot reach.

Headquartered in Singapore, with operations in Vietnam, Indonesia, the Philippines and India, Trusting Social claims to be the largest provider of credit risk profiles in Asia, reaching over 1 billion consumers through partnerships with over 170 financial institutions and service providers, including CIMB, Sacombank, UOB, UnionBank and Grab.

Trusting Social is backed by investments from Sequoia Capital, 500 Startups, Kima Ventures and Genesis Alternative Ventures. The startup has raised approximately $214 million in funding to date, according to data from CB Insights and Dealroom.

A few more examples

Here are a few more startups that didn't make the main list, but are also worth your attention.

VNPAY | Payment processing solutions for merchants

VNPAY specialises in payment processing solutions for merchants. Their product range includes payment gateways, QR code based payments, in-app payments, payment POS terminals and more. When making payments, users can easily link their payment cards or wallets to the platform.

VNLIFE | Software for omni-channel banking and sales services

VNLIFE provides software solutions for omni-channel banking and distribution services. They provide tools that enable banks to provide digital services to their end customers. VNLIFE uses various advanced technologies such as artificial intelligence, blockchain, Internet of Things (IoT) and big data to realise digital banking channels, payments and solutions tailored for travel and retail.

Key challenges

Aging population

According to the CIA World Factbook, in 2017, Vietnam's population aged 55 and older accounted for nearly 15% of the total population. In addition, like other developed countries, the country's fertility rate has been steadily declining at less than 2%. On the other hand, the average life expectancy of the population has increased from 59 years in 1950 to 76 years in 2017 due to advances in healthcare and improved living conditions.

With the changing age structure, the Vietnamese economy needs to adapt to the declining labour force participation rate, rising costs of healthcare and related services for the elderly, changes in growth drivers and intergenerational differences in the workplace. The country's social security fund is already warning of possible bankruptcy.

Changing cultural values and family structures are also posing challenges in caring for the elderly. Traditionally, children in Vietnam look after their elderly parents. However, most children now leave home to find work or start their own families, leaving their parents to care for themselves.

Economic inequality

According to a report by Knight Frank, a UK-based company, there are currently more than 200 people in Vietnam with a net worth of more than $30 million. The report also predicts that by 2026, Vietnam will have 540 super-rich people and 38,600 millionaires, one of the fastest growth rates in the world.

On the other hand, according to the Asian Development Bank, 7 per cent of the country's population lives below the national poverty line and 2.6 per cent lives below the $1.9 a day threshold. The growing economic stratification of society is readily apparent in Vietnam's major cities, where millionaires live in luxurious and usually gated neighbourhoods next to slums.

The problem of income inequality is compounded by low levels of economic mobility among Vietnam's various disadvantaged groups. For example, minorities living in rural and mountainous areas have limited access to education, poorer infrastructure and fewer opportunities to move up the income ladder. And due to a long history of patriarchy, women in Vietnam often receive lower salaries and have fewer opportunities for advancement in the workplace than men.

Migration and brain drain in Vietnam

In 2017, it was estimated that more than 2.7 million Vietnamese were living abroad (more than 1.4 million in the United States, 240,000 in Australia, and others scattered around the world). This is a significant increase from 1990, when only 1.2 million people of Vietnamese origin lived abroad. While migration is a natural consequence of globalisation and Vietnam's increasing integration into the world economy, there is concern that the country is losing its most talented and brightest citizens to other countries.

In addition, many Vietnamese students and young scholars who travel abroad for education face the dilemma of whether to stay in the country of study or return to Vietnam after graduation. In 2016, more than 130,000 Vietnamese students travelled abroad to study in Japan (38,000 students), Australia (31,000), the US (28,000), and other countries. More than 90 per cent of them financed their studies themselves, giving them the freedom to choose their future careers, and many chose to stay abroad.

In recent years, Da Nang, a city in Vietnam's central region, has attracted national attention with stories of talent loss. In 2004, the city launched a programme called "Programme 922", which provided scholarships for the brightest students to study at prestigious domestic and foreign universities, with the stipulation that the recipients would return to work for the city's government agencies after graduation. However, many of the students never returned, and of those who did, many were dissatisfied with their jobs and decided to leave and return the scholarships.

Similar problems occurred not only in Da Nang, but also in other cities and provinces with similar programmes. Low salaries, unfavourable working environment, limited opportunities for career advancement, bureaucracy and problems with management are cited as reasons for leaving the public sector or even moving out of the country.

Conclusion

Vietnam is an amazing country with a rich history, sad but rich. Torn apart, it is as if the citizens are putting themselves back together again. Government control of the economy has severely hampered growth, but with reforms and globalisation, things seem to be moving in a positive direction. And the main indicator of this is fintech, which is attracting more and more investors and people every year.

Ну а сейчас самое время пройти тест и понять, насколько вы финансово грамотные. Поехали!
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