Climate change, which is a severe challenge to Vietnam, also represents a huge opportunity for the country and its corporate sector in the era of booming digitalization, writes Tim Evans, CEO of HSBC Vietnam.

Tim Evans, CEO of HSBC Vietnam. Photo courtesy of HSBC.

It’s always been a great pleasure to tell Vietnam’s story with pride to the rest of the world. One of the most interesting aspects of this story is the remarkable growth journey that the country has been on over the past few decades, and this is now reflected in the position that Vietnam is taking across global supply chains.

From an initial low starting point, Vietnam has moved itself to become a lower-middle-income country with a fast growing economy. The numbers speak for themselves. Vietnam is now a signee to 16 free trade agreements and has established comprehensive strategic partnerships with a further eight countries. The GDP of the economy is projected to reach $760 billion by 2030.

This year, HSBC Global Research expects the country’s GDP to grow by 7%, becoming the fastest growing economy in ASEAN and producing as much new additional GDP as the Netherlands. It is now also among the world’s 40 largest economies in terms of GDP, and in the top 20 in terms of trade. This progress has led to an income per capita that has risen 43 times to $4,300 from $100 since the early days of the Doi moi reforms.

This country has come a long way to become what it is today. A key component of this success is its willingness to embrace change. For years, FDI has been a key driver of this incredible growth, accounting for between 4-6% of GDP annually. However, Vietnam’s growth story is more than just “FDI in, exports out”. There are additional new growth drivers that have emerged to help drive Vietnam’s story to the next level.

Change is inevitable

The world is changing now more than ever before because of these two key game-changers.

First, the technological advancements that we have seen in the last decade alone have transformed the way we live our lives. Ten years ago, owning a smartphone would have been a luxury for many people. Today it is an integral part of life for nearly 70 million people in Vietnam. We can do almost everything with just a few taps on the screen, from reading news, checking emails, performing shopping tasks to paying bills, and so on.

What’s more, the rise of artificial intelligence (AI), machine learning and robotics has also completely transformed various industries, from healthcare to manufacturing, and even within our own banking industry. For example, ChatGPT has gone beyond a conventional search engine, and is just one example in the “AI universe.”

Tim Evans, CEO of HSBC Vietnam. Photo courtesy of HSBC.

The latest Nobel prize winners for physics and chemistry are active proponents of new technology and emphasize the impact on their respective fields of AI. Generative AI was among the top two trends that stood out in 2023, according to McKinsey. Gen AI has seen a spike of almost 700% in Google searches between 2022 to 2023, along with a notable jump in job postings and investments.

Let’s not forget that the Covid-19 pandemic also accelerated the pace of digital transformation. The pandemic accelerated the adoption of technologies like remote working tools, e-commerce, and telemedicine. Now with the pandemic behind us, the rise of digitization continues.

The other game-changer that is impacting the world is climate change. We may be tempted to think of as a slow and steady process, which is following a fairly predictable, even manageable path. That is a mistake. In fact, the result of continuously heating our planet is ongoing leading to an ever increasing number of natural disasters that are leading us to the point of no return.

You may have heard of the deadly hurricanes that recently hit the U.S. Their ferocity has been impacted by climate change which has led to wind speeds increasing on average by 11% and increased rainfall by about 10%. This proves that climate change is already here and it is an existential threat to the world with far-reaching impact.

The UN estimates that the Earth will be 3°C warmer by the end of the century despite a number of net zero commitments that have been made around the world which aim to reduce greenhouse gas emissions. This year’s Intergovernmental Panel on Climate Change (IPCC) report estimates that close to 3.5 billion people live in areas with a high vulnerability to climate change.

The World Bank’s estimate is even higher. According to its November 2023 Policy Research Paper, 4.5 billion people are being exposed to extreme weather events, such as floods, droughts, cyclones, or heatwaves. It has also warned that Vietnam is one of the top five countries likely to be adversely affected by climate change. Negative impacts from climate change will reduce the country’s national income by up to 3.5% of GDP by 2050.

The climate is changing. And so must we. We all understand that we need to accelerate progress on the transition to a net zero global economy to try to limit global warming to 1.5°C: which is considered the safe threshold for our climate according to the IPCC, and has been endorsed both by the global scientific community and through the Paris Agreement.

So far approximately 150 countries have announced net zero targets, as well as many regions, cities and companies. In 2021 during the COP26 summit, Vietnam set a target to achieve carbon net zero by 2050.

Opportunities open up

Vietnam has a strong appetite for digital consumption. Demographic tailwinds include a population of over 100 million and a work force that is 70% of the total population. The rapid rise in internet users also helps drive the adoption of the digital market. Almost 80% of Vietnam’s population now use the internet, thanks to smartphone ownership that has doubled from a decade ago.

State-led initiatives to drive rural digitalization have also spurred progress in building a digital economy that is the fastest-growing in ASEAN with impressive growth of 20%, according to the e-Conomy SEA 2023 report.

Measured by gross merchandise value (GMV), the country has the potential to become the second-largest digital market in the region by 2030, just after Indonesia. The expansion is expected to be led by a rapidly developing e-commerce ecosystem, supported by a rising consumer base.

One of the most powerful effects of the digital revolution is the way that it has levelled the global playing field, allowing countries like Vietnam to compete with more advanced economies. Companies like Sky Mavis, MoMo and VNLife – all unicorns founded in Vietnam – are world-class competitors, but if the country is to continue to build on its success, there is a need to continue to invest in education and accessibility to build a thriving digital ecosystem that drives innovation.

Climate change, which is a severe challenge to Vietnam, also represents a huge opportunity for the country and its corporate sector. Vietnam’s renewable energy potential is huge given its conducive conditions and the government’s pledge to achieve net zero by 2050.

It is the most naturally suited country in Southeast Asia to develop wind and solar energy. The country’s natural resources offer the potential to attract more investment into the growing renewable energy sector. Vietnam already ranks second among developing countries in attracting FDI into the renewable energy space.

The net zero transition presents significant opportunities for organizations that are prepared to innovate, adapt and lead the way in creating solutions that will result in a more sustainable future for generations to come.

Riding the wind of change

We can see the multi-dimensional efforts of Vietnam’s government to keep up with these two trends. For instance, they already have a National Strategy for Digital Economy and Digital Society Development to 2025, a vision to 2030, and a National Green Growth Strategy for 2021-2030 and a vision to 2050.

In response to the government’s efforts, businesses are rewiring their organizations and deploying technology integration at scale. As of 2023, 47% of businesses in Vietnam have undergone some kind of digital transformation, according to Enterprise Development Agency under the Ministry of Planning and Investment. They have also started working out their own net zero transition plans.

Sustainability used to be the “playing field” of FDI enterprises because they tended to follow the policies and strategies of their parent companies in other countries where ESG trends were potentially more developed than in Vietnam. However, the awareness of local businesses has been rising.

According to a PwC survey, 40% of them have planned for and set themselves ESG commitments. Net zero transition was said to be critical to them by 48.7% of businesses in a survey by the Vietnamese government’s Private Economic Development Research Board.

Obviously, change is not an option but a necessity for businesses. It brings them benefits, too. Digital transformation has become an indispensable part of business strategies in the face of increasing competition and changing customer needs. Digitization helps companies step up their game to offer better products and services, in large part, thanks to cutting-edge technology. Some of the main benefits include more efficiency, improved user and customer experience, more accurate insights, etc.

On the other hand, companies that fail to address climate change will ultimately undermine trust with their stakeholders, including employees, investors, customers and regulators. And their businesses will also not be future proof against climate risks.

What change would cost?

What would net zero cost? Total global spending by governments, businesses and individuals on energy and land-use systems will need to rise by $3.5 trillion a year, if we are to have any chance of getting to net-zero as a planet in 2050. That is a 60% increase in today’s level of investment. It is equivalent to half of all global corporate profits, a quarter of world tax revenues and 7% of all household spending.

Vietnam needs approximately $400 billion by 2040 (nearly 6.8% of its annual GDP) to tackle climate change, according to the Department of Climate Change under the Ministry of Natural Resources and Environment.

How about digital transformation? Worldwide spending on digital transformation is forecast to reach almost $4 trillion in 2027, according to the International Data Corporation. In Vietnam, the minimum investment for digital transformation is estimated to be 1% of the state budget.

Every transformation project is different and the total cost of digital transformation will vary depending on each company, industry, type of transformation and other factors. The average cost of a digital transformation project is $27.5 million, according to International Data Corporation.

Both the digital and green transitions require enormous investments, in which finance will play a critical role. Vietnam’s state budget for fighting climate change can provide about $130 billion, less than half of what is needed. Cost is also the top challenge in digital transformation, as cited by 60% of businesses in a survey by the Ministry of Planning and Investment in collaboration with the USAID. Global banks like HSBC can help to facilitate finance, to connect investors and to provide our clients with relevant expertise and to channel capital in the right direction.

Change is costly but delay would cost us even more. Are we going to embrace the change to stay ahead in this rapidly evolving landscape? The choice is ours.