In 2019, a study by Cushman & Wakefield on data center markets in Asia Pacific came out, and Vietnam was in the ninth place out of 11 countries considered. The country was said to have been rather incompetent compared to the development of other markets in the region. 3 years have passed, it’s 2022, have there been any changes in Vietnam’s data center landscape?
From a political perspective
Perhaps, an important political support when it comes to establishing any IT infrastructure in Vietnam is The National Digital Transformation Program by 2025, with an orientation towards 2030. The initiative has helped accelerate digital transformation, which has also been catalyzed by the pandemic, as strict lockdowns and movement restrictions had been implemented nationwide.
Collectively, these have allowed Vietnam to achieve great milestones in the past few years. Vietnam’s digital economy has been growing at the fastest pace in Southeast Asia, about 38 per cent annually compared to the region’s average of 33 per cent since 2015.
Overall, its internet economy has grown 16 percent from 2019 to US$14 billion among the highest in Southeast Asia as per a report by Google. The report projected Vietnam to grow its digital economy from 2020 to 2025 by 29 percent, second only to the Philippines at 30 percent. The country’s ICT sector is also gaining strong momentum with robust digital infrastructure, with an annual growth rate of cloud computing to be more than 30%, boasting 27 data centers in 2022.
In addition to its fast-growing pace, Vietnam also boasts certain attractions for foreign investments, notably its membership to its participation in The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Low labor and material cost, as well as a young and abundant workforce of increasing quality also makes the country a favorable destination for investment.
The data center landscape in Vietnam
Such major contributing factors have resulted in the significant development of Vietnam’s digital infrastructure in the past few years. There are currently 27 data centers in Vietnam, with the Northern region taking up 46%, Southern 35% and the Central accounting for 18%.
In particular, 2022 has seen a tremendous growth in data centers’ development. From August 2022, several tycoons of the data center industry in Vietnam have strengthened their stances by commencing new units across the country, the first one being CMC, which inaugurated a globally-standardized data center in August with the size of 1.200 racks across an area of 13.000 m2 in Ho Chi Minh City, with the capital of more than 1.500 billion VND. Viettel also made headways with its ecosystem – Viettel Cloud – with the most data centers infrastructure in Vietnam alongside with 9.000 racks across 60.000 m2 floor area. In addition, forthcoming investment has also been announced, initially 10.000 billion VND into Viettel Cloud, with a view to expanding its size to 17.000 racks in 2025.
And splashed in headlines across all the newspapers in mid-December, the unicorn VNG put its brand new data center into operation in Ho Chi Minh City. The center will have the size of 410 racks and expand its capacity to 1.600 racks, poised to serve digital service platforms, data storage and specific cloud solutions, as well as diversifying their portfolio in cloud services for Vietnamese customers. This is also one of the three data centers in Vietnam that have managed to satisfy the Tier III certification in design (TCDD) and installation (TCCF), issued by Uptime Institute – a well-recognized global standard which classifies data center performance in its electromechanical infrastructure.
Apart from the domestic hustle-and-bustle, the foreign scene is no less vibrant in any way. In March 2022, Quang Dung Technology Distribution Joint Stock Company under GREENFEED Vietnam Corporation and NTT Global Data Centres Company under Japan’s NTT Group jointly built a Tier III center in Ho Chi Minh city, expected to officially come into operation in 2024. Real estate private equity firm Gaw Capital Partners announced their successful acquisition of greenfield land located in Saigon Hi-Tech Park, which will be further developed into a carrier neutral Tier III Data Center, acting as the seed investment of Gaw Capital’s Pan-Asia IDC platform. JLL, a commercial real estate services firm in Vietnam, has recently received many requests to rent land or lease buildings for the construction and development of Tier III or Tier IV data centers in Vietnam, most of which come from American, Indian, and Japanese firms in technology and telecommunications.
What lies ahead for Vietnam
Vietnam is, indeed, a young market in the data center industry. While this requires Vietnam to make quite some strides in order to catch up with its neighbors in the Asia – Pacific region, it also means that there are certain lessons the country can learn from the well-established markets.
Take VNG Data Center – the latest data center in Vietnam in 2022 – as an example of commitment to sustainability. Its impact on the environment is minimized, using an efficient design, with the separate hot/cold aisle configuration, as well as a sunken floor design. The data center is designed to have a power efficiency of < 1.45 (1.33 to be exact) while examined by Uptime. At construction, carbon impact was minimized through the use of a sustainable insulated precast façade. Another case in point is the green financing deal by HSBC Bank Vietnam, which involves arranging a green loan for Viettel IDC, Vietnam’s largest data center service provider, emphasizing how both organizations have a common objective for sustainable development, carbon neutrality, and assisting Vietnam on its transition to net zero. As sustainability has been a growing key driver in data center investment globally, these moves show how a seemingly “emerging market” can step up its game and make headways in its sustainable impact to the environment.
But this does not indicate that Vietnam will be excluded from the inherent challenges of a data center, including power demand. Data centers have always been held accountable for their massive energy consumption. By 2030, the amount of electricity used by data centers is likely to increase 15 times, accounting for 8% of projected global demand. As the global digital transformation unfolds worldwide and nationwide, power demand will become a greater challenge for data centers’ operation than it already is. Additionally, the continuous commencement of data centers in major cities of Vietnam, albeit signaling that the industry finally takes off in the country, also hints that these cities in particular and the whole country in general will become more power-hungry, triggering the clamor for security in power supply.
Another point to take into notice for foreign investments is the new data localization regulation. Introduced on October 1, 2022, this law mandates that all domestic companies and certain foreign firms providing certain services will have to store specific types of data in-country for a minimum period of 24 months. Moreover, Decree 53 provides more detailed guidelines by specifying 10 types of services that are subject to the data localization requirements, including telecom services, services of data storage and sharing in cyberspace (cloud storage). The regulation is likely to create unwanted costs for businesses associated with data localization and setting up representative offices. This has been met with opposition from foreign business groups. In a joint letter to Prime Minister Pham Minh Chinh, the US Chamber of Commerce, the American Chamber of Commerce Hanoi, and the Asia Internet Coalition contended that the new regulation would make the accurate assessment of the business cost in Vietnam impossible. “Data localization does not improve the security or availability of data to customers or law enforcement,” said Jared Ragland, BSA Asia-Pacific policy senior director. Meanwhile, the Japanese government has also highlighted that the CPTPP trade deal prohibits data localization. This has exemplified that the new data localization law seems to have tarnished Vietnam’s advantages, risking diverting investment unfavorably for the country.
There is no doubt that Vietnam is a regional rising star in every aspect of IT development, especially in the data center industry, with 2022 being a remarkable year compared to the country’s competitiveness in 2019. Certainly, while there is room for improvement and space for adjustments, Vietnam, with its aforementioned support from the government, accompanied by the attractions for foreign investment, is worth the expectation of enhancing its prominence in the Asia-Pacific market in the years to come.
