Vietnam’s e-commerce sector is projected to be the fastest-growing in Southeast Asia in 2022, with a compound annual growth rate (CAGR) of 26%. This growth is driven by the increasing number of urban digital users and the rising popularity of digital financial services, digital lending (with a CAGR of 114%), and investment (projected to grow by 106% CAGR by 2025), reflecting the country’s digital economic boom in the future.
As a result of this rapid growth, there is a high demand for data centers in Vietnam. According to Gary McKinnon, Senior Director of Business Development at VNG, this is due to the growth in digital adoption, as well as the strategic regulations implemented by the government, which have become catalysts in shaping the future growth of data centers in the country.
The implementation of regulations ensures that data centers meet the required standards and provide a secure and reliable environment for storing and processing data. This, in turn, boosts the confidence of businesses and consumers in using digital services and attracts foreign investment into the country’s digital economy.
Embracing Data Localization Laws
The Law on Cyber Security 2018 (LCS 2018) requires data localization under Article 26.3, but it has been unenforceable for several years due to the absence of implementing regulations. However, in August 2022, the Vietnamese Government issued Decree 53/2022, which provides additional guidance on data localization obligations.
One of the main requirements of data localization under both the LCS 2018 and Decree 53/2022 is the storage mandate. This mandate requires that relevant enterprises must store localized data in Vietnam, and it applies to both domestic and foreign companies.
This policy has had a significant impact on overseas cloud providers, such as Microsoft, Amazon, and AWS, who are now required to store their data in Vietnam.
“The very clear policy is decree 53 which is the localization of data where it has to reside in Vietnam. It has impacted the overseas cloud providers such as Microsoft, Amazon and AWS to have their data stored in Vietnam,” said Gary.
To comply with the data localization requirements, private and state-owned enterprises such as VNPT (Vietnam Posts and Telecommunications Group) and Viettel must work together. As Gary pointed out, “To enable data requirements that were implemented last year, it must be supported by both private and state enterprises such as VNPT and Viettel.”
Opportunity in User Base
Vietnam is presently connected to five submarine cables that link it to countries across the Asia-Pacific region, Europe, and the US, providing network connectivity. Two more submarine cables, Asia Direct Cable (ADC) and Southeast Asia-Japan Cable 2 (SJC2), are expected to commence operations by 2023/2024. With the growing adoption of 5G network connectivity, there is an increasing demand for edge data center deployment in Vietnam, enabling last-mile connectivity and lower latency services.
Gary noted that Vietnam’s economy has been experiencing annual growth of 7-8%, and the shift towards digitalization is expected to further raise the GDP. Though the user base may be considered low currently, it presents a massive opportunity for the future.
Experts suggest that Ho Chi Minh City is a top market for developing data centers due to its relatively low land costs. Despite having several of the highest land costs in the APAC region, Ho Chi Minh City ranks among the top 10 for land price category, according to Cushman & Wakefield’s annual report. The Vietnam data center market is projected to increase from $561 million in 2022 to $1,037 million by 2028.
Gary highlighted that the government’s endorsement of the National Digital Transformation Programme would further drive growth in the industry by enhancing the production, business efficiency, and competitiveness of enterprises, cooperatives, and business households that aim to integrate digital technology. He added that data centers are expected to grow at an average rate of 10% over the next 10 years, with an estimated investment of around a billion dollars over the next 5 years. The data localization laws and potential growth in user base indicate that the future of data centers in Vietnam will remain robust.