Vietnam’s Consistent Performance in the Global Innovation Index

Vietnam ranked 48 out of 132 economies in the Global Innovation Index 2022 by the World Intellectual Property Organization (WIPO). The country performed well in many aspects of technology and FDI, yet indicating that there is still room for improvement in other areas. Vietnam Briefing provides insights into the strengths and weaknesses of Vietnam, its position and ranking, and a comparison with its regional peers.

Vietnam ranked 48 out of 132 countries in the Global Innovation Index (GII) which measures countries’ innovative capacities, highly correlated with more efficient businesses and economic development.

What is the GII?

Developed by World Intellectual Property Organization (WIPO) in collaboration with Cornell University and INSEAD, the GII ranks the innovation performance of countries around the world based on 80 indicators divided into seven pillars: institutions, human capital and research, infrastructure, market sophistication, business sophistication, knowledge and technology outputs, and creative outputs.

Vietnam’s position and ranking

Among the lower-middle-income group economies, Vietnam ranked 2^nd out of 36 countries, making it the innovation leader in the lower-middle-income. Meanwhile, out of the 17 economies in Southeast Asia, East Asia, and Oceania, Vietnam is placed in the 10^th position, showing moderate competition with other countries in the region.

However, the country witnessed a lower ranking than in the previous two years.

Generally, Vietnam still performed better in innovation outputs (41 ) than innovation inputs (59) in 2022, although outputs slid by three positions and inputs improved by the same amount since 2020.

Vietnam excelled in output performance, indicating that the country is effectively seeing high returns and high-quality outputs from investments in innovation.

Comparison with regional performance and income group

At an average GDP per capita of approximately US$9,250,  Vietnam is already performing above expectations for its current level of development. Other countries within the same range of GDP per capita registered much lower GII scores, indicating that Vietnam is the leading country in terms of innovation among the lower-middle income group economies. Indeed, statistics showed that the country outperforms the group average in all GII pillars, including creative outputs, human capital and research, market sophistication, business sophistication, knowledge and technology outputs, and infrastructure.

In comparison with Southeast Asian, East Asian, and Oceania countries, Vietnam’s performance is especially outstanding in the creative output pillar while the performance in other pillars was overshadowed by the regional average.

The rank of Vietnam in the seven GII pillars are presented as follows:

The top performer is creative outputs (35) and the worst-performing criterion is human capital research for Vietnam (80). Meanwhile, although Vietnam reportedly spends up to six percent of its GDP annually on upgrading infrastructure, the rank of this pillar is surprisingly low (at 71), as infrastructure is still unable to keep up with its fast-growing economy.

Innovation strengths

Vietnam shows competence in ten different indicators, mainly in the fields of market and business sophistication; technology and creative outputs:

• Domestic credit to the private sector (as % GDP) ranking 11: This indicator refers to how many financial resources private businesses can access. Accordingly, Vietnam is a favorable playground for enterprises short on capital sources. As of 2020, domestic credit poured into the private sector registered 116.7 percent of the national GDP, up from only 80 percent in 2015, as per the World Bank.
• Domestic industry diversification ranking 9: This indicates the growing trend of Mergers and Acquisitions (M&As) in the domestic industry, pointing to a Vietnamese economy that is hungry for M&A, especially in the technology and real estate market. However, due to the current macroeconomic situation, the second half of  2022 is forecast to see the M&A rate slow down in Vietnam.
• GERD (Gross Domestic Expenditure on Research and Development) financed by businesses ranking 10: From 2014 to 2019, the country ramped up expenditure on R&D, from 0.37 percent to 0.53 percent of the national GDP, as per the World Bank.
• State of cluster development and depth ranking – 14
• High-tech imports (as % total trade) ranking 1: Vietnam is the biggest hi-tech importer, mainly importing from India, China, and South Korea. By September 2022, Vietnam welcomed over 7,100 hi-tech shipments, according to Volza’s Vietnam.
• Creative goods exports (% total trade) ranking – 8
• Mobile app creation ranking 8: This indicates Vietnam’s acceleration in becoming a digital economy. Digital transformation has been applied across all sectors, from private to state management.

Innovation weaknesses

Despite positive signs of innovation, Vietnam still sees room for improvement in several areas. The indicators for weaknesses are as follows:

• Tertiary inbound mobility ranking – 103: The indicator refers to the number of overseas students enrolled in Vietnamese universities, suggesting that Vietnam should examine the current tertiary curriculum and identify what makes it unattractive to foreign students.
• Environmental performance ranking – 128: Accelerating industrialization has left the environmental factor behind and the country is making efforts to remedy the damage caused by industries. With combined national strategies, Vietnam is committed to attaining its COP26 goals and reaching net-zero carbon emissions by 2050.
• Loans from microfinance institutions (%GDP) ranking: 52.
• Knowledge-intensive employment ranking – 106: More should be done in the training of human resources and the government should aim to encourage the workforce to actively engage in technical courses before starting work.
• Information communications technology (ICT) services imports (% total trade) ranking – 130: Most ICT services are currently provided by domestic telecom corporations, including Viettel, VNPT, and FPT.
• ICT services exports (% total trade) ranking: 120.
• Cultural and creative services exports (% total trade) ranking – 94: There is room for growth in promoting cultural and creative services of Vietnam globally.
• National feature films ranking – 68: Despite gaining a certain degree of reputation in the global market over the past years, Vietnam’s cinematic products still have a long way to go.
• Entertainment and media market ranking – 51: Diversifying the entertainment market of Vietnam is currently a top priority of Vietnam’s Ministry of Culture, Sport, and Tourism, given that the available sources of recreational activities and content are relatively limited.

Takeaways

Vietnam is performing extraordinarily well in international trade, especially in hi-tech imports/exports and FDI inflows. Going forward, productivity and innovation will eventually be the main drivers of growth. In the long-term, the country needs to shift from the current model of export-oriented, labor-intensive, and natural resource-dependent growth to a more diversified and innovation-driven economy. This will require continuous reforms to ensure an increase in production efficiency and increased investments, especially in infrastructure, education, and technology.

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