Mobile fuels growth in Vietnam

Paul Ruppert
12 Feb 2007
00:00
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Vietnam's recent admission into the World Trade Organization (WTO) signifies a country that is poised for economic growth. Hosting the Asia Pacific Economic Summit gave world leaders a glimpse of the new promise of Vietnam. Macro-economic issues such as foreign direct investments (FDI) and currency regulations are important to ensure that this country has the ability to follow its WTO partners in developing and sustaining a viable, vibrant economy. But I believe that Vietnam's economic growth will actually revolve around a simple, everyday item - the mobile phone.

Based on studying the correlation between mobile phone usage and the rate of economic development in rapidly growing economies, it's clear that mobile communications drives faster economic growth. In fact, The Center for Economic Policy Research (CEPR) gauges that a 10% increase in mobile phone penetration leads to increased additional economic growth of 0.59%. This is twice the size of the growth impact of mobile phones in developed countries. Vietnam's mobiles will play the same role as the spread of fixed-line telephony did in countries like the US, UK and France in the 70s and 80s, but in half the time.

The reason there is such a clear connection between Vietnam's economic growth and mobile phones is that having access to previously unavailable voice service, and increasingly access to the Internet and data through mobile communications, enables Vietnamese businesses to operate more efficiently. The mobile phone brings them the same capabilities that computers bring to business in the West. Just for considerably less money.

Mobiles are a great enabler of developing economies in general, but they are having an even greater impact in Vietnam because of a convergence of three factors. First, Vietnam's government is moving from a controlled communist economy and evolving to a market-oriented one. Second, 54% of Vietnam's population is under 30. Young mobile users spend a larger share of their consumer power on both voice and messaging than any other age group. These young Vietnamese are also more supportive of market economies. Roughly two-thirds of Vietnam's population was born after the 1975 re-unification, so the embracing of market economics will only continue to expand and grow stronger with continued use of mobile phone services.

Third, is Vietnam's underlying embrace of micro-capitalism. The Asian Development bank reports that over 50% of Vietnam's households run small businesses. Not surprising since the growth of mobile services and applications feeds micro-enterprising activities - from mobile banking that enables women entrepreneurs to start home businesses, to traffic jam information posted as SMS alerts, as well as daily crop prices texted to assist farmers balance their crops and create markets. Mobile phones make growth inclusive, providing a key commercial, and essential communications tool at the most individual level, with a clear association to higher living standards.

In the last three years, Vietnam's mobile phone market has boomed, exceeding the economy's 8% average growth rate and posting one of the highest growth rates of mobile users in the world. This past year the number of mobile subscribers increased by seven million, a 70% jump, reaching 17 million in a country of 84 million people. Market researchers expect Vietnam to have 46 million mobile phone users by 2010, growing 270% from today's level.

Mobile fuels growth

Based on the CEPR formula, Vietnam will see an additional GDP growth of 16% due to the growing ubiquity of mobile communications over the next four years.

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