Vietnam has recently opened its data center market to foreign investors, eliminating ownership caps that previously limited foreign participation. This major change, which took effect with the Law on Telecommunications on July 1, 2024, is expected to transform the landscape for data centers in the country. The regulations specifically governing these centers will come into effect in January 2025.
Typically, Vietnam restricts foreign ownership to a 49% cap in several industries. The new law marks a significant shift, offering global players full ownership in the data center sector. This is a crucial development, especially for companies looking to expand their cloud computing and data infrastructure in Southeast Asia.
Why Vietnam? An Emerging Hub for Data Centers
Vietnam’s new regulations are part of a broader effort to bolster its data infrastructure, in line with the growing trend of data localization laws. Under current regulations, companies must store personal and user-generated data locally. Foreign firms have previously raised concerns about data localization and privacy, but this new policy is a win for those eyeing the Vietnamese market for expansion.
Current Data Center Landscape
According to the Data Center Map, Vietnam currently houses 23 data centers, with key players such as Viettel IDC estimating that the market will reach US$1.26 billion by 2030, with an annual growth rate of 10.8%. While Vietnam's data center market shows immense potential, it still lags behind other ASEAN nations like Indonesia and Malaysia, which have grown six times faster than Vietnam between 2020 and 2022.
Advantages of Vietnam for Foreign Data Center Investors
Vietnam’s status as a China+1 destination for manufacturing has made it an appealing alternative for data center investments. Rising costs in traditional data center hubs like Japan, Singapore, and South Korea are prompting investors to consider Vietnam, alongside countries like India, due to lower operational costs and increasing demand.
Competitive Factors
For Vietnam to compete more effectively with regional peers, the country will need to:
Improve Regulatory Clarity: Streamline bureaucracy and offer clear, investor-friendly guidelines.
Upskill Workforce: Invest in training programs to build a skilled workforce for data center operations.
Enhance Infrastructure: Scale up infrastructure to meet the growing demand, particularly in energy supply and digital networks.
As it stands, Vietnam can only meet about 30% of current data center demand, highlighting the need for significant investment from both the government and private sectors.
Learning from Past Mistakes
Vietnam’s rapid expansion in renewable energy, especially solar, offers lessons for the data center sector. Despite generous Feed-in Tariff (FiT) incentives, Vietnam's power grid could not keep pace with the surge in solar capacity, forcing the government to limit energy output. Similar pitfalls, such as inadequate infrastructure and vague regulations, should be avoided in the data center market to prevent investor hesitancy.
Key Players and Future Prospects
Though tech giants like Google, AWS, and Microsoft have yet to establish significant data center operations in Vietnam, other global and regional players are making moves. NTT from Japan and Hong Kong-based firms have set up data centers, while local companies such as Viettel, FPT, CMC, and VNPT have expanded their presence the market. Alibaba is also eyeing Vietnam as a potential site for data centers.
In an exciting development, Google is considering a hyperscale data center near Ho Chi Minh City, driven by the country’s rapidly expanding digital economy and the growth of platforms like YouTube.
Legal Framework: Key Laws Governing Data Centers
Foreign data center investments are primarily governed by the Law on Investment and the Law on Cybersecurity. Previously, foreign investors had to establish joint ventures or partner with local companies. With the recent removal of ownership caps, foreign investors can now fully own data centers, a move that is expected to bring more clarity and investor confidence. Further guidelines regulatory updates are expected via new Decrees and Decisions from the government.
Final Thoughts
Vietnam's decision to open its data center market to foreign investors marks a turning point in the country's digital transformation journey. As global and local players eye this lucrative market, the focus will need to shift toward improving infrastructure, clarifying regulations, and upskilling the workforce. With the right investments, Vietnam could become a key hub for data centers in the Asia-Pacific region.
Comments