Last updated: Friday, February 17, 2017
Strengthening Private Sector’s RolesPosted: Monday, December 19, 2016
Vietnam Business Forum 2016 (VBF 2016) was held in Hanoi on December 5, 2016 with the theme of “Strengthening the private sector - Fostering partnership between domestic and foreign enterprises for a harmonious development of the Vietnamese economy”.
VBF2016 discussed how to strengthen the partnership between the domestic private sector with foreign investors in all fields and industries so as to enhance competitiveness and penetrability of small and medium sized enterprises into global supply and production chains and foster supporting industries through legislation, finance, accounting and tax policy.
Besides, the forum delved into such topics as human resources and training demands, infrastructure improvement, public-private partnership (PPP) and build-operate-transfer (BOT), capital market, private investment attraction towards green and sustainable development, domestic and foreign investment in bio-energy and renewable energy, mitigation of climate change impacts, and regulations on environmental protection.
Speaking at the forum, Prime Minister Nguyen Xuan Phuc said that the reality of the 30-year renovation (doi moi) process has proved convincingly that the private economic sector is an important driving force of the Vietnamese economy and lift Vietnam’s position in global economic value chains.
Vietnam now has 600,000 registered firms with many private companies performing well both in Vietnam and in the world such as Vietnam Airlines, FPT, Vinamilk, TH True Milk, Bitis, Viet Jet Air and Saigon Tourist. 2016 is the first year when Vietnam has more than 100,000 new businesses established. Besides, more than 3.5 million business households in the country hold great potential for business development objectives to 2020.
PM Phuc said Vietnam now has 21,000 foreign direct investment (FDI) enterprises with a combined investment capital of US$300 billion, including many well-reputed corporations. This sector has huge potential for robust development, accounts for a big share in the economy and establishes effective cooperation with other domestic economic sectors, including private enterprises. Despite existing hardships and volatility, total FDI capital flow into Vietnam has topped US$17 billion in 2016.
In its 2016-2020 socio-economic development strategy, Vietnam is determined to create every possible favourable condition for business development, especially the private sector, thus creating a driving force to elevate competitiveness and self-reliance for the national economy.
“The Government of Vietnam reiterated its continued commitments and efforts to complete market economic institutions along with policies and laws, push forward with administrative reform, enhance the national competitiveness and create favourable conditions for the private sector to develop strongly. The Government will strive to raise national investment environment indexes announced by the World Bank (WB) and competitiveness index rated by the World Economic Forum (WEF) to the average level of the ASEAN-4 countries,” said the Prime Minister.
Prime Minister Phuc called on the Vietnamese business community to actively engage in the process of economic restructuring through diversifying investments with a priority for the PPP form, stimulating start-up business and innovation spirit, enhancing competitiveness and quality of products and services, actively recommending initiatives, policies, and investment projects consistent with green growth and sustainable development objectives, increasing win-win partnership between domestic private FDI sectors in the national economy.
He stressed that Vietnam will not welcome investors who use Vietnam as a place for commit transfer pricing, evade environmental responsibility and go contrary to basic principles and core values that they are committed.
He also requested ministries and agencies study proposals and recommendations put forth at the forum with a view to supplementing and adjusting related policies and legal documents to align with the market economy and international practice. The Ministry of Planning and Investment will be assigned to deploy contents discussed.
Minister of Planning and Investment Nguyen Chi Dung said, up to 97 per cent of Vietnamese companies are of small and medium size. Nevertheless, few companies are big and strong enough to lead the game in the domestic market or join international integration.
Minister Dung also said the Vietnamese business environment improved rankings in the ease of doing business but failed to make a breakthrough. It still stayed at the fifth place among 10 ASEAN countries. Without breakthroughs, Vietnam will be unlikely to climb to the third or fourth position but even face the risk of falling behind.
The Government’s support is like paying the way but businesses need to go on their own foot. They need to cooperate and assist each other to go to the target quickly.
The Government wants to provide the most favourable conditions for business development. Vietnam advocates taking internal forces as the decisive factor and external forces as the important factor and combining forces for rapid and sustainable development. Vietnam targets to have one million businesses by 2020.
“The new regulatory framework has proved effective but challenges still remain. The National Assembly recently adopted the restructuring plan with a focus placed on changing growth models. The National Assembly also opined on the Law on SME Support for consideration in the next gathering. This is the opportunity for the private sector to develop and self-affirm itself in global supply chains,” said Minister Dung.
Madam Virginia B. Foote - Amcham Chair
To improve the business climate, as the Prime Minister has pointed out that administrative burdens can hamper growth and lead to corruption, human resource constraints, and an over-complicated, restricted, and unclear licensing and regulatory environment. Indeed, inconsistent regulatory interpretation, irregular enforcement, perceived favouritism, and unclear laws remain significant challenges as reported by AmCham members.
To further strengthen the private sector, Vietnam needs initiatives that enable and facilitate rather than restrict business opportunities between Vietnamese companies and foreign companies. For example, State Bank Circular 19 will not impose a non-competitive system on top of international systems that are innovative, reliable, secure and used around the globe. Also we encourage the government to ensure a level playing field for foreign invested and domestic casino and other tourism projects.
AmCham urges that the Government increasingly take on the role as regulator and are concerned that regulatory ambiguity can be used to unfairly pick winners and losers.
We urge the Government to implement systems well known globally to increase e-payments and reduce the opportunities for illegal payments in discretionary licensing. The private sector has a role in fighting corruption and AmCham and VBF will continue working with Vietnam Chamber of Commerce and Industry (VCCI) to promote anti-corruption programmes.
Mr Tomaso Andreatta - EuroCham Vice President
The improvement of the administrative environment through the simplification of laws and administrative procedures, the reduction of the scope for abuse by clarifying the regulations and improving the pay of state employees, by guaranteeing answers to the companies dealing with the public administration within reasonable limits and by avoiding approving retroactive laws will make investment in Vietnam more attractive against neighbouring countries in ASEAN and will allow the Vietnamese SMEs to grow taller.
A specific field for improvement in this sense is the full authorisation for infrastructure projects, especially, but not only, if awarded by public bid.
Another major improvement for the local economy will be the completion of the reform of banks so that credit will be available to companies and that of the reform of SMEs that today absorb too much of Vietnam’s resources and enjoy privileges.
Finally the food and agriculture industry, which today often does not meet the safety standards and the quality control that our consumers as well as our European laws demand. One of the reasons Vietnam is still lagging in terms of value added branded food products is the fact that it is difficult to guarantee the content and the perception of quality is to be enhanced. This passes through the creation of new processed food companies in Vietnam, but also through the control of pesticides, fertilisers and pollutants by educating the farmers and enhancing the quantity and capacity of the quality control labs.
Mr Han Dong Hee - KOCHAM Chairman
In order to link foreign investors and Vietnamese companies, it is essential to expand trade relationships where parts and products are procured from Vietnamese companies. Toward this end, there should be policies for FDI companies to expand channels through which intermediate goods can be procured from Vietnamese small and medium businesses.
In order for Vietnamese companies and foreign invested companies to form facilitated partnership, it is essential to come up with a communication channel between two sides. In this regard, it is necessary to formulate an organisation to link foreign invested companies to small and medium enterprises in Vietnam so that business opportunities can be easily secured. Toward this end, Investment Cooperation Council (tentatively named) needs to be pursued among foreign invested companies and domestic companies in order to offer information on promising small and medium enterprises in Vietnam to foreign invested companies before providing a one-on-one counselling.
A policy needs to be introduced to select, reward and proactively promote foreign invested companies that have facilitated exchanges. In addition, if foreign invested companies procure parts or intermediate goods in the domestic market should be encouraged and diversified policy incentives need to be provided to the foreign investment companies in terms of tax benefits and relaxed investment restriction.
In order to induce foreign invested companies to purchase intermediate goods from Vietnamese companies, offering excellent products at competitive prices is the most important matter. It cannot be resolved in the short run, and a lot of thoughts need to be given to deal with it. In addition, programmes aimed to directly link foreign investment companies to domestic workers with high quality need to be designed for the purpose of effective employment matching.
Mr Kenneth M Atkinson - Chairman of British Business Group Vietnam (BBGV)
Taxation, in spite of the reforms, is still a very time consuming part of business. In many cases, tax inspections take place many years after the end of the relevant fiscal year and as the regulations are often open to differing interpretations, even between local tax departments in different cities, business is penalised with heavy penalties and high interest for errors and omissions identified up to 10 years later.
There are also many cases of tax offices chasing businesses for unpaid taxes, which have been paid, because of errors in the tax department. Members have even been asked for copies of online filings because the tax office cannot find them. If companies want to reconcile their tax obligations and payments with the tax office there do not appear to be any dedicated people in the tax office who are able to do this.
We therefore recommend either that tax inspections are carried out annually to avoid penalties and high interest charges for genuine errors or if this is not possible that the method of calculating penalties and late payment interest is changes to reflect the inability of the tax office to carry out annual inspections and not to penalise businesses for this.
Furthermore, we recommend that tax offices dedicate people to reconciling differences rather than just chasing companies needlessly for taxes that have already been paid.