Economic Sector

Last updated: Tuesday, March 19, 2019


Clearing Obstacles against Private Sector

Posted: Monday, July 30, 2018

“By numbers, the private economic sector far outweighs others, but its performance has not improved much,” said Mr Hoang Quang Phong, Vice President of the Vietnam Chamber of Commerce and Industry (VCCI), at the Forum on “Implementing Resolution 10-NQ/TW on continued improvement of the environment for private economic development” held recently in Hanoi.

On June 3, 2017, the Party Central Committee issued Resolution 10-NQ/TW figuring out the path for private economic development: Developing a healthy private economy under the market mechanism is an objective, urgent and long-term requirement in the process of perfecting the institutions and developing a socialist-oriented market economy in Vietnam.

Particularly, the 5th Plenary Meeting of the 12th Party Central Committee (in May 2017) reaffirmed and placed priority to developing the private economy into a “truly important driving force of the socialist-oriented market economy with a target of having more than 1.5 million enterprises by 2025 and at least 2 million enterprises by 2030.” The private sector will contribute 50 per cent to the country’s gross domestic product (GDP) by 2020, 55 per cent by 2025 and about 60 - 65 per cent by 2030.

Many barriers in the way
He said, while implementing the Resolution at all levels, branches, localities, business associations and enterprises, the enforcement of guidelines and policies on private sector development is inconsistent and shortcoming. Many regulations on private economy have not been strictly executed. The business and investment environment is limited, risky and lacks transparency. Administrative procedures are cumbersome, complicated, harassing and troublesome, while civil servants are irresponsible and abuse their power. Hence, enterprises in general and private enterprises in particular find it hard to grow.

By numbers, the private economic sector far outweighs others, but its performance has not improved much.

According to surveys conducted by the Vietnam Chamber of Commerce and Industry (VCCI), nearly 70 per cent of businesses are still unprofitable. The private sector contributes nearly 50 per cent to the GDP, but economic household sector makes up over 33 per cent.

Among privately-held businesses, less than 2 per cent are large-sized and another 2 per cent are medium-sized while 96 per cent are small and micro. Thus, the Vietnam’s economy seriously lacks medium-sized enterprises to become channels that connect to global value chains and directly participate in the international market.

Micro and small companies typically are weak at governance and technology, inaccessible to fund sources and markets, and uncompetitive, Mr Phong said.

Besides, private businesses have to face a lot of hurdles such as disagreement in awareness, development level, barriers to business environment and inequality.

In fact, administrative costs double the quoted value. Administrative procedures have been improved but still burdened. The cost of doing business in Vietnam is rising fast, higher than the growth of labour productivity which has led to other costs. These are really a burden for businesses. Furthermore, it is almost unlikely to link Vietnamese businesses with foreign-invested firms.

How to promote?
The private sector is the star of hope of the economy. Therefore, not only reforming economic institutions and business environment, the State should introduce “industrial policy” to foster the private development. Fast-growing economies in the world have done so but it is still limited in Vietnam.

To do this, Vietnam needs to continue effective solutions to support the private development, he added. Specifically, it is necessary to simplify business conditions and administrative procedures for enterprise establishment and operation to a maximum; enhance governance capacity for active enterprises, ensure international corporate governance standards; have effective loan programmes for small businesses, further simplify lending procedures and conditions, implement new lending arrangements and have breakthrough solutions to assist businesses to access land and business premises, and build industrial zones for small and medium enterprises. At the same time, it is important to strengthen information systems on technology and markets, link State information systems with business associations, and boost trade and investment promotion for SMEs.

In addition, it is necessary to rethink the incentive system, encourage high-quality FDI into Vietnam, and focus on the manufacturing industry. “It is recommended that FDI firms, particularly transnational corporations, cooperate with Vietnamese government agencies, with VCCI and with business associations to actively implement domestic SME support programmes,” Mr Phong concluded.

Mr Nguyen Duc Kien, Vice Chairman of the Economic Committee of the National Assembly
To bring the 2013 Constitution to life, for the four years from 2013 to 2018, the National Assembly and the Government have promulgated many laws to facilitate the private sector to develop and consolidate its legal position to use social investment resources for economic development and national development.

While amending some important laws such as the Land Law, the Law on Enterprises and the Law on Investment, upgrading the Law on Enterprise and the Investment Law 2014 is a stepping stone to institutionalise the Platform of 2011 and the Constitution of 2013 on the freedom to do business of the people substantiates that people and enterprises are free to do business and authorities can only apply business restrictions defined by the law.

Laws also put forth measures to encourage the private sector to buy shares, contribute capital to State-owned enterprises (SOEs) to gradually acquire State stakes in enterprises operating in sectors where the private sector can undertake to improve the business performance of the private sector and ensure the high growth of this sector.

With administrative measures and institutional measures, authorities actively take part. In August 2017, the National Assembly’s Standing Committee issued a resolution on report on the results of specialised supervision of “implementation of policies and laws on investment and operation of traffic works in the form of build-operate-transfer contracts,” which pointed out 13 shortcomings in carrying out the public-private partnership (PPP) investment form and put forth six groups of solutions to address those shortcomings. Solutions focus on perfecting policies and legal systems on PPP mechanisms and ensuring shared interests for the people, the business and the State.

Economic expert Dinh Tuan Minh
Despite having many barriers lifted for easier development, the private sector still faces many challenges in development process.

A recent study on barriers to the private sector conducted by the National Economics University showed that the private sector continues to encounter barriers to sector entry, has difficulty accessing bank loans and meets hardships in tax and customs procedures.

The probability of acceptance of bank loans will be reduced by 23.7 -26 percentage points if the applicant is an SME. However, it will be raised by 2.3 - 2.8 percentage points if it is State-owned. The survey into 699 companies showed that the private sector spent more time on these procedures than SOEs. As many as 34.1 per cent of private companies spend more than 20 per cent of time in a month handling tax and customs procedures while there is 14.7 per cent for SOEs.

Furthermore, the private sector faces similar challenges to other domestic firms in human resource quality, rising wages and insurance costs, and higher logistics costs.

These challenges need to be addressed to help private Vietnamese firms compete with others around the world.

Quynh Anh

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