Economic Sector

Last updated: Thursday, February 21, 2019


Private Economy: Barriers in the Way

Posted: Monday, August 06, 2018

Although the Party and the Government have particularly encouraged development, the private sector has not made much progress.

Vietnam had 561,064 active enterprises by the end of 2017, according to the General Statistics Office (GSO). In June, the county saw 64,531 newly established enterprises.

Statistics, however, show that bankruptcies are many. Even, according to a remark at the Vietnam Business Forum 2018 held on June 19, 2018, every six out of 10 business start-ups leave the market. Small and medium-sized enterprises (SMEs) account for over 95 per cent of the private sector.

Barriers in the way
In the last three years, the Vietnamese government has made a lot of commitments to improving the business and investment environment. However, many existing obstacles in policies, procedures and access to capital and land resources drag on the development of SMEs.

Recent research findings on barriers to the private sector conducted by the National Economics University show that the private sector continues to face hurdles in market and sector entry, has difficulty accessing bank loans and encounters numerous difficulties in carrying out tax and customs procedures. Specifically, 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 the time in a month handling tax and customs procedures, while the figure is 14.7 per cent among 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 Vietnamese private firms compete with others around the world,” said Mr Dinh Tuan Minh, Research Director at VietAnalytics, a market research firm.

Besides, corruption is a pain that businesses have to suffer. A survey on PCI 2017 conducted by the Vietnam Chamber of Commerce and Industry (VCCI) found that 59 per cent of respondents affirmed to pay additional unofficial fees in 2017 (compared with 66 per cent in 2015 - 2016).

When will the private sector grow big?
Worse, the size of private enterprises tends to be smaller, according to surveys by GSO and VCCI. Furthermore, in many years, only about 40 per cent of companies are profitable. In 2017, the private sector had the smallest share of the country’s export value in history with just 28 per cent, meaning that the connectivity of the Vietnamese private sector into global economic chains has not been successful.

Dr Nguyen Dinh Anh, a banking and financial specialist, said, the private sector contributes over 40 per cent to the GDP, but business households and farming households make up over 35 per cent. 650,000 active enterprises contribute merely 6 - 7 per cent to the GDP.

Compared with other economic sectors, the private sector is still very small. Very few private enterprises are industry leaders, particularly in fields that require substantial investment in technologies, market research and business development support networks.

Dr Nguyen Duc Kien, Vice Chairman of the National Assembly’s Economic Committee, said many Vietnamese companies fail to meet five decisive business factors: Business strategy, corporate governance, science and technology application, labour management, and human resource training. Thus, although the Government has created more favourable conditions, they cannot adapt to grow disruptively in short and medium terms.

In its Resolution 19 of 2017, the Government set a target of making business climate indicators on par with ASEAN 4 by the end of 2017. According to Mr Phan Duc Hieu, to reach the ASEAN 4 level, Vietnam must raise its current rank of 68 to 40, or climbing up 28 places. To realise this ambitious goal, Vietnam not only needs to quickly clear barriers, but also generate stimulating factors like ensuring business safety for enterprises, like the rights to asset and intellectual property rights.

Nguyen Thanh

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