Private Economic Sector: Resistant to Raging Waves

Actually, the private sector occupies a very important role in the Vietnamese economy. Robust private sector growth in both quality and quantity is most obviously seen in export, investment and human resources. Particularly, in the process of international economic integration, the private sector is standing firm, dominating the domestic market and competing with companies from other countries.

 

When the global economic crisis happened two years ago, many leading companies with centuries of development history and assets worth hundreds of billions of US dollars collapsed before this raging wave. In Vietnam, many leading State-owned corporations and economic groups had to struggle to survive and even nearly went bankrupt. According to experts, in the economic crisis, over 90 % of small and medium enterprises (SME) survived and this was a common rate in developing countries.

 

Vietnam presently has over 500,000 companies with up to 97 % being SMEs, mainly private entities. SMEs are currently employing 50.1 % of the workforce and contributing over 40 % to the country’s GDP. If 133,000 cooperatives, farms and business households are included, SMEs make up 60 % of GDP. SME development has played an enormous role in national economic development in recent years.

 

Not only a very small operating scale, medium-sized enterprises in Vietnam have operating capital from VND20 billion to VND100 billion (US$1 - 5 million) and the largest business of this type has about 300 employees. For small businesses, their capital is about VND20 billion, and employ at most 200 workers. However, SMEs, particularly in the private sector, have a much lower ICOR ratio than State-owned enterprises and foreign-invested businesses. (The incremental capital-output ratio (ICOR) is the ratio of investment to growth which is equal to 1 divided by the marginal product of capital. The higher the ICOR is, the lower the productivity of capital). According to economists, to create a unit value of GDP, the private sector needs only 3.74 units of investment, while the State sector needs up to 8.28 units of investment and foreign-invested businesses require 4.99 units. The revenue on asset ratio of the private sector is also higher than other sectors. According to a survey, with VND1 billion of assets, a private business will generate revenue of VND1.18 billion, compared with just VND800 million in the State sector and VND890 million in the foreign-invested sector.

 

This proves that SMEs can generate better business results and obviously have a better adaptability and development than other economic sectors.

 

In truth, the private sector is critically important for the rebound of the national economy, according to experts. This is also a model of economic development in many countries around the world.

 

According to the Steering Committee for Enterprise Reform, the number of private enterprises increased 15 times from 31,000 in 2000 to over 400,000 at present. The average value of registered capital of an enterprise rose 10 fold from VND900 million in 2000 to VND9 billion in 2010. About 1.44 % of enterprises had registered capital of VND200 billion or more. Vietnam is expected to see 650,000 new companies established from 2011 to 2015. This will be a strong force to create growth momentum for the economy in the future.

 

Although private sector development policies have been strongly reformed to help this sector contribute most to overall national development, the change is, according to many businesses, still modest. In particular, with the growth model of this new period, the Government needs to capitalise on private sector advantages to serve sustainable development objectives in the future. Once the private sector expands, it will create greater growth momentum and further strengthen the national economic foundation. Therefore, Vietnam should have good policies to attract the participation of this sector in important fields like infrastructure and education.

To date, the role of private SMEs has been confirmed in our country. But, we also need to better define the position and scale of this economic sector. According to statistics all over the world, including developed economies, the role and position of SMEs are very important. Hence, it is advisable to stimulate more vigorous growth in this sector. Each year, we add 65,000-70,000 new jobs to the workforce. The cost of creating a new working position is VND436.5 million at State-owned enterprises (SOEs) but just VND224.4 million at private enterprises, just over half. This will also significantly reduce burdens on the government.