Private Sector Must Be Main Growth Engine

 

This is the proposal of the Vietnamese business community that Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), stated at the Midterm Vietnam Business Forum 2015. He said, together with the effort for macroeconomic stability, two important reform moves of the Government of Vietnam - the accelerated negotiation and conclusion of new-generation free trade agreements (FTAs) with leading partners in the world and institutional and administrative reform programmes according to Resolution 19 - have boosted the confidence of the business community. According to VCCI business survey announced in April 2015, 46 percent of private businesses and 50 percent of FDI firms plan to expand their operations in the coming time. These rates are the highest since 2012.

 

However, domestic private sector performance has not improved significantly, he added. Nearly 70 percent of businesses do not make a profit although the domestic private sector contributes nearly 50 percent of GDP, including 33 percent from the individual economic sector. Less than 2 percent of private businesses are considered big, 2 percent are medium and 96 percent are small and very small. Small companies have weak governance, low technology, difficult access to capital, difficult market access and low competitiveness.

 

Loc said, in the long term, the domestic private sector must the main growth engine, must ensure the autonomy of the economy and must ensure effective connection of FDI and domestic sectors. Thus, to enable the domestic private sector to take on this role, VCCI proposed the Government have overall action programmes to boost private sector development in the future.”

 

Accordingly, Vietnam needs to build and carry out the “National Entrepreneurship Programme" with the aim of guiding professional careers for students and supporting establishment of new innovative businesses and companies that support sectors and fields of Vietnam’s competitive advantages. In the short term, priorities will be placed on agribusiness in association with food processing industries (forming production chain from production, farming, processing to distribution), agricultural machinery manufacturing, electronics, information technology, garment and textile, wood processing, pharmaceuticals and tourism. Supports will be allocated to chains rather than individual businesses or stages as now.

 

Besides, it is necessary to simplify business conditions and administrative procedures of enterprise establishment and operation, enhance working skills training at all universities and vocational schools, and set up required business start-up training programmes for entrepreneurs. It is also important to immediately develop and implement an extensive training programme to improve governance capabilities for active businesses and introduce international corporate governance standards.

 

To raise funds for small and medium-sized enterprises (SMEs), Vietnam needs to have effective lending programmes: Further lowering medium-term and long-term lending rates, streamlining lending procedures and conditions, adopting new lending forms like chain-based lending, increasing financial leasing methods, developing credit guarantee via the Vietnam Development Bank and credit guarantee funds, and expanding credit lending forms based on business projects rather than security assets.

 

Besides, Vietnam needs to strengthen technology and market information system, connect information systems of State bodies and business associations, and expand trade and investment promotion for businesses. Training service supply, technology and market information, and business promotion support should be assigned to business associations towards the socialisation of public services as guided by the Government’s Resolution 19. Vietnam has 400 active business associations and they will be effective aides to the Government in applying SME supports.

 

Regarding administrative reform, the Resolution 19 has actually paved the way for ground-breaking progress in tax, customs, social insurance and business establishment. According to VCCI survey results, for the first time in many years, in 2015, more than 70 percent of businesses are satisfied with tax reform. That is a great progress. This shows that if the Resolution 19 is implemented seriously, it can open up breakthrough prospects in many fields in a short time. But, this requires combined efforts of all ministries and branches, from thinking and standpoint to action. Administrative procedure reform will be brought to a new level when the new Law on Enterprises and the new Law on Investment take effect. A lot of business conditions and permits are expected to be reviewed and removed. Vietnam now has 5,000 business procedures and conditions applied in 267 business fields stipulated by the Law on Investment.

 

The Government not only builds a favourable business environment but also ensure the safety of enterprises. The weakness of legal institutions that protect legitimate rights and interests of enterprises is a top concern now. The slowness and injustice at court, criminalisation of economic relations and weak effect of court rulings are sending a signal of necessary judicial reform together with administrative reform to enhance the capacity of judicial authorities and ensure enforcement, improve confidence and commitment of enterprises.

 

The Government is negotiating many FTAs, including important new-generation FTAs like TPP and EVFTA. Nevertheless, not many businesses understand these FTAs and much fewer have preparations for FTAs. To address this, the Government needs to consider establishing a mechanism for competent authorities to cooperate with coordinators of business community like VCCI to timely provide necessary and possible information on negotiations and commitments for enterprises and assign a competent authority to instruct and explain commitments to businesses when there are different interpretations.

 

Besides, the National Assembly and the Government should promulgate the Law SOE Equitisation, the Law on SME Support, the Decree on Business Associations and other regulatory documents to strengthen the legal basis, create an equal business environment and promote the development of the private sector.

 

Foreign-led businesses need to cooperate with governmental agencies, VCCI and business associations to carry out programmes to support SMEs, especially in industrial development, to make them suppliers and vendors in value chains, to enhance business efficiency and create technological and expertise ripple effects in the Vietnamese economy.