Growing Confidence, Maturity of Private Economy
The Resolution of the Central Party (12th term) regards private economic development as an important driving force for Vietnam's economy. The government has translated it into breakthrough actions in 2019 and considered it the heart of breakthrough development and an important motivation for the nation in the coming time.
Many bottlenecks in the way
The maturity of the private sector has helped the Vietnam’s economy to grow rapidly over the years. Currently, Vietnam has about 600,000 enterprises, including nearly 500,000 private enterprises. Among them, over 96% are small and medium in size, 2% are medium and 2% are large. The private sector creates about 1.2 million jobs and contributes more than 40% of the gross domestic product (GDP).
The capital performance of the private sector is 1.2 times higher than the average of the economy and 1.9 times more than the State-run sector. The role of the private economy becomes even more important as science and technology has become a direct production force.
The private sector always contributes above 43% to the country’s GDP (versus 28.9% by the state sector and 18% by the FDI sector). Private trademarks are not only recognized in the domestic market but also in regional and international markets. Vietnam already has large-scale private businesses both in capital and high technology and their presences have been on the world business map.
Vietnam aims to have at least 1 million enterprises by 2020, more than 1.5 million by 2025 and at least 2 million in 2030. The private economic growth is higher than the economy. The sector is expected to contribute about 50% of GDP in 2020, 55% in 2025 and 60-65% in 2030.
However, according to Dr. Pham Thi Thanh Binh from the World Economic and Political Institute, the private economy has not fully played the important driving role in the economy. Management, financial capacity, product quality, weak competition, weak connectivity to and involvement in value chains, trade fraud and unfair competition are still their major popular concerns.
The legal environment for the private sector has not been completed. Many regulations are incomplete, unclear, inconsistent, complex and overlapping. Administrative procedures, access to land, credit market and investment opportunities hinder private sector development. Their business costs, transportation costs, logistics, wages, insurance and interest rates are high.
On the other hand, tax policy is not inclusive and discrimination between state-owned enterprises and private enterprises still exists. Some policies cover only SOEs, not privately owned ones. Apart from difficulties in economic institutions, inefficient administrative apparatus, and unclear administrative procedures and accountability mechanisms, many businesses have to pay informal charges to have their work solved. These shortcomings make the private sector smaller and less developed.
Especially, lack of markets and production-business grounds is the biggest obstacle to them. Solving administrative procedures barriers is a must, but marketplaces and business connections will help businesses develop rapidly.
Unlocking resources
To mobilize resources and facilitate the private sector, right from the beginning of 2019, the Government issued Resolution 02 on improving the investment environment and reducing business conditions. Vietnam needs to implement this Resolution more substantially. Central and local authorities have to reduce business conditions, procedures and costs for businesses to operate more conveniently and improve their competitiveness and economic competitiveness as a whole, said Minister of Planning and Investment Nguyen Chi Dung.
“Besides, it is necessary to have right understanding of the private sector. Knowledge of this sector is incomplete and incorrect in some localities and among some people,” he added.
Vietnam has worked to facilitate the private sector. Many big private businesses have emerged, such as Vingroup, Sun Group, FLC and VietJet. Indeed, they are all self-made and State supports are significant. Specific policies of the Government for large-scale projects are not strong enough. For that reason, in the coming time, Vietnam needs to focus on this.
According to Minister Dung, Vietnam will need to have its own policies in order to have necessary supports for big enterprises, for example, support access to science and technology, credit and land. And, most importantly, the State creates a larger playground for big businesses to play a greater role in the economy and give a growth boost to other companies.
Dr. Pham Thi Thanh Binh said, in addition to building a favorable business and investment environment for private development, the State should support the private economy to innovate and modernize technology, develop human resources and improve labor productivity. It should encourage and support the private economy to invest in research and development and advanced technology transfer, ensure effective enforcement of intellectual property laws, and develop innovation and tech application support funds.
Reportedly, the Government assigned the Ministry of Planning and Investment to develop a national strategy for the fourth industrial revolution development, with expected to have a good vision and orientation. Hence, Vietnam can go faster, more sustainably, embrace opportunities and succeed against challenges.
Quynh Chi
Vietnamese
