The report on "Strengthening the private sector’s capacity in the new period" published recently by the Central Institute for Economic Management (CIEM) shows an increasing number of private enterprises in the list of the top 500 largest enterprises in Vietnam in the past five years.
Six private corporations are included in the list of large groups in Asia and the world. In addition, the private sector contributes up to 40% of the country’s GDP and creates millions of jobs. It has an increasingly important position of in the Vietnamese economy.
In 2015-2020, the number of newly established private enterprises increased steadily every year, from about 70,000/year on average in the period of 2006-2014, to 120,000 in the period of 2015-2020. In 2011, there were about 325,000 private enterprises in Vietnam and in 2019, the figure was 647,000.
The scale of production and capital of private enterprises also rose sharply, from VND 6,875 trillion in 2011 to VND 24,024 trillion in 2019, nearly 3.5 times higher.
However, the report pointed out many limitations of the private sector. Private enterprises are mainly small and micro-sized, with low technology and management level, limited ability to link and cooperate in business, and weak ability to participate in regional and global value chains, and low effectiveness. The contribution of the private sector is not really commensurate with the quantity and scale and has not properly reflected the potential.
Lack of a "launch pad"
Economic experts say that for over 30 years of development, Vietnam has not yet built a strong team of private enterprises which play the role of a "launch pad" for the country's economic development.
In 2016, the Vietnamese Government issued Resolution 35/NQ-CP on supporting and developing businesses, which set the target of having one million enterprises, including large-scale enterprises with strong resources and the private sector to contribute 49% of the country’s GDP by 2020. However, both goals were not observed.
In the world, strong economies all rely on the leading role of large private groups. South Korea, once from a poor country, has become a powerful economy thanks to chaebols such as Samsung, Hyundai, Posco, LG, and SK. In the US, the 500 largest groups have total revenue of about 13 trillion USD per year, accounting for more than two-thirds of the country's GDP. In Japan, large corporations such as Toyota, Mitsubishi, Panasonic, etc. have made great contributions to this country over the past 50 years.
In Vietnam, there are more than 700,000 private enterprises at present, but 96% of them are small and micro firms. The average equity of a small private enterprise in Vietnam in 2019, before the Covid-19 pandemic, was 54,000 USD, with about 10 employees.
Minister of Planning and Investment Nguyen Chi Dung said that to achieve the goal of becoming a developed country by 2045, Vietnam must rely on the private sector. Vietnam has only ten years left to do this, because by 2030, Vietnam will enter the period of an aging population.
“I am very impatient because private enterprises are not willing to grow. Many policies to develop the private sector have been issued but they have not been effective. How to stimulate small businesses to grow, to stimulate people to invest capital in doing business, instead of buying gold to store or invest in real estate," said Minister Dung.
Vu Tien Loc, former Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), said the Vietnamese economy cannot rely on any other productive force other than the private sector, especially the large private corporations that are changing the face of the country.
Private corporations are the engine of the economy. The development of private enterprises means reducing public debt for the State. This is the “army” that enriches and brings prosperity to the country. It is a fact that the more open Vietnam is, and the more free trade agreements (FTAs) are signed, the more the foreign-invested sector benefits, not Vietnamese enterprises.
Vietnam should change its policies to promote the development of large private economic groups and consider them as the driving force for development, Loc said.
Vietnam to focus on developing private sector
In early 2021, the Government assigned the Ministry of Planning and Investment to develop a resolution on enterprise development for the period of 2021-2025, with a vision to 2030. This resolution aims to develop 1.3-1.5 million enterprises, including many large enterprises by 2025. Experts said that it is possible to achieve this goal in terms of quantity, but to create many large and powerful private corporations that can compete globally is a hard job.
The problem is that the business environment still has many barriers for private enterprises. Private enterprises said that State-owned (SOEs) and foreign-invested (FDI) enterprises are still given priority. For example, it is very difficult for private firms to have land for production and business, but SOEs and FDI enterprises enjoy many preferential policies on land. It is similar for tax and fee policies. Local governments always favor SOEs and FDI enterprises over private companies.
According to a survey by the VCCI, 39.5% of private enterprises said that local leaders still prioritize attracting foreign investment and SOEs rather than the private sector. Private enterprises always face difficulties in accessing land and capital and disadvantages in terms of inspection, tax, and customs compared to FDI enterprises and SOEs.
In addition, the legal system related to business still has many inconsistent procedures and conditions, causing obstacles for private enterprises. Currently, the trend is to empower ministries, and these agencies impose their own business conditions and administrative procedures, causing complexity and overlapping. This is contrary to the spirit of the Law on Investment and the Enterprises Law in that only the Government and the higher-level bodies set business conditions and administrative procedures.
To improve the capacity of the private sector in Vietnam, the Central Institute for Economic Management proposes supporting enterprises to restore production and minimize the negative impacts of the Covid-19 pandemic; Continue to perfect mechanisms and policies to improve the business investment environment; Promote the application and development of technology, innovation, digital transformation, taking advantage of the achievements of the Fourth Industrial Revolution; and develop policies to promote private enterprises to deeply participate in the value chain, making effective use of new-generation free trade agreements. Strengthen the connection and linkage along the value chain between private enterprises and FDI enterprises; and promote the development of small and medium-sized private enterprises while developing a number of large private economic groups with strong potential and regional and international competitiveness.
Vietnam's emerging and dynamic private sector proved its resilience during the Covid-19 pandemic as it helped the country become one of the few countries to obtain positive growth in 2020.