Smoothing the journey
Vietnam is working towards creating one million private businesses next year. In order to reach this goal, the government will place a major focus on removing current obstructions undermining their competitiveness.
Prime Minister Nguyen Xuan Phuc (second from right) takes a look at the new VinFast car at the Vietnam Private Sector Economic Forum 2019
Prime Minister Nguyen Xuan Phuc, in his speech at last week’s Vietnam Private Sector Economic Forum 2019 in Hanoi, impressed more than 2,500 entrepreneurs in the National Convention Centre by appealing to the consolidation of confidence among people, privately-owned enterprises (POEs), and the government via a healthy, fair, and transparent business climate.
“We will continue creating the best conditions, resources, and opportunities to the private sector to develop further, with the keywords of creating equality, encouragement, being protected, and offering opportunities,” PM Phuc stressed.
Referring to equality, the prime minister wishes to see that the private sector is equally treated before the law and in competition and allocation of resources with other economic sectors. He also wants POE assets to be protected, with freedom in business given to them under the law.
At the same time, PM Phuc asked that POEs, especially those with social responsibility, are given encouragement by the government, while also being afforded opportunities in access to resources and technologies. It is expected that over the next few days, the government will release a resolution on developing the private sector in Vietnam.
Current government policy is to build up multi-sectoral economy, in which the private sector plays an important part. The sector is creating 45 per cent of GDP and 30 per cent of state budget, and using 85 per cent of Vietnam’s labour forces.
Phung Quoc Hien, Vice Chairman of the National Assembly, told the forum that with the sector growing rapidly over recent years, the National Assembly and the government will fuel their development with new policies which can help them out of difficulties.
“All the new policies are in line with Resolution No.10-NQ/TW of the fifth plenary of the 12th Party Central Committee in June 2017, which defines the private sector as an important impetus of Vietnam’s economy,” Hien said.
According to him, the National Assembly and the government are revising laws on local government organisation, enterprises, investment, land, securities, and intellectual property. “They will be revised this year so that obstructions of enterprises and investors will be removed. Enterprises will find it more favourable to join and leave the market, with lower costs,” Hien said. “For example, the Law on Investment will be revised, in which the definition of business conditions must be clarified so that the concept can be distinguished from technical standards for business.”
Over recent years, sub-licences and the vague definition of business conditions have made it difficult for localities to attract more investment, according to the Ministry of Planning and Investment (MPI).
A SPECTACULAR SURGE
The resolution of the fifth plenum of the 12th Party Central Committee affirmed the need to promote the private sector to be an important propellant of Vietnam’s socialist-oriented market economy. This is an important milestone given that private businesses experienced volatile growth in the past. The resolution aims at one million active POEs in 2020, 1.5 million in 2025, and two million in 2030. It also sets targets of the private sector contributing 50 per cent of GDP in 2020, 55 per cent in 2025, and 60-65 per cent in 2030.
In the pre-1986 command-based economy, POEs were not officially recognised. In 1986 the doi moi policy was launched, under which the private sector was officially recognised as part of the economy. Gradually, the sector was broadened. Subsequently, the revised Law on Enterprises 2014 has triggered a boom in the development of POEs in Vietnam.
According to the MPI, the number of active POEs rose from 324,700 in 2011 to 561,000 in 2017, and then 715,000 as of August 2018. Last year saw the establishment of 131,275 enterprises registered at $64.26 billion, up 3.5 per cent in the number of enterprises and 14.1 per cent in capital, as compared to 2017. Alongside that, operating enterprises increased their capital by an additional $104.7 billion. Also, over 34,000 enterprises resumed operation, up 28.6 per cent on-year. In the first four months of 2019 the economy saw a record four-month number of over 43,300 newly-established enterprises, registered with $23.6 billion, up 4.9 per cent in the number of enterprises and 31.7 per cent in capital, as compared to the same period last year. Moreover, operating enterprises also increased their capital by another $37.9 billion. Besides, since early 2019, nearly 17,500 enterprises have resumed operation, up 52.6 per cent on-year. Total investment ratio by POEs in the economy’s total development investment has continued to climb, from 38.7 per cent in 2015 to 43.3 per cent last year.
The private sector has contributed remarkably to GDP, at 43.22 per cent in 2015 and 45 per cent last year. It also holds 30 per cent of Vietnam’s industrial production value, nearly 80 per cent of total retail and service revenue, and 64 per cent of total transported goods.
“Thus, growth and expansion of the private sector has contributed tremendously to the economic achievements in Vietnam over the last decade,” said PM Phuc.
DISCRIMINATION IN TREATMENT
Dinh Ngoc Lam, director of a cocoa production firm and farm in the Central Highlands, told VIR that it took years for his company to get hundreds of signatures from a range of state officers, ministries, agencies, localities, districts, and communes for a plot of land used for planting cocoa trees.
“It’s a waste of time and money. I had lost a lot of money before being able to put our company into operation, with our investment certificate granted months after I had already met all necessary conditions,” Lam said. “Despite the government’s efforts to cut down and simplify administrative procedures, enterprises like ours are still suffering from these complicated procedures.”
“Meanwhile, another big investor with a forestry project nearby found it quite easy to obtain an investment certificate, which was granted within just a few days,” he said.
According to a recent survey by the Vietnam Chamber of Commerce and Industry, POEs remained the most disadvantaged group. In 2016, more than 38 per cent of businesses claimed that “the favouritism of provincial authorities toward state-owned enterprises (SOEs) caused difficulties to their firms’ business operation,” up 6 per cent against 2013.
More than 42 per cent of businesses agreed with the statement that “the provincial authorities seem to prioritise foreign direct investment attraction to domestic private sector development,” up 14 per cent against 2013.
Le Duy Binh, an economist at development consultant and policy analyst Economica Vietnam, said that the government’s past economic strategies to assign a leading role to SOEs has held back POEs from fully exploiting opportunities of global integration. The government has sheltered SOEs from competition through preferential access to resources and restrictions on market access for POEs “State economic groups were granted preferential treatment in access to land, export quotas, credit, and government procurement contracts including favourable tax rates,” Binh added.
SEEKING MORE INCENTIVES
Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association, told the forum that the local garment and textile industry will likely earn an export turnover of $40 billion this year, up from $35 billion last year, and even $100 billion by 2035. “But amid fierce competition from textile and garment producing nations, how can the Vietnamese textile and garment industry develop and attain more profit? We need a new impetus for the industry to develop further,” he said.
One solution involves revisions of the value-added tax policy for textile and garment firms’ expanded projects, in order for the industry to encourage more investment into the sector.
Vo Quang Hue, deputy CEO of Vingroup, proposed that the government create more incentives for POEs. “Policies in encouraging investors to fund high technology and supporting industries must be created,” Hue said. “Experiences from our co-operation with foreign partners show that these policies are quite necessary.”
Meanwhile, Truong Gia Binh, head of the Board on Private Economic Development Research under the prime minister’s Council for Administrative Reform Consultancy, proposed that the government assign tasks to POEs. “The task must be big. For example, POEs can construct the north-south high-speed railway or Long Thanh International Airport. If the government assigns POEs to implement these projects, the time for completion may be less than 10 years, not 30 years.”
According to MPI Minister Nguyen Chi Dung, the government should take more drastic action to spur on the development of POEs. “The northeastern province of Quang Ninh has lured many big private enterprises for projects, including Van Don Airport. This is a strong indication of the capacity of Vietnamese enterprises,” he said. “It is the government’s mission to develop ecosystems and support the private sector in the course of applying advanced technology in production. I think this is the right way for Vietnamese enterprises to learn and reach par with their foreign peers.” VIR