A long journey for the private economy

Vietnamese entrepreneurs have endured many ups and downs in the past. After the Doi Moi reforms, when the economy acknowledged the role of multiple ownership sectors, entrepreneurs began to emerge.

The year 1990 marked the starting point for the development of Vietnam's current business sector. This was the moment when the existence, operation, and growth of private businesses were officially recognized by law. It was also the time when state subsidies to state-owned enterprises were largely abolished, and state enterprises were transformed into autonomous businesses operating under market principles.

By 2011, private businesses were acknowledged as an indispensable part of the economy, and more recently, they have been recognized as a key driver of economic growth.

From a legal perspective, the right to free enterprise has come a long way. From operating underground to being allowed to do only what the state permitted, then being allowed to do anything not prohibited by the state, and now, businesses are free to operate in any sector not banned by law. Today, the right to do business has expanded and evolved, ensuring safer and more secure operations.

Over the past 30 years, the business community across all economic sectors has continuously grown in both quantity and quality, gradually becoming the "central force" of the economy.

Statistics show that after 25 years of development, by 2016, there were about 500,000 active businesses, 17 times more than in 1999. Today, nearly 930,000 businesses are in operation.

This result, however, falls short of the target set by Resolution 10 in 2017, which aimed to have at least 1 million active businesses by 2020 and 1.5 million by 2025.

Many areas have only one business per 1,000 people

Despite the rapid growth, the number of businesses is still insufficient. Business density remains very low and unevenly distributed across different regions and sectors.

More than 70% of operating businesses are concentrated in the Red River Delta and the Southeast region. The business density is just over 9 businesses per 1,000 people of working age. In many localities, the business density is much lower, with some areas having only 1 business per 1,000 people and 3 per 1,000 people of working age.

In terms of economic sectors, around 70% of businesses operate in just three sectors: manufacturing (around 16%), construction (14-15%), and wholesale, retail, and motor vehicle repair (about 37%). The number of businesses operating in high-value-added services such as logistics, professional activities, science, technology, healthcare, education, and entertainment is very low.

Small businesses face bigger losses

The number of businesses remains insufficient. The rate of new business formation has slowed, and annual growth is not high, making it unlikely that the targets for active businesses will be met in the set timeframes.

A large majority (nearly 70%) of businesses are micro-enterprises, lacking mid-sized firms to bridge the gap between small businesses and large corporations.

Only 40% of domestic private businesses report profits, compared to 50% in the foreign direct investment (FDI) sector and 80% in the state-owned sector. About 47% of FDI companies report losses. The corresponding figures for domestic private businesses and state-owned enterprises are more than 50% and 20%, respectively.

In terms of size, less than 30% of micro-enterprises report profits. Nearly two-thirds of small and medium-sized businesses and over 70% of large enterprises report profits. On the other hand, about 55% of micro-enterprises, over one-third of small businesses, more than a quarter of medium-sized enterprises, and nearly one-quarter of large businesses report losses.

This means that the larger a business is, the more likely it is to be profitable. There is a significant disparity between micro-enterprises and other business sizes in their ability to survive in the market. The performance of these micro-enterprises across all indicators is generally very low, often resulting in no capital preservation or even losses, making it impossible for them to reinvest.

The financial performance of domestic private enterprises is far below that of FDI businesses, with their indicators only reaching 20-60% of those in the FDI sector. In high-value-added service industries like professional services, healthcare, education, and entertainment, only around 20% of businesses report profits. The overall performance of businesses in these sectors is poor, with many unable to preserve their capital.

Moreover, with the exception of the Red River Delta, the percentage of businesses reporting profits in the remaining five regions has decreased. Business performance in the Central Highlands, North Central Coast, and South Central Coast is significantly lower than in other regions. Especially in the Southeast region, business performance has declined across all fronts.

Domestic private enterprises are currently weaker than FDI businesses in terms of both integration and competitiveness, even within Vietnam's own market.

An independent economy needs strong enterprises

Vietnam’s economy is highly open and will continue to open further, even as the global and regional economic landscape becomes increasingly unpredictable. Therefore, building an independent, resilient economy has become more urgent than ever.

Currently, many private businesses are feeling discouraged. The first generation of Vietnamese entrepreneurs emerged in the early 1990s, followed by the second generation in the 2000s. As these entrepreneurs age, many businesses struggle to find successors. Their children, now wealthy enough for several lifetimes, often move abroad, with many reluctant to follow their parents' difficult paths. This is a worrying sign for the sustainable development of the private sector.

For the economy to be independent, resilient, and sustainably developed, Vietnam must have a strong team of entrepreneurs who can harness their dynamism and creativity to the fullest.

A thriving private sector with a large number of businesses, diversity in industries, good governance, creativity, and high competitiveness is one of the key factors that will determine the resilience of the economy.

The business community is a driving force for sustainable, high economic growth, providing stable, quality jobs for people, generating major revenue for the national budget, and contributing significantly to national reserves. Moreover, the private sector plays a crucial role in enabling the economy to recover swiftly from major external shocks.

Lan Anh