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Vietnam needs powerful corporations: economist

If VN can develop national enterprises into powerful large corporations to act as pillars of the economy, the country will take off and prosper, economist Tran Dinh Thien told VietNamNet on the occasion of Vietnam Entrepreneurs’ Day (October 13).
Economist Tran Dinh Thien

Could you comment on the development of Vietnam’s enterprises?

Private enterprises are the most important resources for any country, and so it is in Vietnam. They play an increasingly important role in the economy.

However, the private sector just makes up 10-11 percent of gross domestic product (GDP), much lower than business households (33 percent), foreign invested enterprises (FIEs) (20 percent) and state owned enterprises (SOEs) (30 percent). If the economy continues to rely on business households, it will be fragile and small.

Meanwhile, the lifespan of businesses that operate and pay taxes is only 4-5 years. Every year, the number of dissolved businesses is 70-80 percent of newly set up businesses, which means that only 20-30 percent continue to exist for the second year in accordance with that cycle. This is an issue of major concern.

South Korean enterprises need 30-40-years of experience to reach out to the world and compete in the international market. South Korea has developed from a low-level economy to a mature highly developed economy. The country has joined the orbit of developed countries, proving its capability with economic groups and competitive and dynamic private enterprises.

I have read many industrial development plans from provinces. The plans are really detailed with specific goals. For example, industry makes up 20 percent, while trade and service make up 60-70 percent of GRDP. It is an industry which should be considered the ‘backbone’ of the economy, but its expected contribution is small. With such a structure, Vietnam’s economy won’t be firm.

The private sector is defined as an important driving force in Resolution 10 released in 2017. Before and after that time, the contribution of the private sector was institutionalized by the laws. However, there is still such a long distance from laws to reality. Why? 

It is true that the private sector is an important driving force for economic development. But I would like to emphasize a viewpoint clearly stated in the 13th Party Congress that Vietnam needs to "make Vietnam’s enterprises grow in strength". If we develop national enterprises into a powerful force with large corporations acting as pillars, the economy will take off.

History shows that no country can become powerful and prosperous without developed enterprises. There is a difference between Southeast Asia and Northeast Asia. While Southeast Asian countries don’t have a syndicate structure, Northeast Asian countries act as pillars of national economies. South Korea relies on pillars to prove its position as an industrialized country and pioneer in high technology. And Japan, also, of course.

Meanwhile, Vietnam tries to develop state-owned corporations with a mechanism that encourages and guarantees winners, rather than a mechanism that encourages talents. This approach has been proven ineffective in the last decade.

We have reactivated development plans with modernization and industrialization goals for 2030 and 2045. Which forces, private enterprises, SOEs, FIEs or anyone else, will we rely on to turn the goals into reality?

Every economic sector has its specific role in the economy, but all of them must be equal in status in a market economy.

Forces have different roles and capacity to implement that mission. Large industrial corporations take the leading role. There are enterprises that grow rice and no one can say they are not important. Or more exactly, enterprises are equal in status, but their roles and functions are different. The force which is doing the things that the state needs the most should be given more favorable conditions, because it is needed for the development of the whole country.

We try to attract and encourage foreign direct investment (FDI) as we need resources to stimulate the development of the economy. However, we do the wrong thing when extending investment incentives for the private sector and creating more favorable conditions for them than for domestic enterprises.

Do you mean that Vietnam should not rely too much on FDI to carry out industrialization, especially when history shows that no country in the world can succeed in industrialization  if just relying on external resources?

There is an indisputable fact that a country needs to have large corporations and a strong business force to become powerful and prosperous. Countries only rely on foreign capital just in their first difficult periods, and FDI just has a certain role.  If countries want to be self-sufficient and self-strengthening, they must not only rely on foreign resources.

Other countries offer investment incentives to FIEs in order to create ecosystems for domestic enterprises to connect with and develop. Meanwhile, Vietnam invites FDI not to create an ecosystem for Vietnamese enterprises to connect with, but to create achievements, output and pay more to the budget. However, the collection from the sector to the state budget is modest.

Local authorities try to attract as much FDI as possible just to report ‘achievements’. Provinces compete to attract FDI by offering big incentives, which, in some cases, go beyond the framework. As a result, FDI has low quality, causes environmental pollution and is labor intensive. 

I have to say that Vietnam still needs SOEs that lead in industry, because through them, the state can have important tools to solve important issues, because private enterprises are not ready to develop projects in some fields.

Lan Anh

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