Private sector still struggling to gain strength

Saigon Investment
(Saigon Investment) - Vietnam's socio-economic development in the last ten years owes its success largely to the important contributions made by the private sector. Over the period 2011 to 2020, private firms have been investing in many major projects that have changed the face of the country. 

VietJet Air is a proof of strength of private sector.

VietJet Air is a proof of strength of private sector.

Some private enterprises have also been great image builders for the country, such as the Sungroup who built the Van Don airport, and Vingroup who gave the country the Vinfast brand. Despite all this success, the private sector is still struggling to gain in strength.

Output of enterprises  

In recent years, the number of business enterprises have increased significantly, contributing to promoting socio-economic development in Vietnam. For strategic development in the last five years, the role of private enterprises is clear in every annual term towards summarizing, evaluating, and identifying bottlenecks of previous phase. An important channel to identify bottlenecks is through the responses of businesses, investors, and the market. It is their output, information and feedback that puts pressure on state agencies to resolve and find breakthrough solutions.

Private enterprises have now entered areas previously monopolized by the state, such as aviation with Vietjet Air and Bamboo Airway, making the market more competitive and benefiting more people. Some large private corporations have invested in regional and international markets, created healthy competition, more supply of products and services, and affirmed their image and brands. Internationally, enterprises such as Vingroup, Vietjet, Truong Hai, Masan, Vinamilk, TH, and Loc Troi have made a strong mark.

Some other large private firms have also implemented many large and complex projects in construction, real estate, wharves, and airports, making an important contribution to the development of the country. This is especially seen in the changing face of infrastructure such as the Van Don airport, road tunnel of Deo Ca, Hai Van tunnel, Hanoi-Hai Phong expressway, and the Bach Dang bridge.

Therefore, it is clear that private enterprises are vital for the socio-economic development structure of the country because they contribute towards the implementation of strategies required as per need. Private enterprises, together with the business sector in general, have now affirmed their role and position in the implementation of a crucial socio-economic strategy in the country.

Types of enterprises

However, there are still issues that need to be posed to private firms. For instance, the contribution of these businesses to GDP is less than 50%, although the number of enterprises have increased rapidly in last ten years. In the same period, the proportion of Foreign Direct Investment (FDI) companies have increased by nearly 5%, from 15.66% to 20.34%.

Private firms are mostly small,  with 98.8% being medium, small, or even very small enterprises. The number of small to medium-sized enterprises and from medium to large scale is still very low. There are not many private firms that are really strong and most lack uniform development compared to other economic sectors. In other words, Vietnamese businesses lack large and medium-sized international enterprises. The reason could be that mechanisms and policies to promote the development of large scale private enterprises have not been focused, and there is still discrimination between classification of enterprises not large, or not wanting to be large.

In fact, the technological level and competitiveness of Vietnamese private enterprises is still weak. Most private enterprises have a low level of science, technology, and innovation output. Many enterprises are using old and outdated technology, almost two to three generations behind world average. It is easy to see that over a long period of time, the efficiency of private enterprises cannot be high, and profitability will remain low. The pre-tax profit margin ratio of private enterprises is much lower than the general level of all enterprises, namely, state-owned enterprises (SOEs), and FDI enterprises. On an average, in the 2016 to 2018 period, the rate of profit before tax on assets of private enterprises was only 1.6%, lower than the general level of all enterprises.

In addition, the resilience of private enterprises is still weak. The number of enterprises temporarily ceasing operations or dissolving is large and tends to increase over the years. In the period 2011 to 2019, the average annual number of enterprises that stopped doing business or were dissolved was about 73.2%. In particular, in the first nine months of 2020, before the impact of the Covid-19 pandemic, the lack of resilience of private firms was becoming evident.

Role of private sector

In order to promote the role of the private sector in the development and implementation of socio-economic strategy, it is necessary to continue to affirm that the private enterprise is the backbone of the economy. It is the key to socio-economic development, and creates all conditions for private enterprises to develop and form a strong economic group.

From the perspective of state management, it is necessary to focus on resolving  bottlenecks that prevent private enterprises from investing, producing, and developing. It is essential to improve the business investment environment, create conditions for enterprises to compete and grow, especially in property rights, land-use rights, intellectual property rights, and fair competition. The speed of reform now needs to be accelerated, and administrative procedures made more transparent, so as to cut costs for production and business activities.

At the same time, there is a need to step by step improve mechanisms, policies, and laws, while also eliminating discrimination between types of businesses. It is important to encourage and create favorable conditions for private firms to develop, and compete in a healthy manner to participate in global and regional value chains. Private enterprises must be encouraged to invest in research and development, and support must be given for them to link with FDI enterprises in business activities as well as for technology transfer.

Dr. Nguyen Thi Luyen, Head of Research Reform & Development Department Central Institute for Economic Management

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