Economists: Despite opportunities, private sector is still weak

09:05 | 09/04/2019 Economy- Society

(VEN) - Tran Dinh Thien, former director of the Vietnam Institute of Economics (VIE), told participants at a March 15 forum in Hanoi that Vietnam needs a strategy to promote the quality of private firms rather than their quantity. Although Vietnam acknowledges that private business is the foundation of the socialist-oriented market economy, its contribution to the economy remains modest, he added at the seminar devoted to development prospects of Vietnam’s private sector. In his view, after more than three decades of Doi Moi, Vietnam does not have a true development strategy for private companies.

despite opportunities private sector is still weak

Problematic economic structure

Vietnam’s private sector has around 700,000 firms and 5.2 million business households. The private sector contributes some 40 percent to the country’s gross domestic product (GDP). Business households account for one third of this sum and private firms for only eight percent. State-owned enterprises (SOEs) contribute about 28 percent.

The modest contribution of the private sector to the GDP reflects a problematic economic structure, making it difficult for private companies to develop, Tran Dinh Thien said, adding that the contribution of the private sector to GDP should be around 60-70 percent as it is in developed economies.

According to the Hanoi Center for Small- and Medium-sized Enterprises, the local private sector consists of more than 200,000 companies. It contributes about 40 percent to economic development, accounts for 35-40 percent of total social investment capital, and makes up 9-10 percent of the export value.

Nguyen Huu Luong from the Hanoi Center said that despite these contributions to local socioeconomic development, the position and role of the private sector is troubling, with inequality in credit access and land lease, and difficulty in conducting administrative procedures.

Despite many policies and guidelines creating favorable conditions for the development of the private sector, firms still face barriers in their trade and production activities. Vu Thi Van Phuong, chair of the Board of Directors of the VietRap Investment Joint Stock Company, told participants that the company participated in a farm produce fair in Dubai a decade ago to seek output for its products. Until now, although the state has issued many support policies for small- and medium-sized enterprises, most firms still have to seek markets for products and capital for trade and production activities, she said.

According to Tran Dinh Thien, although the private sector has made advances, it remains small, fragmented and weak. Some private corporations such as Vingroup, Hoa Phat, Sun Group, and Truong Hai have achieved success, but it is not enough to change the overall picture.

Opportunities

Despite many difficulties and challenges, such as weak capacity, small production scale, and increasing competition pressure, as well as strict requirements in the implementation of commitments stipulated in free trade agreements, development opportunities for the private sector abound.

Nguyen Quang Huan, deputy chair of the Vietnam Private Business Association, said the effective implementation of free trade agreements would offer opportunities to expand and diversify export markets, and engage more deeply in the global supply chains and production networks. Vietnamese businesses in general and private companies in particular have great opportunities to gain experience and push innovation in order to develop, Huan said. He added that private companies must improve their competitiveness, develop appropriate business strategies, build corporate culture, and take advantage of Industry 4.0.

VIE Director Bui Quang Tuan said Vietnam’s business climate needs further improvement together with the transition of economic growth model towards promoting innovation. Vietnam has a number of policies to promote business development, but their enforcement remains weak, Tuan said, stressing that it is important to ensure that policies benefit enterprises.

Hoa Quynh