Private sector GDP contribution still low

11:09 | 17/05/2019 Economy- Society

(VEN) - Despite its rapid growth in recent years, the private sector is also displaying its limitations, especially in trade.

private sector gdp contribution still low
Vietnamese private sector participation in global value chains remains limited

The 2018 Provincial Competitiveness Index Report recently released by the Vietnam Chamber of Commerce and Industry (VCCI) shows that private companies still attach great importance to domestic trade, and 66 percent only sell goods and provide services for Vietnamese individuals; 64 percent serve other domestic private companies; and 24 percent serve state-owned enterprises.

In the opinion of economists, private companies prioritize domestic trade because of the potential of the home market with nearly 100 million consumers. The number of Vietnamese private companies doing business with foreign partners remains modest. Therefore, most private companies lack opportunities to participate in global supply chains. In fact, only about 15 percent of Vietnamese private companies sell goods or provide services for foreign businesses; 8.4 percent are capable of direct exports, while 7.4 percent export via a third party.

The VCCI report also raises concerns that despite numerous efforts by policy makers and others to promote private sector participation in global trade, the desired results have yet to be achieved. Only about 21 percent of Vietnamese small and medium enterprises have participated in global value chains, against 46 percent in the ASEAN region.

At a recent forum on private sector development prospects in 2019, held in Hanoi, economist, Dr. Tran Dinh Thien said Vietnam has been implementing a policy of renovation for three decades, but the private sector, which in principle should be a major contributor to the country's gross domestic product (GDP), currently contributes less than 10 percent to Vietnam's GDP. According to Dr. Thien, the number of large private groups remains very limited, and they attach greater importance to speculation than to investment in production and global competition.

Economists proposed two policy orientations for private sector development.

First, to build trust in foreign partnerships and encourage them to expand operations, domestic companies should be provided with knowledge of protection regulations in the Law on Commercial Arbitration and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Second, a comprehensive policy is required that considers dispute resolution mechanisms as a pillar of solutions to improve the quality of infrastructure and human resources, reform the legal system and the quality of domestic management.

Quang Loc