Private sector generates 40 percent of GDP

11:09 | 28/08/2017 Economy- Society

(VEN) - Associate Professor, Dr. Nguyen Trong Dieu, President of the Vietnam Private Entrepreneurs Association, told Vietnam Economic News’ Nguyen Hoa that the private sector is an important driving force of the economy.

private sector generates 40 percent of gdp

Could you describe the actual situation of the private sector and problems facing it?

Currently, the private sector consists of about 500,000 companies and more than four million non-farm household-sized businesses. It contributes about 40 percent to Vietnam’s gross domestic product (GDP) and 30 percent of total export value. From 2007 to 2015, total revenue of private businesses grew 4.4 times, from VND3,500 trillion to VND15,500 trillion. The sector has generated jobs for more than 85 percent of the Vietnamese workforce. Private businesses operate in fields where their operations are not forbidden by law, mostly in trade, services, construction, industry and craft production. They are present nationwide and concentrated in urban areas and localities that offer favorable business conditions and incentives.

Despite its significant contribution to the economy, the private sector still suffers from limitations and weaknesses. Most private businesses are small-sized with limited capital, outdated technology, poor management skills and low competitiveness. Moreover, many companies still violate the law, evade taxes, or are involved in fraudulent, illegal trade.

What do you think is the biggest hindrance to the private sector’s development?

I think the biggest hindrance is inequality in access to resources for production and business development. Most of the nation’s resources lie in the state-owned sector where state-owned enterprises (SOEs) operate. Since the ninth Party Central Committee released its third meeting resolution in 2001, although the number of SOEs has decreased from 5,000 to below 1,000, a mere eight percent of SOE asset value has been privatized. As long as state assets, the most important resource of the nation, still belong to SOEs, the private sector’s access to resources and business rights will remain limited.

private sector generates 40 percent of gdp

What should the government do to resolve difficulties facing the private sector and enhance its competitiveness?

To facilitate the private sector’s access to resources, the Vietnam Private Entrepreneurs Association believes the government needs to accelerate the privatization of SOEs. The state should govern only SOEs that operate in the fields of national defense and security and areas where private companies cannot perform well or in which they don’t want to invest. Some 20 percent of state capital in SOEs is slated to be privatized by 2020.

For their part, state authorities should be more active in the struggle against monopolies and the formation of coalitions among giants that hinder healthy competition. This would create opportunities for small and medium-sized private companies to access resources and enjoy preferential policies so they can survive and develop. The government needs to provide guidance for ministries, sectors and localities to promote administrative reforms and build an upright, constructive and active government.

To promote private sector development, state authorities also need to institutionalize mechanisms and policies defined in the resolution of the fifth meeting of the 12th Party Central Committee. These pertain to land, finance and credit, labor and salary, training, science and technology, information and trade promotion. It is necessary to check and eliminate legal documents and regulations that hinder private sector development, such as those restricting the rights of private companies or increase their expenses. Overlapping inspections by state authorities should be prevented.

Furthermore, institutional reforms should be promoted. It is necessary to ensure that economic institutions promote the formation, development and improvement of various types of markets, which requires the state to further renovate administrative institutions. The responsibilities of the state and those of businesses or social and occupational organizations must be clearly delineated. The government also needs to improve the legal framework to create a fair playing field for all economic sectors.

The Ministry of Planning and Investment recently submitted to the prime minister a plan to develop the private sector, protect domestic production and enhance the competitiveness of Vietnamese businesses. Under the plan, the private sector’s contribution to Vietnam’s GDP is expected to increase from 40 percent to 50 percent by 2020 and 60-65 percent by 2035.
To increase private sector contributions to the economy, the Ministry of Planning and Investment wrote in a report to the prime minister that it would accelerate the reorganization and restructuring of SOEs to enhance their efficiency and create development opportunities for the private sector. In addition, the ministry will encourage the private sector to contribute capital to and purchase the stock of SOEs. All types of markets in the economy will be developed simultaneously to facilitate the private sector’s growth.

Nguyen Hoa