Vietnam needs more private corporations
After over 30 years of Doi Moi (reform), Vietnam has had large private groups operating in many industries with international stature. There are also Vietnamese USD billionaires, but only a handful.
Vietnamese private groups have constructed many large projects, contributing to changing the face of the country.
Private groups have developed many big projects in Vietnam, such as Van Don international airport, Van Don - Ha Long - Hai Phong highway, Bach Dang bridge, and more. Private enterprises have also participated in areas previously under state monopoly such as aviation and airport development, making the market more competitive and benefiting a large number of people.
Regarding exports, in addition to traditional items such as agricultural, forestry and fishery products, private enterprises have exported high-tech and high-value products like smartphones, cars... Some private groups have invested billions of dollars abroad. Of the 30 stocks with a market capitalization of more than $1 billion on the Vietnamese stock market today, 13 stocks belong to private groups, accounting for 41.98%.
However, the private sector has not yet become a powerful force as expected, an important driving force for the country's economic development.
According to the Vietnam Chamber of Commerce and Industry (VCCI), less than 2% of all private enterprises are considered large, over 2% are of medium size, and 96% are micro and small sizes. The private sector currently contributes 43% of the country’s gross domestic product (GDP), but private businesses only make up nearly 10%, while the rest belongs to individual and household-base businesses.
Senior economist Pham Chi Lan said that in recent years the role of the private sector has been affirmed as an important driving force of the economy, but this sector has been going through a difficult development process and is still very small, difficult to grow, and does not want to grow.
According to the Ministry of Planning and Investment, the number of private enterprises growing from small to medium size and from medium to large size in Vietnam was very small in recent years. Worse, according to the VCCI, there has been a sharp decline in the number of medium and large-scale private enterprises in the last 5 years. This makes Vietnam an economy of small and micro enterprises, with a ratio of approximately 96%, of which the majority are micro enterprises, with nearly 67%.
Moreover, the speed of transformation of private enterprises from small to medium and medium to large is very slow. Many enterprises have spent 10-20 years developing to medium size. But when they achieved initial successes, many enterprises decided to withdraw from the market, or sell or merge their businesses, mainly with foreign-invested firms. This is really a sad situation, said Pham Chi Lan.
Large scale is an advantage for businesses to make full use of business opportunities, but many private firms do not want to grow. Experts explain that it is because the business environment in Vietnam is still unfavorable. The most pressing issue today is discrimination.
A recent VCCI survey showed that 39.5% of private enterprises said that local leaders still prioritized attracting foreign investment and investment of state-owned enterprises rather than from the private economic sector. Private companies always face difficulties in having access to land and capital, as well as suffer from disadvantages in terms of inspection, tax, and customs compared to foreign-invested and state-owned enterprises.
The percentage of enterprises that could regularly predict policy change decreased from 16% in 2014 to 5% in 2018. Meanwhile, the proportion of enterprises that never or rarely predicted policy change increased from 42% in 2014 to 67% in 2018. This decline in policy predictability has been a consistent trend over the past 5 years. This is a very worrying fact about the business environment in Vietnam. The main reason is that Vietnam's policies and regulations often change unexpectedly and happen too quickly in a short time.
If the difficulty that small businesses often mention is access to capital and land, market and customers, for large enterprises, it is the risk of policy change. According to the report “Review of implementation of improving the business environment, enhancing national competitiveness and supporting business development by 2020", recently launched by the VCCI, the concern is the ability to predict the change of policies was decreasing.
Economic expert Nguyen Dinh Cung said that one of the biggest problems facing businesses is the unpredictability of change of business policies and laws. This results in the fact that business freedom has improved but business security has not.
Resolution 10-NQ/TW dated 2017 of the Party Central Committee on private economic development clearly points out developing the private sector into an important driving force of the economy; and encouraging the formation of private economic groups capable of participating in regional and global production networks and value chains.
However, Mr. Dau Anh Tuan, Head of the VCCI Legal Department, said that legal documents issued by ministries and agencies have not yet pursued the spirit of this resolution. In 2020, many legal regulations that are not friendly to private businesses were promulgated or drafted.
For example, the State Bank of Vietnam (SBV) drafted a circular restricting credit institutions from buying corporate bonds issued for the purpose of contributing capital or buying shares in other companies.
This regulation does not allow banks to buy bonds issued by parent companies in economic groups to raise capital and then use that money to contribute capital to subsidiaries. That makes it difficult for credit institutions to control the purpose of capital use, and cash flow. This concern is legitimate, but it can be completely solved through measures in a contract, or bond regulation, said Tuan.
The Government's draft Socio-Economic Development Strategy for the 2021-2030 period sets out the orientation: encouraging the formation and development of large private economic groups with strong potential and regional and international competitiveness. It also sets the goal to have at least 2 million private firms by 2030, and the private sector's contribution to GDP to reach 60-65% by that time.
However, according to Mr. Nguyen Van Nam, Director of the Institute for Brand Strategy and Competition, Vietnam is still confused about how to build a business system. He said that if Vietnam does not build a business system, the economy will be unable to develop.
Deputy Director of the Central Institute for Economic Management (CIEM) Phan Duc Hieu said that the Vietnamese economy is seriously lacking medium and large-sized enterprises to become channels connecting Vietnam to the global value chain and the international market. Small scale, large informality, poor governance, and low technology are common characteristics of Vietnamese private enterprises.
How will Vietnam overcome challenges to realize its development plans? Nguyen Dinh Cung, former head of Central Institute for Economic Management (CIEM), shares his perspective with VietNamNet.
While foreign-invested enterprises (FIEs) have been growing and prospering, Vietnamese enterprises have been developing inadequately because they lack favorable conditions to thrive.