Improving Capacity of Private Sector

Persistent weaknesses are obstructing the capacity building of the private sector in Vietnam. In addition, some policies and mechanisms are discouraging businesses and households from growing larger in size.

Private businesses still grow slowly

Vietnam's private economy has gradually matured. More private firms are named in the Top 500 largest companies in Vietnam. Six private corporations are even rated large in scale in Asia and the world. The private economy also makes up 40% of the country’s GDP, generates millions of jobs with an average monthly individual salary of VND8.3 million in 2020. This shows that the private sector is playing an increasingly important role in the economy.

However, the overall capacity of the private sector is still limited. Despite being big in number, they are mainly small and even micro in scale, have low technology and management levels, remain weak in business connectivity and cooperation; have weak integration into regional and global value chains; and have uneven performance across the sector.

Dr. Nguyen Thi Luyen, Deputy Director of Business Reform and Development Research Department under the Central Institute for Economic Management (CIEM), said that inherent weaknesses are hindering the capacity building of the Vietnamese private sector. In addition, policies and mechanisms are discouraging businesses and households from growing larger in size. In particular, the private sector's resilience to the COVID-19 pandemic remains weak. A lot of private businesses had to shut down.

Besides internal weaknesses, she pointed out policy setbacks and shortcomings in State administration and business environment.

Sharing the same view, Dr. Tran Dinh Thien, former Director of the Vietnam Institute of Economics, also said that the private sector is mainly weak in governance and lacks a development environment. Discrimination still exists between the private sector and other sectors. Many strong policies are in favor of FDI enterprises, not privately owned ones.

“The 'slow growth' of the private sector needs to be compared with the FDI sector. The former still lacks timely and proper support as compared to the FDI sector which is offered a lot of incentives,” he emphasized.

Creating resilience in a new period

To improve the Vietnamese private sector capacity, Dr. Nguyen Thi Luyen said that it is necessary to immediately focus on solutions for businesses to restore operations and minimize negative impacts of the pandemic, such as employment, cash flow and loans for restoring production and business.

In the medium and long run, it is necessary to further perfect mechanisms and policies for a better business investment environment; accelerate technological application, development, innovation and digital transformation; promote private companies to join value chains; make effective use of new-generation free trade agreements; strengthen connectivity along the value chain between private enterprises and FDI enterprises.

Businesses must focus on improving quality and scale to meet demand. They need to coordinate with their peers to enhance competitiveness, share opportunities and difficulties, accelerate technology application, apply digital transformation for higher productivity and quality, and adapt to uncertainties such as natural disasters and pandemics.

Regarding inadequacies of current policies on private business support, Dr. Tran Dinh Thien said that support policies should be fair to all enterprises, regardless of being private or foreign-owned, in the coming time. If there are more supportive policies, they will certainly be an impetus for private sector development.

By Thu Ha, Vietnam Business Forum