The private sector to be driver of Vietnam’s economy

The draft documents of the 12^th National Party Congress for the first time says that the private sector is an important driver of the economy. As the chairman of the VCCI, which represents the business community in Vietnam, you may have noticed this?

The first thing I want to say is that the documents officially acknowledge that “the private sector is an important driver of the economy” and that the Party will “create all the good conditions to develop private companies to increase the competitiveness of the economy”. This is a signal to all Vietnamese citizens to do business and push the government to introduce mechanisms to protect people’s businesses, because the private economy is the economy of the people.

After 30 years of reform, we have accepted that the market economy as the mechanism of our economy and the government has been completing the institutional framework and legal system with this in mind.

Now we can say that the Vietnamese economy has arrived to the second stage, that it operates like a complete market economy. The draft documents set the target of 2020 to turn the economy into a socialist-oriented market economy that meets the criteria of a modern economy and is integrated into the world.

In this new period, with new playing field and new rules, the private sector is going to be the driver of economic growth.

How would you describe this driving role?

Look at the contributions of the private sector to the overall economy. Up until 2013 the private sector contributed 45 per cent of the GDP, 39 per cent of implemented investment by enterprises, paid 33 per cent of the taxes, and created 62 per cent of the jobs among all enterprises.

These numbers are increasing. In the 2014-2015 period the GDP contribution may be well-above 50 per cent while state-owned enterprises are falling back in the midst of equitisation efforts.

I believe the private sector is going to be the solution to the labour problem when we will transition from a small scale farming society to modern production and labour moves from agriculture to other sectors. We expect that only 40 per cent of the labour force will be in the agricultural sector by 2020 compared to the current 50 per cent. We currently have 52 million workers, meaning that in the next few years about 5 million workers will move away from agriculture.

In the next period the number of state employees is going to be trimmed as companies will take over the provision of civil services. State-owned enterprises are not going to solve the job problem while being equitised.

By now 98 per cent of the private sector is made up of small and medium-sized companies, with an overwhelming 96 per cent of them being micro companies. Can a modern economy reliably depend on micro companies?

If we want to have a private sector that is strong and competitive, one that creates jobs for people and brings prosperity to the country, the condition is to have a friendly legal and political institutions that guarantees their safe operation.

Though the government has taken positive steps, recent reforms have not met the expectation of companies. The document stated that the legal and political institutions does not sufficiently encourage people to exercise their right to do business, as is enshrined in the Constitution.

Recent surveys by the VCCI show that the bigger private companies get, the more they have to spend on compliance. The more successful they prove, the more they are investigated and checked. This is one of the causal links holding them back.

We have been talking about a favourable business environment, but this is only one part of it. For a market economy to work, property rights have to be respected and companies should be protected. If there is a dispute, it has to be resolved in a fair judicial system.

The laws on Enterprises and Investment opened opportunities for businesses, but they are not enough so people cannot be reasonably expected to be brave in their business ventures.

Resolution 09-NQ/TW of the Communist Party of Vietnam on developing private companies, as well as the 2013 Constitution, which guarantees the right of private companies and entrepreneurs to invest, produce, and trade, are big incentives to the business community.

When the draft documents acknowledge the role of the private sector, I believe there will be a revolution in thinking—and the government is going to complete the mechanism as well as policies to encourage and enable the private sector to grow in almost all the fields of business, as prescribed by the draft document. Then, the private sector is going to become the real driver of the economy.