ADB policy expertise lending to rising Vietnam relationship

December 22, 2020 | 17:51
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Since its resumption of operations in Vietnam in 1993, the Asian Development Bank (ADB) has been part of the country’s success story. Andrew Jeffries, country director for the ADB in Vietnam, writes about the relationship between the bank and the nation – including with the planning and investment sector - in supporting the private sector and reforming state-owned enterprises.
adb policy expertise lending to rising vietnam relationshipam relationship
Andrew Jeffries, country director for the ADB in Vietnam

The ADB has been working in close partnership with the Vietnamese government, and with the planning and investment sector in particular, for nearly three decades.

The ADB supports Vietnam’s socioeconomic development through various types of assistance, including financial assistance, knowledge work, and policy advice to the government. These include financing of infrastructure and human resource development; promoting sustainability of development by addressing environmental degradation and climate change, social inclusion, and gender equity; enhancing policy enforcement and institutional capacity including financial sector development, public sector management, and governance; managing knowledge for development; and leveraging a wider range of financial and technical support including private sector development and operations.

With financial and technical support, the ADB has been a trusted partner of the government in encouraging small- and medium-sized enterprises (SMEs) to contribute to economic growth and employment generation.

For example, in 2004 upon the government’s request, the ADB approved the first policy loan worth $100 million for a specially-designed project aimed to create a favourable business climate for SMEs – the major part of the private sector in Vietnam.

This first programme supported the coordination among ministries and sectors – including the Ministry of Planning and Investment (MPI), with the consultation with all stakeholders in order to systematically define and solve difficulties facing Vietnamese enterprises. Formulated after thorough analysis and discussions with the government, the programme has supported Vietnam in boosting reforms of business registration procedures and simplification of licensing procedures in order to reduce ambiguities, risks, and costs for businesses. After this programme ended, the ADB approved the second programme to support SMEs in 2010 based on the consultation and cooperation with the MPI.

Since changes in the Law on Enterprises taking effect in 2000, the private sector has enjoyed enabling environment to do business because the Law on Enterprises has removed obstacles and complicated issues in the administration, such as prolonged licensing procedures and fees. As a result, the number of registered enterprises in Vietnam soared to over 750,000 by late 2019 from 14,500 in 2000. SMEs account for 97 per cent of domestic enterprises and contributed about 46 per cent of Vietnam’s GDP. They are the key creators of employment and income, and also the key impetus for economic growth and poverty reduction in Vietnam.

Despite the government’s great efforts to boost policy reforms in favour of SMEs, much remains to be done for them to grow further including perfection of important policies and legal frameworks for businesses. The ADB always stands ready to provide continued support to Vietnam in dealing with challenges facing the private sector, and SMEs in particular. Despite progress and success in encouraging the private sector, the abuse of policies to serve the public sector remains.

In this context, we also would like to stress the close connection between state-owned enterprise (SOE) reform and policies to promote the private sector. It would be very difficult to talk about equitisation and shrinking SOE investment without taking into account solutions to create a larger space for the private sector to develop in.

SOE reform began in the early 1990s, aiming to promote the state’s effectiveness and reduce the state’s role in business management. However, the initiative slowed down and was implemented at small-scaled SOEs. In terms of quality, the equitisation remained unclear because in many cases, many equitised firms remained ineffective in operations and still relied on the state support. There were strong warnings that the equitisation process should be concluded or priorities for some equitisation steps should be made, including the formulation of business plans and strategies, and application of transparent corporate governance.

The ADB has supported Vietnam in SOE reform for a very long time, with the approval of a $50 million loan for the country’s programme on SOE reform and corporate governance in 1999. The ADB also provided two non-refundable technical assistance projects to assist this programme, in addition to policy dialogues to promote SOE reforms.

The ADB’s country programmes and strategies for Vietnam have focused on SOE reform in businesses’ development strategies with the private sector taking the lead in development. What is extremely important is to remove barriers for the private sectors while promoting transparency and corporate governance.

To address this, the ADB in 2009 provided $630 million for Vietnam’s facility for SOE reform and corporate governance in a bid to support comprehensive restructuring of some selected SOEs. While the state plays an important role in orienting socioeconomic development, it engages in economic activities. Its direct participation in producing goods and services must be limited and narrowed down. The reform of corporations will help the economy achieve higher growth, and optimise policies of the state at the sectoral level.

We congratulate Vietnam’s efforts in enacting the new Law on Investment – also compiled by the MPI, and the new Law on Enterprises. Both laws will create a level playing field for domestic and foreign enterprises, and SOEs and private ones. This will facilitate the country to become an industrialised nation in the near future.

Currently Vietnam is accelerating economic restructuring to integrate deeper into the global economy in order to seek more opportunities and accelerate domestic reforms in an effective manner. This will help enterprises to succeed in participating in the globalisation process.

Despite achievements, Vietnam is now facing numerous development challenges. In terms of policy, while having made strides in reform, the government is still aware that there are many important policies that have yet to be enacted. Meanwhile, the country’s increased integration into the global economy will also bring in opportunities and challenges to Vietnam.

Currently the Vietnamese government and people are preparing for the 13th National Party Congress in early 2021 with hope that new reform strategies for the next years will be adopted. The ADB is also preparing for its new Country Partnership Strategy for the 2021-2025 period.

Our aim is to adjust the strategy to be in line with Vietnam’s Socioeconomic Development Plan for the 2021-2025 period, so that we can meet the most effectively Vietnam’s increased requirements. The ADB always stands ready to provide support for Vietnam and share knowledge and experiences with the country to further strengthen our partnership with Vietnam, including the MPI.

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