Business environment needs to facilitate private sector growth

Minister of Planning and Investment Nguyen Chi Dung

2017 is without a doubt an important milestone in the economic progress of Vietnam, as the 5^th plenary meeting of the Party Central Committee issued Resolution No.10-NQ/TW on developing the private sector into an important driving force of the socialist-oriented market economy. Has the private sector ever reached this position before?

Looking back at 30 years of doi moi, one of the most important achievements was to promote the private sector. Many new mechanisms and preferential policies were put in place to facilitate the growth of the private sector, promoting the business spirit of Vietnamese people and enterprises.

The private sector has made numerous important contributions to the progress of Vietnam, from contributing to the national budget, creating jobs, to helping reduce social problems.

In terms of GDP structure, the private sector has contributed the most in the past few years. Since 2010, the sector has contributed more than 43 per cent of the GDP each year. In comparison, the state sector has contributed 28.9 per cent of the GDP, and FDI 18 per cent.

The number of private enterprises has also increased sharply. In 2016, the number of newly formed enterprises reached a record by surpassing the 110,000 mark. Many new brands in the private sector have been recognised in the domestic, regional, and international markets.

The private sector has also seen the emergence of large-scale enterprises and private corporations in capital and technology-intensive fields, such as manufacturing, electronics, and financial services, among others, such as Vinamilk, Truong Hai Auto Corporation, Masan Group, Hoa Phat Group, FPT JSC, and Mobile World Investment Corporation.

As such, it can be said that Resolution 10-NQ/TW has affirmed and elevated the position of the private sector in the economy.

Studies have shown that the private sector has not been a sufficient driving force so far. The growth of the sector seems to be slowing down, from 11.93 per cent (2003-2010) to 7.54 per cent (2011-2015). What are your thoughts on this?

While the private sector has contributed a lot, compared to international standard and the practical demand of Vietnam, it is still not enough.

The private sector usually accounts for 70-80 per cent of the GDP, while in Vietnam it is only 43 per cent since 2010. Of this 43 per cent, small-scale household businesses contribute over 31 per cent of the GDP, while private enterprises only account for 7-8 per cent.

The Vietnamese economy needs to focus policies towards promoting the development of private enterprises, so that the sector can grow even faster, replacing small-scale household businesses and state-owned businesses after the government gradually withdraws from non-core businesses.

However, after 30 years of doi moi, the shift in resource allocation has not met expectations, yet to shift strongly from rural to urban, from the informal economy to the formal economy, from the state to private sector.

This is also the reason why the growth of private enterprises is still modest. Unless we further encourage this shift and reform the mechanisms for resource allocation, the private sector will continue to encounter difficulties in the task of driving the economy forward.

The Ministry of Planning and Investment (MPI) is completing the plan, aiming to develope the private sector, protecting domestic production and increasing the competitiveness of Vietnamese enterprises. Are there solutions for the above-mentioned issues in the plan?

MPI set continuing the mechanism reform, creating a safe and favourable environment for businesses and investments, and promoting the development of factor markets as top priority.

The first and most important task is to create and perfect the market mechanisms to truly play the main role in the mobilisation and allocation of resources, including state resources. Resolution No.11-NQ/TW on completing the mechanisms of the socialist-oriented market economy has addressed this issue very clearly.

We are improving the business environment, but so far, the focus has mainly been on improving administrative procedures. These solutions will continue to be implemented, but that is only the tip of the iceberg. The solutions are meant to complete the mechanism for the even development and smooth operation of markets, such as the financial market, technology market, labour market, secondary market.

The next step is to complete the institutional framework of ownership, fully institutionalising the property rights of the state, organisations, and individuals as stated in 2013 Constitution, ensuring the enforceability and effective protection of property rights. This is something people have not seen clearly here, thus they are not comfortable starting long-term and large-scale businesses yet.

Completing the mechanism will promote business freedom, ensuring a safe and predictable business environment, encouraging businesses to innovate. Presently, many business conditions are hindering the creativity of entrepreneurs, driving up business costs and risks.

The will be much to do, especially when existing problems in the economy are being revealed with increasing scale and complexity. This will require all civil officers to adopt a new approach in line with the directions of the government.

What role will the private sector play in these important shifts?

The private sector will have to do business responsibly as well as build credibility and confidence for the market. Particularly, the business community needs to work together and create a stronger, more responsible common voice and for reform of state management agencies.

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