In search of supply and value chain access

Trinh Duc Chieu, deputy director of the Central Institute for Economic Management’s Department for Enterprise Reform and Development

The government has enacted an action plan on developing the private sector to become a key driver of the socialist-oriented market economy. How is this progress of implementation?

The Ministry of Planning and Investment (MPI) has so far outlined a number of tasks set out in Decision No.209/QD-BKHDT dated February 26, 2018 on implementing the government’s Resolution No.98/NQ-CP dated October 2017 on implementing Resolution No.10-NQ/TW enacted in June 2017 by the fifth plenary of the 12th Party Central Committee on developing Vietnamese private sector into an important impetus of the socialist-oriented market economy. Specifically, the MPI has drafted decrees guiding the implementation of the Law on Supporting Small- and Medium-sized Enterprises (SMEs) and submitted them to the government for issuance.

The MPI also joined the drafting of Decree No.34/2018/ND-CP dated March 8, 2018 on establishment and operation of credit guarantee funds for SMEs to facilitate higher chances for them to get credit for production and business. It also drafted Decree No.108/2018/ND-CP dated August 2018 on amendments to Decree No.78/2015/ND-CP dated September 2015 on business registration.

Importantly, the MPI is completing draft amendments to the Law on Investment 2014 and the Law on Enterprises 2014 after sending them to the National Assembly Standing Committee for comments. Thus far, the ministry has helped remove many unnecessary business conditions.

In 2018, the majority of ministries and agencies have finished building decrees on business conditions. The Ministry of Information and Communications is highlighted with removal of business conditions in printing activities, while the Ministry of Construction simplifies them in construction management.

Although the majority of tasks set out in Decision 209 have been implemented and some completed, others have failed to meet the schedule, while yet more have not been performed in an effective manner.

Decision 209 has been issued for over a year. How have private businesses benefitted from the changes in the policies?

One of the highlights in the recent alterations of private investment attraction policies is the continuous improvements and positive assessments from international organisations, with the business climate ranking in 2018 improving 13 notches from 2016. Strong determination and bold moves from the government and its agencies are attributed to the positive result.

The MPI is establishing the National Innovation Centre based on the master-plan approved by the prime minister, aiming to encourage the private sector to join innovation activities.

In 2018, ministries and government agencies cut 6,776 out of 9,956 administrative procedures related to specialised inspections, and remove 3,346 out of 6,191 business conditions, thus helping businesses save VND6.27 trillion ($272.6 million).

Thanks to the new supporting policies, the private sector has developed strongly, annually holding nearly 40 per cent of the country’s GDP, and creating 84 per cent of Vietnam’s total employment. The private sector has become an increasingly important driver of the economy. Domestic private investment in 2018 rose 18.5 per cent on-year, accounting for 43.3 per cent of the country’s total investment, while foreign direct investment hiked 9.6 per cent and made up 23.4 per cent of the country’s total investment.

Especially, the private sector has seen strong development of some corporations in business scale and financial capacity. Last year also marked the first time the country has had domestic private companies named among the 10 most powerful businesses in Vietnam, with Vingroup ranking sixth.

The private sector is yet to develop fully due to particular barriers. What should the government focus on to further leverage more private investment in the economy?

Despite improvements, the quality of business condition removal is yet to meet the requirement of 50 per cent set by the government. Although some have been removed and amended, they fail to facilitate business activities. For example, some are integrated into technical regulations. In other cases, the amendment of business conditions even causes more difficulties and risks for private businesses.

Besides, specialised inspections reform proved less effective than expected. Inconsistency and overlapping in specialised inspections and management remain, thus hindering business activities.

To create favourable conditions for private companies, the government should continue to focus on the completion of a legal framework on tax, environment, land, labour, and salaries in a transparent and feasible manner.

Furthermore, it is important to take measures to implement SME-supporting policies, with a focus on innovations, and increasing access to financial resources, while encouraging links between powerful enterprises and SMEs, developing the value chain and manufacturing network to help SMEs increase access to the value chain and manufacturing network.

The government should also boost the restructuring of state-owned enterprises in an effective manner to create opportunities for the private sector to further develop.