Private firms make up bulk of business

Private firms are increasingly the true driving force of Vietnam’s economy

The GSO, which announced the results of its latest survey on enterprises and their production activities last week, stated that there were a total of 113,352 enterprises operating across the country by the end of 2005.
An average of 14,213 enterprises were opened each year during the 2001-2005 period, the GSO said.
Private firms represented 93.1 per cent of enterprises in the country with the number continuing to increase. GSO’s figures showed that 105,569 enterprises operated in the private sector in 2005, an increase of 25.6 per cent against 2004 and 63.6 per cent against 2003.
Most of the private firms were small- and medium-sized enterprises (SMEs) with an average capital of VND7 billion ($437,500) and 32 employees.
“The number of SMEs was even higher and represented 96.8 per cent of enterprises in the country when we applied the criteria for SMEs with fewer than 300 employees and less then VND10 billion ($625,000) of capital,” said Vu Van Tuan, head of the Enterprise Investigation Team.
SMEs with fewer than 10 employees accounted for 51.3 per cent, Tuan said. The figures were 44 per cent for SMEs with a workforce ranging from 10 to 200 people and 1.43 per cent for SMEs of 200-300 labourers.
Firms which operated with capital of less than VND1 billion ($62,500) represented 41.8 per cent of enterprises while SMEs with capital ranging etween VND1 billion and VND5 billion ($312,500) accounted for 37 per cent and enterprises with capital ranging from VND5 billion to VND10 billion made up 8.18 per cent.
Economists do not see the small size of enterprises with little capital and tiny workforce as a negative for the economy.
Rob Swinkels, a senior advisor to the World Bank, said he was confident of the future growth of SMEs in Vietnam because of their dynamic operation and their desire to create wealth.
“Vietnam is a young economy and a lot of people want to start enterprises. SMEs will grow over time. It is not a problem that the country has many SMEs,” Swinkels told Vietnam Investment Review.
“Many of them will grow over time, while many others will also fail. But that is normal. Of course we just like to see these small ones to become bigger over time and that is something we need to check. If that does not happen, I agree that is a problem,” he explained.
Nguyen Trong Hieu, head of the Department for SME Promotion and Development with the Ministry of Planning and Investment, also affirmed on the activeness of the SME sector.
“Many SMEs have gained considerably high profit from their small capital and their operation proved more effective as compared to many other SOEs because of their simple structure,” Hieu explained.
The greatest difficulties SMEs are facing was from both the lack of capital and of machine and equipment to form fixed assets.
According to the GSO, private enterprises had a total of VND704.94 trillion ($44 billion) of capital and VND196.44 trillion ($12.28 billion) worth of fixed assets, which was only half of those of the State-owned and foreign invested sectors.
FDI enterprises at the same time kept flourishing thanks to the development of the business environment in Vietnam and the improvement of government investment policies.
GSO’s figures showed that 3,697 FDI firms operated in Vietnam in 2005, an increase of 17.1 per cent against 2004 and 39.9 per cent against 2003.
Vu Van Tuan from the GSO stressed the trend that foreign investors were keen on setting up wholly foreign-owned firms rather than building joint ventures with local companies, which reflected their wish to control operations themselves in Vietnamese market.
FDI firms with 100 per cent foreign investment amounted to 2,852 companies, representing 77.14 per cent of total FDI firms in Vietnam last year. The number was 2,335 firms in 2004 and 1,869 firms in 2003. The number of SOEs shrank to 4,086 firms in 2005 from 4,845 in the previous year. The operation scale of each SOE, however increased with more workers and higher capital.
Each enterprise had an average of 499 employees and VND355 billion ($22.18 million) in 2005, considerable higher than 363 workers and VND130 billion ($8.12 million) in 2000.




No. 791/December 11-17, 2006