Shaping the next economic decade

The 13th National Party Congress has adopted the Party Central Committee’s draft wrap-up report of the 10-year Socioeconomic Development Strategy for 2011-2020 and building of the next Socioeconomic Development Strategy until 2030, shaping the country’s future over the decade.

Under the new strategy, Vietnam is set to grow about 7 per cent a year in the 2021-2030 period, with numerous solutions to be taken for the rate to be hit. Among the solutions, the country will ensure full rights for businesses and investors to conduct business and investment, and will also effectively use all resources based on the market principles - meaning private firms will have bigger spaces to play and the state will reduce its role as a trader and increase its role as a facilitator for the market to operate.

“Efforts are to be made to continue improving the quality of institution and laws in a synchronous, specific, modern, and transparent manner. There will be full and synchronous development of markets for production factors, especially the market for land use, science, and technology,” the draft report stated.

“Businesses’ rights and safety will be ensured in business, while all resources will be effectively mobilised, allocated, and used based on the market principles. Legal frameworks must be improved and piloted, firstly the law on enterprises, startups, intellectual property, trade, and investment in order to facilitate the national digital transformation and development of new products, services, economic models, and digital economy under the market principles,” the draft report continued.

“The state will well perform its function as the builder of strategy planning, mechanisms, and policies, and distributor of resources under the market mechanism. Businesses’ and people’s rights to possess legal assets and their freedom in business and contract implementation must be ensured under the law.”

Ensuring freedom and safety

Prime Minister Nguyen Xuan Phuc recently appealed to the consolidation of confidence among people and enterprises, especially privately-owned enterprises (POEs) via a healthy, fair and transparent business climate.

“We will continue creating the best conditions, space, resources, and opportunities to the private sector to develop further through the key means of creating equality, being protected, being encouraged, and offering opportunities,” he stressed.

According to PM Phuc, creating equality refers to the private sector being equally treated before the law and in competition and allocation of resources with other economic sectors.

POEs’ assets will be protected, with freedom in business given to them under the law. Those POEs with social responsibility especially are extolled and encouraged by the state, while they will also be given opportunities in access to resources, technologies, and markets with lower costs.

As per the Party Central Committee, the country will see in the time to come “drastic and effective reform of administrative procedures, with the removal of all impediments against the freedom to conduct business”, and “healthy, fair, and transparent competition will be ensured.”

“It is expected that by 2030, Vietnam’s business climate will be ranked in the list of the world’s top 30 nations,” stated the Party Central Committee’s draft report. “Vietnam’s private sector will be strongly developed quantitatively and qualitatively into an important impetus for national economic development. All obstructions and prejudice must be removed to facilitate the sector.”

According to the draft Political Report which the Party Central Committee adopted last week, the private economic sector “is encouraged for development in all fields not banned by the law, especially in the fields of production, business, and service. It is supported in developing private-owned big companies and groups with high competitiveness.”

Dinh Ngoc Lam, director of a cocoa production company and a cocoa farm in the Central Highlands region, told VIR that he hopes the government and the Party’s fresh move will soon become true.

It took his company several years to get hundreds of signatures from so many state officers, from ministries, agencies, localities, districts, and communes for a plot of land used for planting cocoa trees.

“That’s a waste of time and money. I had lost a lot of money before being able to put our company into operation, with our investment certificate granted after months though I could meet all necessary conditions,” Lam said. “Despite the government’s efforts to cut down and simplify admin, enterprises like ours are still suffering from these complicated procedures.”

According to the Ministry of Planning and Investment, the number of active POEs rose from 324,700 in 2011 to 477,800 in 2016 at the start of the latest 5-year development period, and then jumped again to nearly 800,000 by late last year.

Last year saw the establishment of 135,000 enterprises registered at $97.2 billion, down 2.3 per cent in the number of enterprises but up 29.2 per cent in capital, as compared to 2019. Besides that, operating enterprises increased their capital by an additional $145.3 billion. Also, over 44,000 enterprises resumed operation, up 11.9 per cent on-year.

Allocation of resources

The draft Political Report pointed out that over past years, the domestic investment and business climate “has yet to become really open and transparent. No breakthrough has been made in effectively mobilising, allocating, and using development resources.”

According to Nguyen Dinh Cung, member of the Prime Minister’s Economic Advisory Group, the main cause of the ineffectiveness of the economy is the non-market resources allocation system, which does not rely on factors of efficiency. The allocation of investment resources into sectors, fields or localities is not based on the level of development or efficiency but mainly on administrative factors.

In his view, the cornerstones of economic restructuring are to reallocate resources and encourage initiatives of the public and enterprises.

“The restructuring of the economy will be successful if the market is free to allocate resources, especially manpower, capital, and land use rights,” he said. “How should resources be allocated?” Cung wondered. “We should let the market determine its demand, rather than making the distribution based on the current administrative ask-and-give mechanism.”

He noted that almost all resources are being allocated under such a mechanism.

Raymond Mallon, a senior economist, told VIR, “If state agencies act as both the referee and player on one team (state-owned enterprises or SOEs), it is unfair for the other competing teams (POEs).”

“Thus, it is important for state ownership rights in commercial enterprises to be transferred from line agencies to an institution with no line responsibilities for policy making and regulation,” he stressed. “The core focus of such an institution should be on exercising state ownership rights, to ensure that state investments generate the intended benefits.”

According to the landmark Vietnam 2035 report, a joint Vietnam-World Bank Group study which features a path for Vietnam to reach an upper-middle-income status in two decades, Vietnam’s state has been strongly engaging in economic activity directly through SOEs, particularly through large state economic groups, and indirectly through close links between the state and an exclusive segment of the domestic private sector.

Currently Vietnam has about 500 SOEs operating in nearly 20 key sectors of the economy. They are also dominating many important sectors, like electricity, gas, oil, minerals, telecommunication services, domestic air transportation, credit financing, and railways. However, many of them are suffering with big losses.

“Vietnam is not alone in having influential vested interests, but the degree to which relationships to the state are integral to economic success appears to be unusually high,” stated the report.

According to the Central Institute for Economic Management, many SOEs are monopolising various economic sectors, with chemical fertilisers (99 per cent), coal (97 per cent) and electricity (76 per cent), telecommunications (90 per cent), finance (56 per cent) and rice production (70 per cent), while the total number of SOEs occupies less than 1 per cent of Vietnam’s total number of enterprises.

Beyond its costs to the economy, commercialisation of state institutions weakens the effectiveness of the state itself. “It creates powerful incentives for public officials to exploit their regulatory powers and allocations of property rights to lock in long-term benefits for themselves, their families, or their networks. Such abuses of public authority undermine the legitimacy of state institutions,” noted the Vietnam 2035 report.

The government could reduce its SOE portfolio to a manageable size of about 20 ‘parent’ SOEs for 2035, it added, with a focus on strategic sectors, but even strategic entities should face competition.