Sustainable groups on agenda for 2025

The private sector increasingly helps to develop Vietnam, but not all businesses are operating optimally yet, photo Le Toan

At the beginning of February, Deputy Prime Minister Le Minh Khai signed Decision No.167/QD-TTg approving a programme to help the private sector achieve a responsible business model in the 2022-2025 period. Accordingly, Vietnam will look to boast 10,000 sustainable businesses, with annual worker productivity improving by around 7 per cent. This may address the private sector’s deficiencies in Vietnam, such as low productivity and unsustainable operations.

While the private sector has increasingly played a key role in economic development, the productivity growth rate of this sector is still low with many limitations. According to Minister of Planning and Investment Nguyen Chi Dung, micro- and small-sized enterprises account for 97 per cent of the number of private groups in Vietnam, which leads to low productivity. Private businesses’ labour productivity is only around 34 per cent of state-owned enterprises and 69 per cent of foreign-invested enterprises.

“Vietnamese businesses have yet to prioritise strengthening their connection and competitiveness in order to participate in regional and global value chains. Approximately 21 per cent of small- and medium-sized enterprises have joined the global value chain, while 14 per cent have successfully linked with international partners,” Minister Dung noted.

According to Dung, this is partly attributable to the government’s economic management. Policies for private sector development is insufficient, inconsistent, and far from reality. Despite an improving investment environment, there is limited and unfair access to business prospects and development resources, resulting in several intermediary and unofficial costs.

There have been few indicators of the recovery of private businesses, in particular, this year so far. The main challenges for businesses continue to be a lack of capital, rising raw material prices, and increasing logistical expenses, which lead to expensive production and business costs. According to the General Statistics Office, nearly 16,500 have dissolved and terminated businesses in 2021, down 4.1 per cent against 2020.

Economists have been eager to point out the difficulties as the private sector continues to grow slowly. According to Dr. Vu Thanh Tu Anh from Fulbright University Vietnam, the labour force is shrinking as Vietnam has passed the golden population peak in the 2012-2014 period.

He predicted that labour force growth will decelerate due to an ageing population. “If worker productivity does not rise to compensate, Vietnam will struggle to meet its target of 7 per cent annual economic growth to become a high-income country by 2045. A shift in institutions, market orientation, development priorities, and support for private firms is vital to attain the growth target,” he said.

According to economists, the private sector is being hampered by low productivity and growing labour expenses. The average rate of labour productivity increase is 2.2 per cent, but the rate of minimum wage growth is 10.2 per cent. At this rate, labour costs in Vietnam will be comparable to those in China in the next 10 years.

The private sector’s growth in terms of quantity, quality, and efficiency remains a key driver of economic development. According to data from the Ministry of Planning and Investment, the private sector has maintained a healthy growth rate for about 35 years, accounting for 39-40 per cent of GDP and attracting about 85 per cent of the labour force.

The growth of the private sector continues to create positive effects. Vietjet has boldly launched new business segments and is in charge of ground services at Noi Bai International Airport to reduce costs. This airline also cooperates with UPS Corporation to participate in the freight forwarding business between the United States and Asia.

The private sector continues to take the lead in overcoming difficulties with an innovative spirit. Trung Nam Group has become the first private enterprise to invest in energy transmission infrastructure with the 220/500kV transmission line project from Thuan Nam district in the south-central province of Ninh Thuan to Tuy Phong district in the neighbouring province of Binh Thuan, at about 17km in length.