Vietnam’s top leaders signal path for private sector to thrive

Vietnam’s top leaders have asserted the strategic role of the domestic private sector in some statements as many privately-run conglomerates have shown their superiority to state-owned ones.

That private sector must be treated fair without any discrimination, Secretary General of the Communist Party of Vietnam and President Nguyen Phu Trong said at the 10th plenary session of the Party Central Committee on May 16. 



There must have noteworthy rewards and titles for good private enterprises, the president said, noting that private sector is showing good performances in the economy, local media has reported.   



Journalist Nhi Le, deputy editor-in-chief of the CPV-run Tap Chi Cong San (Communist Magazine), said the president’s statement reveals “a long-term planning with specific tactics”. 



Meanwhile, Deputy Prime Minister Truong Hoa Binh in his speech delivered at the National Assembly’s 7th session on May 20 said that the government is creating favorable conditions for some big private corporations to come into being and to be able to compete with regional and global peers. 



In a report submitted to the NA at the 7th session, the government has designated private sector as a “driving force for the economy”.  



How big of Vietnam’s private sector?

 

Wage in private sector in 2008-2017. Source: AmCham Vietnam

Private investment capital and the number of private companies account for the highest ratio and mark the fastest growth rate in the economy, VietNamNet cited the government’s report as saying.



The growth rate of private investment capital and private companies was at 9.5%, 17.1%, and 18.5% in 2016, 2017, and 2018, respectively, compared to 7.3%, 6.9%, and 3.9% in the state sector, and 10.4%, 12.8%, and 9.6% in the foreign-invested sector. 



In terms of revenues, in 2016 non-state sector fetched VND9.7 million (US$422 billion) in revenues, accounting for 56% of the whole economy, compared with VND2.88 million (US$120 billion) by the state sector. 



In terms of profits, in the same year private firms earned VND188 trillion (US$8 billion), accounting for 26.4% of the whole economy. Meanwhile, state-owned enterprises reaped VND197 trillion (US$8.5 billion), making up 27.7% of total profits of enterprises in Vietnam.   



Regarding contributions to the state budget, the private sector contributed VND434.7 trillion (US$19 billion) to the state budget in 2016, the largest part among three economic sectors; whereas, the state sector added VND277.3 trillion (US$12 billion) to the state coffer in the same year.



In terms of jobs, as of 2016, private firms employed 8.57 million people, compared to 1.31 million by state-owned enterprises. 

 

Vietnam’s domestic credit to private sector for years. Source: World Bank/Tradingeconomics

In 2018, investment in the private sector hit VND1,850 trillion (US$80 billion), up 18.5% on year. The figure accounted for 43.3% of the total investment. In comparison, the investment in state sector was VND619 trillion (US$27 billion), up 3.9% on year while that from FIEs was VND434 trillion (US$18.5 billion), up 9.6% on year, economist Nguyen Minh Phong told The Leader. 



Challenges to non-state sector



The private sector is undeniably strong in the economy. However, this sector has somehow been unfairly treated and sometimes troubled by management agencies namely customs, taxation, among others. In other words, they are operating in an unhealthy environment. 



Economist Nguyen Minh Phong has addressed the biggest challenge to the non-state sector is “authorities-backed enterprises” which are covered up by state officials to take advantages of state resources and get privileges. 



A survey conducted in 2016 by the Central Institute for Economic Management (CIEM) showed that more than 40% of 2,600 small- and medium-sized private enterprises working in manufacturing in 10 localities had to bear informal costs such as bribing state agencies. The rate was 64% in 2015. 



Vietnam needs breakthroughs in management mechanism in a substantive way to make private sector a driving force of the economy, economist Nguyen Minh Phong emphasized.