Private sector to foster as key propellant for 2021-2025 economic growth

22-Jul-2021 Intellasia | Nhandan | 5:02 AM Print This Post

With an average annual growth rate of 6.5-7 percent set for the 2021-2025 period, Vietnam will apply a range of solutions including the creation of new spaces for private businesses to operate as one of the most important pillars of economic growth.

The government has just sent to the National Assembly a report on an expected plan for socioeconomic development in the 2021-2025 period. In which it is expected that the annual economic growth will hit 6.5-7%, and Vietnam will become a higher middle income country by 2025.

In order to realise this ambitious plan, the government said that one of the key solutions will be to further develop the private sector, which includes private domestically-invested and foreign-invested enterprises, and household businesses as well.

“Big private groups are to be established and developed, with big strengths able to compete in the regional and international markets,” said a draft resolution on socioeconomic development during 2021-2025. “Greater efforts must be made to create 1.5 million operational enterprises by 2025, with private businesses to generate 55 percent of GDP.”

Creating bigger spaces for the private sector

According to the political report the most important document debated by the Central Party Committee at the 13th National Party Congress held in early this year, the private economic sector “is to be encouraged for development in all sectors not banned by the law, especially in the areas of production, business, and services. The sector is supported in developing privately-owned big companies and groups with high competitiveness.”

“Private enterprises are encouraged to cooperate with state-owned enterprises (SOEs), cooperatives, and households; and to develop joint stock companies with large participation of all entities. Foreign investment is an important part of the national economy, playing a big role in mobilising investment capital, technology, and modern management methods, and expanding export markets,” read the Party report.

Also, according to the governmental report, the private sector will be developed into “a really important impetus of the economy” in the 2021-2025 period.

“The development of the private sector must be encouraged vigorously, especially in the fields of manufacturing and processing, digital technology, and IT, with the formation of local and international supply chains and value chains,” the governmental report read. “A number of key telecommunications and IT firms will be developed to lead the country’s 4.0 technological development, laying a firm foundation for the development of a digital government, digital economy, and digital society.”

The government stated that the best conditions are to be created for the private sector to flourish in terms of both quantity and quality.

In Vietnam, the private sector creates up to 42 percent of GDP, and more than 50 percent of economic growth, 30 percent of the state budget revenue and 85 percent of the labour force.

According to the general Statistical Office, by late last year, Vietnam had nearly 800,000 operational enterprises, of which about 98 percent are of small and medium size. Within the last year, there were 134,900 newly established enterprises, with total registered capital of over VND2.23 quadrillion (US$96.96 billion), employing more than one million labourers. This was down 2.3 percent in the number of registered enterprises, but represented a year-on-year increase of 29.25 percent in registered capital.

In the first six months of this year, Vietnam saw 67,100 newly established enterprises, with total registered capital of VND942.6 trillion (US$41 billion) and employing 484.300 new labourers, up 8.1 percent in the number of enterprises and 34.3 percent in registered capital.

If another VND1.15 quadrillion (US$50 billion) which was registered by 23,700 operational enterprises is included, the total capital inserted into the Vietnamese economy in the first half of this year will be as much as VND2.095 quadrillion (US$91 billion). Moreover, 26,100 enterprises also resumed their operations, up 3.6 percent year-on-year.

In the first six months of 2021, the total number of enterprises newly established and resuming operations hit 93,200, up 6.9 percent year-on-year. The average registered capital of each enterprise reached VND14.1 billion (US$613,000), a year-on-year rise of 24.2%.

Narrowing down SOEs’ performance

The Party stated that from now until 2025, in order to further facilitate private sector development, “all SOEs will continue to be reshuffled, investing only in key fields of the economy, and in geographical areas important in security and defence, and in the fields not invested by other economic sectors.”

“The reshuffle of SOEs must be open and transparent, especially in equitisation and divestment. By 2025, SOE reshuffle must be completed, with loss-making groups and corporations to be addressed fully.”

The state will exclusively invest in only four fields, including provision of indispensable products and services for the society; service of defence and security; natural monopoly; and large-scale high-tech application with big investment creating momentum for rapid development of the economy’s other fields.

Raymond Mallon, senior economic expert living in Vietnam for over 20 years, said that SOE reforms are needed to accelerate national productivity growth and thus to increase incomes and living standards.

“Conflicts of interest arise if the state is both the owner and the regulator. And conflicts of interest generate inefficiencies. As has been seen in Vietnam and globally, such conflicts of interests lead to pressures for a state owning agency to regulate in a manner that is not in the nation’s interest,” Mallon said.

For example, by imposing business conditions or other restrictions on new businesses, the state agency can reduce the competition faced by SOEs. Policies and institutional structures that constrain competition are not in the nation’s interest. While constraints to competition can make individual SOEs more profitable, the resulting lack of competition stifles innovation and productivity growth.

“This hurts consumers because of higher costs and less innovation and variety; workers because reduced productivity growth means reduced growth in wages; other investors whose firms are being constrained; and the government because of increased opportunity for corruption,” Mallon explained.

According to Mallon, such reforms can reduce opportunities for misuse of state resources. Substantial state management capacity is needed to effectively exercise state ownership rights in even a limited number of SOEs. It is important that limited state capacity be focused on effectively governing institutions that provide essential public services such as health, education, water supply and sanitation, environmental protection, energy, and roads.

Recently, slow progress in equitisation and divestment of SOEs has been attributable to COVID 19 but the pandemic is only a recent cause. More fundamental causes are overpricing of shares, reluctance of local management to act, and bureaucratic inertia. Schedules have been set, and deadlines missed. Most recently, many SOEs missed 2020 deadlines contained in Decision No.26/2019/QD-TTg of the prime minister and deadlines have been reset to 2021.

According to the report of the Ministry of Finance’s Department of Corporate Finance, up to May 2021, the accumulated value of divested state capital is VND286.6 billion (US$12.46 million). From that the state budget is said to have realised over VND2.16 trillion (US$93.9 million). Remarkable divestment could occur in Vietnam Rubber Group, Viettel, Vietnam Education Publishing House, Vietnam Posts and Telecommunications Group, some of which are government icons.

In the first five months of this year, the amount collected from equitisation and divestment was VND228 billion (US$9.9 million). But the expected revenue to the state budget in 2021 is VND40 trillion (US$1.74 billion), all according to projections in the prime minister’s Decision No.1950/QD-TTg dated November 28, 2020,.


Category: Business, Vietnam

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