Private sector plays greater economic role

Customers shop at a PT2000 store in Ha Noi. Hanh Fashion's PT2000 is popular in the domestic clothing industry. — VNS Photo Truong Vi

HCM CITY — The private sector has played an important role in the national economy in recent years, and now contributes 47 per cent of GDP and 54 per cent of jobs.

Most private-sector companies have developed from small businesses.

Over the last 20 years, for example, bakery manufacturers, including Kinh Do, Duc Phat and A Chau, invested in modern technologies and began to dominate local markets with high quality goods.

Although the textile and garment sector exports most of its goods, some private companies like Thai Tuan and Phuoc Thinh produce brocade for women that sells locally.

Hanh Fashion is well-known for office dresses, while Foci, Viet Thy and PT2000 are highly recognised by youth.

In addition, Minh Long pottery company has reached a very high level of production.

In the industrial sector, Truong Hai has grown as a reputable automobile manufacturer, and 30 other private enterprises have provided components for FDI enterprises.

Along with fast growth in quantity and awareness about corporate governance, the market vision of private companies has led to changes in the way foreigners are investing in Viet Nam.

Foreign investors have begun to co-operate or develop franchise production rights for local private enterprises.

Successful companies have proven their professional ability in modern management and have shifted from a family-company model.

All have achieved significant economic effectiveness.

"Local businessmen have suffered stiff challenges because of the global financial crisis, but they have successfully adapted as only a small number of enterprises have closed operations," Pham Chi Lan, senior economic expert, said.

Private enterprises created 4.3 million jobs or 54 per cent of all jobs during the 2000 – 2008 period. The number is four times higher than that of State-owned businesses.

The average yearly income of workers in 2000 is VND8.2 million or 1.4 times higher than GDP per capita, but in 2008 the ratio doubled to reach VND32 million.

Working capacity has also improved. Average yearly turnover for each worker has increased three times, from VND225 million in 2000 to VND710 million in 2008.

Of the 1,000 enterprises that contributed the highest earnings to the State budget, private enterprises and State-owned and FDI companies each contributed 33 per cent.

The rate illustrates the effectiveness of the private sector and its value to the country.

In addition, many ideas to adjust agency policies developed by the private sector have been rec-ognised.

However, at present, the number of large private enterprises is still low because of the lack of capital and qualified human resources.

But in coming years the number will increase as Viet Nam's membership in the World Trade Organisation provides a trade environment for the development of financially healthy, large businesses.

"Private enterprises have always tried their best to survive and develop," Lan added.

She noted that when Viet Nam cut import taxes following AFTA and WTO roadmaps, many foreign investors immediately closed their factories and began importing products.

However, many local enterprises continued to invest in modern technology and expand their production because of a more favourable trade environment. — VNS

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Private firms take lead in efficiency, but profits slump

Photo: Tuoi Tre

Though Vietnamese private firms take lead in investment efficiency, their profits are still much lower than those of state owned and foreign-invested enterprises, said a recent report.

While private businesses take the lead in terms of investment efficiency, their ratio of profit on total assets is still lower than that of SOEs and FIEs, according to the report on private economic sector development released by the Taskforce on the implementation of Enterprise Law and the UNDP on Wednesday.

The ratio of profit on total assets of private businesses is 1.5 percent, while the figures are 5.4 and 10.6 percent for SOEs and FIEs respectively.

To date, 500,000 enterprises have been established in Vietnam. If comparing the investment capital and the GDP of private businesses, SOEs and FIEs, one can see that the private sector has the highest investment efficiency.

In 2001, the ICOR index (Incremental Capital Output Ratio) of the private sector was 2.63, while the figure was 7.42 for SOEs and 6.29 for FIEs. The ICOR of the private sector was still the lowest in 2007: private businesses only needed VND3.74 to make a VND1 of profit, while SOEs needed VND8.28, and FIEs VND4.99.

Besides, the expenses private businesses have to pay to create jobs are also the lowest. In 2008, SOEs needed VND436.5 million worth of stockholder equity to create a job, while private businesses only needed VND224.1 million.

In 2009, the private economic sector provided jobs to 85 percent of laborers, while SOEs and FIEs 11.5 percent and 3.4 percent, respectively, of the total 47.7 million laborers.

The ratio of total turnover on total assets of the private sector is also higher than other economic sectors. In 2008, private businesses could create VND1.8 billion in turnover from VND1 billion. Meanwhile, with the same sum of money, SOEs created VND0.8 billion, and FIEs VND0.89 billion.

Le Duy Binh, Representative of the Taskforce on the implementation of the Enterprise Law, said that a lot of private businesses have reported loss.

Private businesses have to bear high expenses, therefore their profit is low. Private businesses, for example, have to pay high for leasing workshop premises, while SOEs and FIEs can lease land at lower fees, Binh added.

Besides, private businesses usually find it difficult to access bank loans because they do not have assets to mortgage for loans.

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New private carrier gears up for first flight

Officials announced Monday that Air Mekong, the nation’s nascent luxury airline, is planning its first flight on October 10.

The Mekong Delta-based outfit was licensed in 2008 to become Vietnam’s third private carrier after Indochina and VietJet AirAsia.

Truong Thanh Vu, the carrier’s director of commercial service, said tourists and businesspeople will be the target market for the frilly flights.

“Vietnam’s aviation market is coming up on the heels of the world’s economic and airline recovery, offering opportunities for carriers around the globe and new jets to join the market,” Vu told Thanh Nien Weekly.

He said Vietnam’s aviation market saw a 20 percent increase in sales in the first half of this year. Vu added that, on some routes, the country saw a 30-50 percent jump, a good sign for carriers that took a hit during the global economic crisis.

The country is once again drawing international tourists and businesspeople for leisure, trade and investment, adding more demand to the market, he said.

Vu said the market is still young. Only six domestic airlines have been licensed so far, including the flagship carrier Vietnam Airlines and Jetstar Pacific. Vu says there is still great potential for traditional and low-cost carriers to break into the market.

Air Mekong applied for aviation operator certificates to open routes between big cities like Hanoi, Ho Chi Minh City, Da Nang, Can Tho and Hai Phong and scenic getaways like Nha Trang, Da Lat, Vinh and Phu Quoc.

The carrier has received four Bombardier CRJ-900 airplanes leased from US firm Sky West Leasing Inc. Local newspapers said the American company would retain a 30 percent stake in Air Mekong thus becoming a strategic shareholder in the venture whose charter capital was reported at VND200 billion.

Vu refused to confirm the news. He did say, however, that the private carrier has hired 40 US pilots, who will take off in October. Tickets sales begin online next month.

No private carrier is currently operating flights in Vietnam. Indochina was the first private carrier to break into Vietnamese airspace in late 2007. However, the company suspended flights last

October due to losses incurred during the crisis.

The second private carrier VietJet AirAsia – 30 percent of which is owned by the Malaysian budget carrier AirAsia – delayed its first flights twice in May and August. At this time, the joint stock company has not announced plans to reschedule the take-off.

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