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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Denmark supports Vietnamese SMEs

Danish Ambassador to Vietnam John Nielsen announces the Business Sector Program whose main goal is to support Vietnamese SMEs in the private sector - Photo: Quoc Hung

HCMC - The Danish International Development Assistance (Danida) has approved the Business Sector Program in Vietnam, which will strongly benefit small and medium enterprises, especially those in the private sector.

The program will have a total budget of 123 million Danish Kroner, or about VND422 billion, and last for three years from 2011, Danish Ambassador to Vietnam John Nielsen told reporters at a press briefing in HCMC on Friday.

The program is now subject to the appraisal of the Vietnamese Government. The government-to-government agreement between the two countries is expected to be signed in December in order to allow for the program to begin in January 2011, according to the Danish embassy in a statement released at the meeting.

With the objective of strengthening the competitiveness of Vietnamese growth- and export-oriented enterprises and creating decent jobs, the ambition of the program is to help create conditions for continued strong private sector-led growth.

In particular, the program aims at strengthening innovation and adaptation of new technologies in SMEs known as component 1, supporting measures to fortify the national system of occupational safety and health in component 2, and enhancing the understanding of the SME sector through economic research in component 3.

For Component 1, the program will spend 63 million Danish Kroner to support 40 to 50 projects with an average funding of VND4 billion per project for enterprises in seven provinces, the ambassador said.

The direct target group is Vietnamese non-public enterprises providing services to small businesses or household enterprises or farmers operating in the export-oriented value chains, while the indirect target group includes small businesses, household enterprises and farmers.

The Global Competitiveness Facility (GCF) funding is expected to reduce the financial risk for Vietnamese non-public enterprises and organizations embarking on offering business services, new technologies, access to new export markets and piloting new business models.

The Ministry of Labor, Invalids and Social Affairs; the Central Institute of Economic Management and the Global Competitiveness Facility continue to be key partners of the program.

The support to improve labor protection under Component 2 will be implemented by the labor ministry through sector budget support to the National Program on Labor Protection and Occupational Safety and Health 2011-2015.

Ambassador John Nielsen says in the statement that “the strong economic performance of Vietnam over the past two decades reflects the increasing strength and buoyancy of the private sector, which is mainly made up of SMEs. The critical challenges of the next decade for Vietnam are to improve the quality of production, achieve and sustain global competitiveness and at the same time make sure that the poor are being taken along the growth path.”

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Denmark supports Vietnamese SMEs

Danish Ambassador to Vietnam John Nielsen announces the Business Sector Program whose main goal is to support Vietnamese SMEs in the private sector - Photo: Quoc Hung

HCMC - The Danish International Development Assistance (Danida) has approved the Business Sector Program in Vietnam, which will strongly benefit small and medium enterprises, especially those in the private sector.

The program will have a total budget of 123 million Danish Kroner, or about VND422 billion, and last for three years from 2011, Danish Ambassador to Vietnam John Nielsen told reporters at a press briefing in HCMC on Friday.

The program is now subject to the appraisal of the Vietnamese Government. The government-to-government agreement between the two countries is expected to be signed in December in order to allow for the program to begin in January 2011, according to the Danish embassy in a statement released at the meeting.

With the objective of strengthening the competitiveness of Vietnamese growth- and export-oriented enterprises and creating decent jobs, the ambition of the program is to help create conditions for continued strong private sector-led growth.

In particular, the program aims at strengthening innovation and adaptation of new technologies in SMEs known as component 1, supporting measures to fortify the national system of occupational safety and health in component 2, and enhancing the understanding of the SME sector through economic research in component 3.

For Component 1, the program will spend 63 million Danish Kroner to support 40 to 50 projects with an average funding of VND4 billion per project for enterprises in seven provinces, the ambassador said.

The direct target group is Vietnamese non-public enterprises providing services to small businesses or household enterprises or farmers operating in the export-oriented value chains, while the indirect target group includes small businesses, household enterprises and farmers.

The Global Competitiveness Facility (GCF) funding is expected to reduce the financial risk for Vietnamese non-public enterprises and organizations embarking on offering business services, new technologies, access to new export markets and piloting new business models.

The Ministry of Labor, Invalids and Social Affairs; the Central Institute of Economic Management and the Global Competitiveness Facility continue to be key partners of the program.

The support to improve labor protection under Component 2 will be implemented by the labor ministry through sector budget support to the National Program on Labor Protection and Occupational Safety and Health 2011-2015.

Ambassador John Nielsen says in the statement that “the strong economic performance of Vietnam over the past two decades reflects the increasing strength and buoyancy of the private sector, which is mainly made up of SMEs. The critical challenges of the next decade for Vietnam are to improve the quality of production, achieve and sustain global competitiveness and at the same time make sure that the poor are being taken along the growth path.”

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Economist discusses Vietnam’s economic growth

As policymakers are about to release Vietnam’s socioeconomic development strategies for 2011-2020, Tran Dinh Thien, chief of the Vietnam Institute of Economics, talks to Tuoi Tre about the challenges which lay ahead and provides recommendations for Vietnamese policymakers.

What are the main challenges for Vietnam in the next 10 years?

Though the 25-year economic reforms have really boosted Vietnam’s socioeconomic development, the country is now facing four obstacles that should be addresses.

The per-annum growth exceeding 7 percent that Vietnam has kept for 25 years is yet to qualify as sustainable in line with economic determinations of sustainable development for any nation enjoying an annual growth rate of 5 percent over 10-15 years.

Secondly, despite the high GDP growth rates of the past years, our per capita GDP still lags behind that of other nations in the region.

Thirdly, the country has yet to fully benefit from WTO’s integration as its economic engine seems to be running out of steam.

Fourthly, giving the recent global economic downturn, we had to issue a lot of money to contain the domestic market’s financial crunch, said to spur inflation. But the consumer price index, the gauge of inflation, is weakening, while macroeconomic stability has yet been achieved.

What are chronic downsides of Vietnam’s economy?

Though the national economy seems to have matured, our chronic economic diseases including budget deficit, trade deficit and unequal income distribution, have yet been treated.

Rising issues like corruption, the disproportionate allocation of national resources to large state-run national conglomerates at the cost of the needy private sector and complicated administrative procedures are additional symptoms that may drag the country to the so-called middle-income trap.

What is the middle-income trap?

Many countries have, in the past, reached the US$3,000-8,000 GDP per capita target by relying on cheap labor and abundant natural resources. But they found themselves stuck in the middle-income trap no longer able to achieve sustainable growth.

Since their low-cost labor force and resources advantages have run out, they now have to contain environmental pollution, income discrimination and social conflict all brought upon by their past growth-at-all-cost policies.

It is easy to get caught in such traps as many countries like Mexico, Brazil and Argentina with a per capita GDP of $5,000-$7,000 and Thailand, Indonesia and the Philippines with GDP per capita of $3,000-$4,000 can attest.

But there are also success stories such as our neighbors Korea, Taiwan and Singapore.

Has Vietnam’s past development posed such risk?

Since Vietnam is barely testing the water with a new level of per capita GDP at around $1,200, we should carefully follow good examples to avoid being trapped in the near future when income reaches $3,000-$5,000.

Vietnam is sailing in risky waters since it doesn’t have any large enough corporation able to compete with international counterparts in teams of capitals, management capacity, international standards implementation and high-tech production.

So what will be the way for Vietnam to go?

Vietnam’s socioeconomic development plan for the next decade must factor in the recent global economic slump requiring all nations to rethink their development strategies.

Vietnam’s economy must be redirected to apply hi-tech and environmental-friendly technologies and away from outdated strategies relying on cheap-labor and natural resources’ exploitation.

Most of our resources were set aside for giant state-owned groups, so will they be the drive engines helping Vietnam get out of dangerous waters?

Large groups like Japan’s Toyota and Korea’s Samsung are the backbones of many economies and are the driving forces in technological invention and innovation.

But in the Vietnamese context, state-run conglomerates cannot perform as effectively as those in developed nations, so we should also provide the private sector with a chance to become the driving force.

If the private sector is not taken into account as a main driving force in our development strategies, we might miss a chance for the country’s development.

Do you think that is realistic given state-run groups can access large-scale loans worth some thousands of trillions of dongs while the private sector never stands such a chance?

We have talked a lot about how to stop economic wastage and unequal distribution of resources. Money should not be channeled to those who cannot use it in the most effective way; needless to say they are state-run or private businesses.

So the government’s development strategies should entail allocating privileged resources to needy economic sectors without discriminating private firms.

The responsibilities and cooperation between state management agencies must also be regulated as clearly as possible so as to leave room for creative ideas and better management.

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Economist discusses Vietnam’s economic growth

As policymakers are about to release Vietnam’s socioeconomic development strategies for 2011-2020, Tran Dinh Thien, chief of the Vietnam Institute of Economics, talks to Tuoi Tre about the challenges which lay ahead and provides recommendations for Vietnamese policymakers.

What are the main challenges for Vietnam in the next 10 years?

Though the 25-year economic reforms have really boosted Vietnam’s socioeconomic development, the country is now facing four obstacles that should be addresses.

The per-annum growth exceeding 7 percent that Vietnam has kept for 25 years is yet to qualify as sustainable in line with economic determinations of sustainable development for any nation enjoying an annual growth rate of 5 percent over 10-15 years.

Secondly, despite the high GDP growth rates of the past years, our per capita GDP still lags behind that of other nations in the region.

Thirdly, the country has yet to fully benefit from WTO’s integration as its economic engine seems to be running out of steam.

Fourthly, giving the recent global economic downturn, we had to issue a lot of money to contain the domestic market’s financial crunch, said to spur inflation. But the consumer price index, the gauge of inflation, is weakening, while macroeconomic stability has yet been achieved.

What are chronic downsides of Vietnam’s economy?

Though the national economy seems to have matured, our chronic economic diseases including budget deficit, trade deficit and unequal income distribution, have yet been treated.

Rising issues like corruption, the disproportionate allocation of national resources to large state-run national conglomerates at the cost of the needy private sector and complicated administrative procedures are additional symptoms that may drag the country to the so-called middle-income trap.

What is the middle-income trap?

Many countries have, in the past, reached the US$3,000-8,000 GDP per capita target by relying on cheap labor and abundant natural resources. But they found themselves stuck in the middle-income trap no longer able to achieve sustainable growth.

Since their low-cost labor force and resources advantages have run out, they now have to contain environmental pollution, income discrimination and social conflict all brought upon by their past growth-at-all-cost policies.

It is easy to get caught in such traps as many countries like Mexico, Brazil and Argentina with a per capita GDP of $5,000-$7,000 and Thailand, Indonesia and the Philippines with GDP per capita of $3,000-$4,000 can attest.

But there are also success stories such as our neighbors Korea, Taiwan and Singapore.

Has Vietnam’s past development posed such risk?

Since Vietnam is barely testing the water with a new level of per capita GDP at around $1,200, we should carefully follow good examples to avoid being trapped in the near future when income reaches $3,000-$5,000.

Vietnam is sailing in risky waters since it doesn’t have any large enough corporation able to compete with international counterparts in teams of capitals, management capacity, international standards implementation and high-tech production.

So what will be the way for Vietnam to go?

Vietnam’s socioeconomic development plan for the next decade must factor in the recent global economic slump requiring all nations to rethink their development strategies.

Vietnam’s economy must be redirected to apply hi-tech and environmental-friendly technologies and away from outdated strategies relying on cheap-labor and natural resources’ exploitation.

Most of our resources were set aside for giant state-owned groups, so will they be the drive engines helping Vietnam get out of dangerous waters?

Large groups like Japan’s Toyota and Korea’s Samsung are the backbones of many economies and are the driving forces in technological invention and innovation.

But in the Vietnamese context, state-run conglomerates cannot perform as effectively as those in developed nations, so we should also provide the private sector with a chance to become the driving force.

If the private sector is not taken into account as a main driving force in our development strategies, we might miss a chance for the country’s development.

Do you think that is realistic given state-run groups can access large-scale loans worth some thousands of trillions of dongs while the private sector never stands such a chance?

We have talked a lot about how to stop economic wastage and unequal distribution of resources. Money should not be channeled to those who cannot use it in the most effective way; needless to say they are state-run or private businesses.

So the government’s development strategies should entail allocating privileged resources to needy economic sectors without discriminating private firms.

The responsibilities and cooperation between state management agencies must also be regulated as clearly as possible so as to leave room for creative ideas and better management.

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Economist discusses Vietnam’s development strategies

As policymakers are about to release Vietnam’s socioeconomic development strategies for 2011-2020, Tran Dinh Thien, chief of the Vietnam Institute of Economics, talks to Tuoi Tre about the challenges which lay ahead and provides recommendations for Vietnamese policymakers.

What are the main challenges for Vietnam in the next 10 years?

Though the 25-year economic reforms have really boosted Vietnam’s socioeconomic development, the country is now facing four obstacles that should be addresses.

The per-annum growth exceeding 7 percent that Vietnam has kept for 25 years is yet to qualify as sustainable in line with economic determinations of sustainable development for any nation enjoying an annual growth rate of 5 percent over 10-15 years.

Secondly, despite the high GDP growth rates of the past years, our per capita GDP still lags behind that of other nations in the region.

Thirdly, the country has yet to fully benefit from WTO’s integration as its economic engine seems to be running out of steam.

Fourthly, giving the recent global economic downturn, we had to issue a lot of money to contain the domestic market’s financial crunch, said to spur inflation. But the consumer price index, the gauge of inflation, is weakening, while macroeconomic stability has yet been achieved.

What are chronic downsides of Vietnam’s economy?

Though the national economy seems to have matured, our chronic economic diseases including budget deficit, trade deficit and unequal income distribution, have yet been treated.

Rising issues like corruption, the disproportionate allocation of national resources to large state-run national conglomerates at the cost of the needy private sector and complicated administrative procedures are additional symptoms that may drag the country to the so-called middle-income trap.

What is the middle-income trap?

Many countries have, in the past, reached the US$3,000-8,000 GDP per capita target by relying on cheap labor and abundant natural resources. But they found themselves stuck in the middle-income trap no longer able to achieve sustainable growth.

Since their low-cost labor force and resources advantages have run out, they now have to contain environmental pollution, income discrimination and social conflict all brought upon by their past growth-at-all-cost policies.

It is easy to get caught in such traps as many countries like Mexico, Brazil and Argentina with a per capita GDP of $5,000-$7,000 and Thailand, Indonesia and the Philippines with GDP per capita of $3,000-$4,000 can attest.

But there are also success stories such as our neighbors Korea, Taiwan and Singapore.

Has Vietnam’s past development posed such risk?

Since Vietnam is barely testing the water with a new level of per capita GDP at around $1,200, we should carefully follow good examples to avoid being trapped in the near future when income reaches $3,000-$5,000.

Vietnam is sailing in risky waters since it doesn’t have any large enough corporation able to compete with international counterparts in teams of capitals, management capacity, international standards implementation and high-tech production.

So what will be the way for Vietnam to go?

Vietnam’s socioeconomic development plan for the next decade must factor in the recent global economic slump requiring all nations to rethink their development strategies.

Vietnam’s economy must be redirected to apply hi-tech and environmental-friendly technologies and away from outdated strategies relying on cheap-labor and natural resources’ exploitation.

Most of our resources were set aside for giant state-owned groups, so will they be the drive engines helping Vietnam get out of dangerous waters?

Large groups like Japan’s Toyota and Korea’s Samsung are the backbones of many economies and are the driving forces in technological invention and innovation.

But in the Vietnamese context, state-run conglomerates cannot perform as effectively as those in developed nations, so we should also provide the private sector with a chance to become the driving force.

If the private sector is not taken into account as a main driving force in our development strategies, we might miss a chance for the country’s development.

Do you think that is realistic given state-run groups can access large-scale loans worth some thousands of trillions of dongs while the private sector never stands such a chance?

We have talked a lot about how to stop economic wastage and unequal distribution of resources. Money should not be channeled to those who cannot use it in the most effective way; needless to say they are state-run or private businesses.

So the government’s development strategies should entail allocating privileged resources to needy economic sectors without discriminating private firms.

The responsibilities and cooperation between state management agencies must also be regulated as clearly as possible so as to leave room for creative ideas and better management.

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Economist discusses Vietnam’s development strategies

As policymakers are about to release Vietnam’s socioeconomic development strategies for 2011-2020, Tran Dinh Thien, chief of the Vietnam Institute of Economics, talks to Tuoi Tre about the challenges which lay ahead and provides recommendations for Vietnamese policymakers.

What are the main challenges for Vietnam in the next 10 years?

Though the 25-year economic reforms have really boosted Vietnam’s socioeconomic development, the country is now facing four obstacles that should be addresses.

The per-annum growth exceeding 7 percent that Vietnam has kept for 25 years is yet to qualify as sustainable in line with economic determinations of sustainable development for any nation enjoying an annual growth rate of 5 percent over 10-15 years.

Secondly, despite the high GDP growth rates of the past years, our per capita GDP still lags behind that of other nations in the region.

Thirdly, the country has yet to fully benefit from WTO’s integration as its economic engine seems to be running out of steam.

Fourthly, giving the recent global economic downturn, we had to issue a lot of money to contain the domestic market’s financial crunch, said to spur inflation. But the consumer price index, the gauge of inflation, is weakening, while macroeconomic stability has yet been achieved.

What are chronic downsides of Vietnam’s economy?

Though the national economy seems to have matured, our chronic economic diseases including budget deficit, trade deficit and unequal income distribution, have yet been treated.

Rising issues like corruption, the disproportionate allocation of national resources to large state-run national conglomerates at the cost of the needy private sector and complicated administrative procedures are additional symptoms that may drag the country to the so-called middle-income trap.

What is the middle-income trap?

Many countries have, in the past, reached the US$3,000-8,000 GDP per capita target by relying on cheap labor and abundant natural resources. But they found themselves stuck in the middle-income trap no longer able to achieve sustainable growth.

Since their low-cost labor force and resources advantages have run out, they now have to contain environmental pollution, income discrimination and social conflict all brought upon by their past growth-at-all-cost policies.

It is easy to get caught in such traps as many countries like Mexico, Brazil and Argentina with a per capita GDP of $5,000-$7,000 and Thailand, Indonesia and the Philippines with GDP per capita of $3,000-$4,000 can attest.

But there are also success stories such as our neighbors Korea, Taiwan and Singapore.

Has Vietnam’s past development posed such risk?

Since Vietnam is barely testing the water with a new level of per capita GDP at around $1,200, we should carefully follow good examples to avoid being trapped in the near future when income reaches $3,000-$5,000.

Vietnam is sailing in risky waters since it doesn’t have any large enough corporation able to compete with international counterparts in teams of capitals, management capacity, international standards implementation and high-tech production.

So what will be the way for Vietnam to go?

Vietnam’s socioeconomic development plan for the next decade must factor in the recent global economic slump requiring all nations to rethink their development strategies.

Vietnam’s economy must be redirected to apply hi-tech and environmental-friendly technologies and away from outdated strategies relying on cheap-labor and natural resources’ exploitation.

Most of our resources were set aside for giant state-owned groups, so will they be the drive engines helping Vietnam get out of dangerous waters?

Large groups like Japan’s Toyota and Korea’s Samsung are the backbones of many economies and are the driving forces in technological invention and innovation.

But in the Vietnamese context, state-run conglomerates cannot perform as effectively as those in developed nations, so we should also provide the private sector with a chance to become the driving force.

If the private sector is not taken into account as a main driving force in our development strategies, we might miss a chance for the country’s development.

Do you think that is realistic given state-run groups can access large-scale loans worth some thousands of trillions of dongs while the private sector never stands such a chance?

We have talked a lot about how to stop economic wastage and unequal distribution of resources. Money should not be channeled to those who cannot use it in the most effective way; needless to say they are state-run or private businesses.

So the government’s development strategies should entail allocating privileged resources to needy economic sectors without discriminating private firms.

The responsibilities and cooperation between state management agencies must also be regulated as clearly as possible so as to leave room for creative ideas and better management.

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