Radical measures are needed for private sector to become Vietnam’s important growth driver

The domestic private sector is flourishing with a significant role in the Vietnamese economy. As of 2019, the sector contributed 42% of GDP and 30% of government revenue while employing 85% of the workforce and accounting for over 43% of total social investment.

Private firms have made successful investments in important infrastructure projects and areas of business which were previously dominated by state-owned enterprises, such as airports, sea ports, tunnels, expressways and air transport.

But it is a paradox that few can build up to become truly large enterprises and the majority remain as small and ultra-small enterprises.

Some even took years to become medium-sized enterprises only to decide to sell themselves or merge with others once they began to establish a reputation.

In the meantime, household businesses, which are much larger than the formal sector, are reluctant to convert themselves into formal enterprises.

Recent years have seen more than 100,000 enterprises established each year, injecting a significant amount of capital into the economy, but at the same time many have also pulled out from the market.

It is estimated that for every ten new enterprises, there are six to eight being forced to close temporarily, awaiting completion of bankruptcy procedures or formally closing down.

The question is whether the business environment in Vietnam is attractive and safe enough to motivate the people’s legitimate aspirations of becoming rich and contributing to national development instead of just earning a livelihood. And what needs to be done to tap into the huge pool of resources possessed by the people, which is estimated at billions of US dollars kept in banks for safety rather than flowing into investment and production channels.

With such a reality, the Party and Government have identified private sector development as an important driver of the socialist-oriented market economy and new driver for economic growth. It is a significant change of mindset and needs to be manifested in socio-economic development strategies.

Accordingly, it is necessary to form an equal and healthy competitive environment for the private sector to grow by fine-tuning and improving the quality of institutions and laws so that they are stable, specific and transparent, while also meeting international standards.

For their part, private enterprises need to enhance their labour productivity, product quality and competitiveness as their top priorities by applying new technologies and administration methods as well as promoting linkage and integration.