Private enterprises on the upswing

Friday, 2019-11-01 12:15:52
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Although currently on the rise, private enterprises still need more support for further development
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NDO - With the strong development of domestic private enterprises, more solutions are needed for the country to soon materialise its ambition of creating one million enterprises next year.

According to the General Statistics Office (GSO), in the first 10 months of this year, there was a record of 114,400 newly established enterprises, with total registered capital of over VND1.43 quadrillion (US$62.2 billion), employing more than one million labourers. This was up 4.4% in the number of enterprises, up 28.5% in capital, and up 10.8% in the number of employees.

Last year, Vietnam saw 131,275 newly-established enterprises with total registered capital of over VND1.478 quadrillion (US$64.26 billion), up 3.5% in the number of enterprises and up 14.1% in capital as compared to the previous year.

National Assembly (NA) deputy Nguyen Nhu So, representing the northern province of Bac Ninh, is optimistic about the strong development of private-owned enterprises (POEs) in Vietnam.

He said cited the GSO stating that in the first nine months of 2019, the private sector’s investment in the economy hit VND624.6 trillion (US$27.1 billion), up 16.9% year-on-year, the highest investment level as compared to that of the state-owned economic sector and the foreign-invested sector.

“The shift in the economy’s structure demonstrates that the private sector has become an important impetus for the economy as it creates 40% of GDP and 1.2 million of jobs,” So said.

According to the government, these impressive results have been achieved through the continued improvement of the domestic business and investment climate.

“Efforts have been made to simplify and cut down administrative procedures, save costs, and support enterprises in approaching markets and resources,” stated a government report delivered at the NA. “It is expected that this year will see about 134,000 newly-established enterprises, and dozens of thousands of other enterprises that will resume operation.”

In a specific case, over the past few years Trinh Tu Anh, director of privately-owned An Do Agricultural Services and Trading Co., Ltd. in Hanoi, has found it more favourable for her company to do business thanks to the government’s annual Resolution 19 on improving the business environment and enhancing national competitiveness.

“The time it has taken us to conduct import and export procedures has reduced by about 30%, but we still have to pay lots of money and spend a long time to conduct not only those procedures, but also many others,” Anh said.

Like many other NA deputies, Tran Tat The, representing northern Ha Nam Province, noted that over recent years the government has taken drastic action to create a more business-friendly climate for investors and enterprises via reducing and removing administrative procedures.

So far, of about 5,000 conditions on business, around 540 have been amended, 770 have been removed, and 110 have been replaced by improved ones. “About 30% of business conditions have been eradicated and amended,” The said. “However, according to international experts and organisations, Vietnam remains slow in administrative reform, and such reforms have yet to benefit enterprises significantly.”

“Thus, if we want to reach the target of creating one million enterprises in 2020, we must boost administrative reforms more strongly and practically,” he added.

In 2017, the fifth plenum of the 12th Party Central Committee issued a resolution affirming the need to promote the private sector to be an important propellant of Vietnam’s socialist-oriented market economy. This is an important milestone given that POEs experienced volatile growth in Vietnam in the past.

The resolution aims at one million active POEs in 2020, and two million in 2030. It also targets the private sector contributing 50% of GDP in 2020, 55% in 2025, and 60-65% by 2030.

More than a week ago, Prime Minister Nguyen Xuan Phuc signed and enacted Decision No.1362/QD-TTg on approving a plan on sustainable development of POEs until 2025 with a vision to 2030, with six groups of solutions (see box).

Raymond Mallon, an Australian senior economist who has spent decades studying Vietnam’s economic situation, said, “Administrative simplification in Vietnam has reached a defining moment. If successfully applied, the reductions of sub-licences can encourage enterprises to engage more in the market and create healthy competition among enterprises. They will help to foster economic growth via improvement of labour productivity, to curb corruption, and also to help create a more level playing field for all enterprises.”

According to Ousmane Dione, World Bank country director for Vietnam, government reform programmes are going in the right direction. “If these reform programmes are sequenced and implemented effectively, they will open many positive opportunities for Vietnam,” he said.

Anh of An Do Agricultural Services hoped that these pieces of advice will become reality soon. “However, currently our company still often suffers paying lots of money for many procedures,” she added.

“It costs us thousands of US dollars per year to obtain a certificate of conformity for our products, while normally this certificate needs to be obtained once for each product. We enterprises wish to see further administrative reforms so that we can find it easier to operate in the market,” she said.

NA deputy So also said, “Unofficial costs have become a major burden on enterprises. I think that the state needs to make strong changes in supporting enterprises, in terms of land, credits, and training of human resources, so that POEs can grow further.”

The World Bank just released its fresh Doing Business 2020 Report, showing that Vietnam has slipped one place, ranking 70th in this year’s report compared to 2019’s 69th.

In the report, the World Bank ranks 190 economies by 10 criteria on starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minor investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

Of the 10 criteria, Vietnam ranks between 25th and 27th in helping firms deal with construction permits, access to power, and capital funding. The scores in these three criteria are 79.3, 88.2 and 80.0, respectively.

Protecting minor investors is another issue. Vietnam scored 54.0 and ranked 97th in the report. Resolving insolvency is the worst criterion for Vietnam, scoring only 38.0 and ranking 122nd out of 190 economies.

“Vietnam needs to push for more reforms and a better business environment. If firms can compete and co-operate in a good environment, they will invest more and create more jobs,” stated Jacques Morisset, the World Bank lead economist and programme leader for Vietnam.

Six groups for sustainable development of POEs

  • Continuing to boost the improvement of the domestic business and investment climate in order ensure the maintenance of confidence in investment and business.
  • Encouraging enterprises to apply sustainable business models and cleaner production technologies, use natural resources more effectively, and protect the environment;
  • Spurring startups and innovation, and boosting the effective implementation of policies supporting small and medium-sized enterprises;
  • Supporting the improvement of labour productivity in enterprises, developing high-quality human resources, and improving corporate management capacity and administration;
  • Encouraging POEs to apply scientific and technological achievements and exploit opportunities from Industry 4.0;
  • Strengthening the role of business associations in supporting POEs to develop effectively and sustainably.

The overall target of the six groups of solutions is to facilitate POEs to operate effectively, with the number of these enterprises expected to be 1.5 million by 2025 and two million by 2030.

In the 2021-2030 period, the number of employees in POEs will grow 6-8% annually, and the average growth rate of employees’ income will be 25-30% per year. In addition, the average growth rate of enterprises’ contributions to the state budget will be 23-25% per year.