Vietnam cannot develop without large private businesses: experts

Vietnam will not be prosperous without large private business groups because they are the pillars of the national economy and the backbone to create supply chains.

Senior expert Tran Dinh Thien said that it is impossible to have an independent and self-reliant economy without a powerful business force. The country will not be prosperous without large private business groups because they are the pillars of the national economy and the backbone to create supply chains.

However, the current status of private Vietnamese enterprises shows many problems. According to the 2021 economic census of the General Statistics Office, about 97 percent of Vietnamese enterprises are small and medium-sized (SMEs), and most are private firms. 

Around 50 per cent of SMEs have revenue of less than 3 billion VND/year; about 13 per cent with revenue of 3 to 10 billion/year; and less than 1 percent with revenue of over 300 billion VND/year. 

With their small scale and low revenue, most private enterprises face challenges in attracting skilled and qualified human resources, and raising capital for investment in technology, equipment and production.

Resolution 31/2021/QH15 of the National Assembly on economic restructuring in 2021-2025 set a target of having about 1.5 million enterprises by 2025. 

To achieve this goal, from now to 2025, Vietnam must have about 160,000 newly established businesses. However, as the number of businesses withdrawing from the market is about 100,000 each year, the number each year of new businesses would need to be nearly 300,000. This is a difficult task.

The latest report of the 500 largest private enterprises in Vietnam (VPE500) from the National Center for Socio-Economic Information and Forecast shows that large private firms are growing by production expansion rather than in-depth development. 

Specifically, labor productivity of the 500 largest private companies increased by about 5.3 percent per year, compared to 4.6 percent per year of other private firms and lower than that of foreign-invested enterprises. 

The 500 largest private enterprises use relatively more modern machinery than SMEs, but their development of technology and machinery through research and development is still low. 

Moreover, large private enterprises lack stability. In 2016-2020, 823 enterprises entered and exited the list of 500 largest private enterprises in Vietnam. Only 237 companies held stable positions for five years, accounting for 47.4 percent of the total. 

According to the Ministry of Planning and Investment, the number of small private enterprises becoming medium scale and growing from medium to large scale in Vietnam is low. 

The speed of transformation in size is very slow. Many small firms need up to 10-20 years to move to medium size.

Unfavorable business environment

Dr. Luong Van Khoi, Deputy Director of the National Center for Socio-Economic Information and Forecasting, said that although it is an important economic sector, private enterprises still face difficulties due to small scale and weak sci-tech, low productivity, and a weak business environment. 

In developed countries, the private sector often contributes more than 85% of GDP. Vietnam must develop a strong team of private businesses if it wants to compete with great powers by 2045.

The development of private enterprises in Vietnam has not been successful because of the unfavorable business environment, experts said. A recent survey by the Vietnam Chamber of Commerce and Industry (VCCI) pointed out that 39.5 percent of private enterprises said that local governments still prioritized foreign-invested and state-owned enterprises over the private sector. 

Private enterprises face difficulties in accessing land and capital, and disadvantages in inspection, tax, and customs.

Expert Nguyen Dinh Cung said that barriers for development of private enterprises include social awareness about the private sector. State management still focuses on control, resulting in overlapping regulations.

Policies for private enterprises should be improved in the direction of not only facilitating market entry but growth. In particular, large private firms need to invest in improving productivity and gradually shifting to in-depth growth. 

There should also be economic policies to promote business linkages, particularly between large private enterprises, State-owned enterprises and FDI enterprises with SMEs. 

The current incentives for FDI and State-owned enterprises should also be given to private firms. If so, Vietnam would be able to create a strong group of private enterprises.
Tran Thuy