The Hanoitimes - The long-overdue preferential treatment for the FDI sector has disrupted the economic model, while Vietnam’s effort to privatize state-owned enterprises is lagging behind schedule.
Experts said non-market based policies are restricting the development of Vietnam’s private sector and undermining competition in the business environment.
An unclear role definition of each economic component has led to unfair treatment and inefficient allocation of resources, said Bui Quang Tuan, head of the Vietnam Institute of Economics at a conference on March 15 discussing the development prospect of Vietnam’s private sector.
Overview of the conference. Source: Ngoc Thuy.
“The private sector is considered a driving force of Vietnam’s economy, but its contribution remains modest at 8% of the GDP,” said Tuan.
Vietnam currently has 700,000 enterprises, of which small-and medium-sized enterprises account for 98%.
According to Tuan, insufficient support from the legal framework and business environment is the major reason restricting the development of the private sector.
Tuan referred to Vietnam moving down one notch from the 68th to 69th place out of 190 economies in the World Bank’s 2019 Ease of Doing Business ranking, although its score went up 1.59 points compared to a year earlier to 68.36 out of a 100-point scale.
Sharing the same concern, economist Tran Dinh Thien said the private sector was the main factor driving Vietnam out of the economic crisis in the 80s, however the sector needs more support to develop.
“As of present, Vietnam has not had an appropriate strategy for the development of domestic enterprises, while current policies only focus on increasing the number of enterprises but not for long-term growth,” Thien stressed.
Notably, the long-overdue preferential treatment for the FDI sector has disrupted the economic model, in which incentive is considered key strategy for attracting investment capital instead of efficient legal system, Thien stated.
Thien also expressed concern over the slow progress in privatizing state-owned enterprises, which currently have huge amount of resources at their disposal.
Recently, the private sector has seen improvements in the rise of some leading corporations, however, they are facing a risky business environment with potential legal trouble in the future.
For the private sector to fulfil its role as growth engine of Vietnam's economy, Thien expected the government to focus on restructuring the economy and revise the growth model, which should be based on Vietnam’s commitments during the process of global integration.
“It is a substantial change in the institutional system and higher state governance capability that could help the development of Vietnam’s private sector,” Thien concluded.