The private economy cannot overcome the FDI sector

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Why have not enterprises been able to expand?

On October 19, within the framework of the Australian Program to support Vietnam’s economic reform (Aus4Reform), the Central Institute for Economic Management held a seminar to announce the report “Enhancing the capacity of the private economic sector in Vietnam in the new period”.

Speaking at the seminar, Dr. Nguyen Thi Luyen, Deputy Head of the Research and Development Department – CIEM, said that in the period since 2011, the private sector has grown in both quality and quantity, especially in the 2015-2020 period, with more than 735,000 newly established enterprises (average of 122,500 enterprises/year). In the first nine months of 2021, despite the heavy impact of the Covid-19 pandemic, there were still 85,483 newly established businesses.

However, the capacity of the private economic sector is still limited, the competitiveness is low, the internal capacity is weak, and it is slow in improving. The private economic sector is large in quantity, but mainly small and micro-sized, there are not large and medium-sized enterprises with high technology levels, the management level of these is not high, the ability to link and cooperate in business is limited, and the capacity to participate in regional and global value chains is still weak; performance is still low and uneven.

The contribution of the private economic sector has not really corresponded to the quantity and the scale has not properly reflected the potential. In particular, the capacity to withstand the “shock” of the Covid-19 pandemic is still limited, and business closures and suspensions have become common.

The main causes are identified, including both internal causes and causes from mechanisms and policies of the State. In addition, there are still mechanisms and policies that make businesses and business households expand in scale. Support policies are not really effective or are slow to be implemented, making it difficult for businesses to access support.

“The effectiveness and efficiency of state management is not significant, management is inconsistent, especially in the locality, during the Covid-19 pandemic, and the business environment is still limited, discrimination still occurs,” Dr. Luyen said.

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The contribution of the private economic sector is not really commensurate with the quantity and scale and has not properly reflected the potential. Illustration: Nguyen Thanh.

Support policy should be fair

Therefore, although Vietnam’s private economy is gradually growing, it has not been able to overcome the strength of FDI enterprises. This has led to the phenomenon that “domestic” businesses are losing the domestic market.

Dr. Tran Dinh Thien, former Director of the Vietnam Institute of Economics and a member of the Prime Minister’s Economic Advisory Group, said that in two years of the Covid-19 pandemic, the private sector has received support via many policies from the Government, ministries, branches and localities.

However, there are many very strong policies to support FDI enterprises, but private enterprises cannot access them. Therefore, in the future, supporting policies need to be fair, regardless of private enterprises or FDI enterprises.

Also according to Dr. Tran Dinh Thien, policies to support private enterprises only by FDI enterprises are enough, no more is needed. Just like that, private businesses can also develop much more than today. As before, when there were not many supportive policies, private enterprises, especially those from Eastern Europe, have overcome adversity very well. Therefore, if there are more supportive policies, it will certainly be an impetus for the private sector to develop.

According to many experts, in order to improve the capacity of Vietnam’s private economic sector, in the immediate future, the government focuses on solutions to support businesses to restore production, minimizing the negative impacts of the pandemic, stabilizing production and business, ensuring life and safety for workers; labor connection; ensure conditions for “living” with the pandemic; remove cash flow difficulties; create conditions for enterprises to access new loans to restore production and business.

In the medium and long term, it is necessary to continue to improve mechanisms and policies to improve the business investment environment; promote the application and development of technology, innovation, digital transformation, taking advantage of the achievements of the fourth industrial revolution; promoting private sector enterprises to deeply participate in the value chain, making effective use of new-generation free trade agreements; strengthening the connection and linkage along the value chain between private sector enterprises and foreign-invested enterprises.

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