In 2014, the Government took the initiative to speed up restructuring ofState-owned enterprises, but it also needs to strengthen its focus onanother pillar of the economy, the private sector, which is key to thenation's future success, said Wendy Jo Werner, the World Bank Group'sPractice Group Manager on Trade and Competitiveness for the East Asiaand Pacific region.
Q: What is your assessment of each ofVietnam's three main economic pillars: state-owned enterprises (SOEs),foreign direct investment (FDI) enterprises and the private sector? Ofthese groups, which is experiencing the most difficulties in accessingcredit, support policies and technology?
A: As reported in theWorld Bank annual series "Taking Stock" published in December 2014, theforeign-invested sector continues to be a significant source of growthfor Vietnam, contributing approximately 20 percent of GDP, supplyingtwo-thirds of merchandise exports and providing a quarter of employmentin the enterprise sector. This sector's vitality and growth is furtherillustrated by the Purchasing Managers' Index (PMI), which remains abovethe critical value of 50.
In contrast, domestic-ownedbusinesses, once the major driver of Vietnam's economic growth, have notovercome the pressing challenges of recent years. This is evidenced by a9 percent increase in the number of domestic-owned businesses closingor suspending operations during the first 10 months of 2014. The numberof newly established businesses has decreased by 6.5 percent over thesame period last year. The private sector still features few domestic,private companies. Many are constrained by limited access to finances,subdued domestic consumer demand and an uneven playing field with theSOE sector.
SOEs which are less capital-efficient than companiesin the private sector, but still play a considerable part in theVietnamese economy. SOE reform will be critical for improvingeconomy-wide productivity and growth. Recently, we have seen an increasein the momentum of SOE reform. Since June we have seen further actionson equitisation, but overall its results have not met expectations.There is a need to move more quickly on equitisation implementation andto have a clearer roadmap for private sector participation in SOEs.
Q: What are the issues hindering private sector development in Vietnam?
A:Vietnamese enterprises showed remarkable resilience during the globalfinancial crisis, thanks to strong entrepreneurship, and have madesignificant contributions to poverty reduction and job creation.However, the domestic private sector remains weak, with low productivityand little spending on research and development. Most Vietnamese firmsare still small, and have yet to become competitive enough to export orplug into international production networks, principally as in-countrysuppliers to foreign-invested enterprises.
Overall, Vietnam'scorporate enterprise structure is missing a segment to link thedomestic, private sector to global value chains. This would help itovercome fragmentation in supply chains.
The absence of a robustsupporting industry has long been recognised as a key hindrance tocompetitiveness and companies trying to move up the value chain.Logistics and supply chain infrastructure will also improve the overallinvestment environment.
SOEs still enjoy preferential access tocapital, resources and support from local authorities, while smallerprivate business struggle to raise capital and compete with SOEs.
Q: What is your advice to Vietnamese entrepreneurs?
A:As I said, most of the Vietnamese firms are still tiny, so only ahandful of companies are able to compete internationally. At the sametime, Vietnam has world-class entrepreneurs, who have built successfulbusinesses that create jobs and open new markets. The private sectorshould and will continue to be the main engine of Vietnam's economicgrowth and a leader of innovation.
To move up to another level,entrepreneurs need to have long-term visions and investments. They needto invest in human resources, modern technology and partnerships,especially with international companies.
With free tradeagreements, potentially the Trans-Pacific Partnership and the overalltrend of increasing economic integration, the local market will open upmore and more, bringing excellent opportunities for Vietnameseentrepreneurs to link up with foreign and multinational companies. Itwill also help them participate more actively in global productionnetworks through closer connections to multinational corporations anddirect exports.-VNA
Q: What is your assessment of each ofVietnam's three main economic pillars: state-owned enterprises (SOEs),foreign direct investment (FDI) enterprises and the private sector? Ofthese groups, which is experiencing the most difficulties in accessingcredit, support policies and technology?
A: As reported in theWorld Bank annual series "Taking Stock" published in December 2014, theforeign-invested sector continues to be a significant source of growthfor Vietnam, contributing approximately 20 percent of GDP, supplyingtwo-thirds of merchandise exports and providing a quarter of employmentin the enterprise sector. This sector's vitality and growth is furtherillustrated by the Purchasing Managers' Index (PMI), which remains abovethe critical value of 50.
In contrast, domestic-ownedbusinesses, once the major driver of Vietnam's economic growth, have notovercome the pressing challenges of recent years. This is evidenced by a9 percent increase in the number of domestic-owned businesses closingor suspending operations during the first 10 months of 2014. The numberof newly established businesses has decreased by 6.5 percent over thesame period last year. The private sector still features few domestic,private companies. Many are constrained by limited access to finances,subdued domestic consumer demand and an uneven playing field with theSOE sector.
SOEs which are less capital-efficient than companiesin the private sector, but still play a considerable part in theVietnamese economy. SOE reform will be critical for improvingeconomy-wide productivity and growth. Recently, we have seen an increasein the momentum of SOE reform. Since June we have seen further actionson equitisation, but overall its results have not met expectations.There is a need to move more quickly on equitisation implementation andto have a clearer roadmap for private sector participation in SOEs.
Q: What are the issues hindering private sector development in Vietnam?
A:Vietnamese enterprises showed remarkable resilience during the globalfinancial crisis, thanks to strong entrepreneurship, and have madesignificant contributions to poverty reduction and job creation.However, the domestic private sector remains weak, with low productivityand little spending on research and development. Most Vietnamese firmsare still small, and have yet to become competitive enough to export orplug into international production networks, principally as in-countrysuppliers to foreign-invested enterprises.
Overall, Vietnam'scorporate enterprise structure is missing a segment to link thedomestic, private sector to global value chains. This would help itovercome fragmentation in supply chains.
The absence of a robustsupporting industry has long been recognised as a key hindrance tocompetitiveness and companies trying to move up the value chain.Logistics and supply chain infrastructure will also improve the overallinvestment environment.
SOEs still enjoy preferential access tocapital, resources and support from local authorities, while smallerprivate business struggle to raise capital and compete with SOEs.
Q: What is your advice to Vietnamese entrepreneurs?
A:As I said, most of the Vietnamese firms are still tiny, so only ahandful of companies are able to compete internationally. At the sametime, Vietnam has world-class entrepreneurs, who have built successfulbusinesses that create jobs and open new markets. The private sectorshould and will continue to be the main engine of Vietnam's economicgrowth and a leader of innovation.
To move up to another level,entrepreneurs need to have long-term visions and investments. They needto invest in human resources, modern technology and partnerships,especially with international companies.
With free tradeagreements, potentially the Trans-Pacific Partnership and the overalltrend of increasing economic integration, the local market will open upmore and more, bringing excellent opportunities for Vietnameseentrepreneurs to link up with foreign and multinational companies. Itwill also help them participate more actively in global productionnetworks through closer connections to multinational corporations anddirect exports.-VNA
