Brian Jeffrey
The Rise of Private Enterprises in Vietnam
In contrast to earlier periods dominated by state-owned enterprises (SOEs), Vietnam has seen significant growth in private companies like Thaco, Hoa Phat, and Vingroup. These businesses are instrumental in boosting regional economies and driving overall growth.
Currently, Vietnam boasts six billionaires; however, experts suggest the actual number could be much higher.
Data from the Ministry of Planning and Investment (MPI) reveals that since the economic reform of doi moi in 1986, Vietnam has established over 930,000 active businesses. A staggering 98% of these are small and medium-sized enterprises (SMEs), which also include around 14,400 cooperatives and over 5 million business households.
The private sector accounts for 46% of the nation’s GDP, contributes 30% to state budget revenue, and employs 85% of the workforce.
Targets for Business Growth
Resolution No. 10, issued in 2017, outlined goals for the private sector to become a vital growth engine. The aim was to reach a target of 1 million businesses by 2020, 1.5 million by 2025, and 2 million by 2030.
The government aspires to raise the private sector’s GDP contribution to 50% by 2020, 55% by 2025, and jump to 60-65% by 2030.
As per Resolution No. 66, released on May 9, 2024, Vietnam is now aiming for at least 2 million businesses by 2030, with the private sector contributing 65-70% of the GDP.
Challenges and Obstacles
Unfortunately, the objective of reaching 1 million businesses by 2020 has proven to be unachievable, and the target for 1.5 million is also looking increasingly difficult.
With the household economy making up 33%, Vietnam’s economic landscape is still quite fragmented. Additionally, officially recognized private enterprises have consistently contributed just 10% of GDP over the years.
Several factors contribute to these challenges. A report from the Ho Chi Minh National Academy of Politics (HCMA) indicates that private enterprises remain constrained due to fears of their potential dominance in the economy, which may conflict with socialist ideals.
Furthermore, there are concerns among policymakers about the power that some private corporations might wield, potentially sidelining state interests.
Disparities in resource allocation persist, with substantial resources still directed towards SOEs despite their inefficient use.
While SOEs and foreign investment enterprises receive various advantages such as favorable land and capital access as well as tax breaks, domestic private companies often face stringent regulations and little support.
Additionally, bureaucracy can hinder private enterprises, as many civil servants create obstacles in administrative processes, leading to a climate of apprehension among business owners towards government engagement.
The Economic Environment
Moreover, high interest rates on bank loans are detrimentally impacting the viability of private enterprises. A recent survey indicated that nearly half of the 30,000 surveyed businesses sought lower lending rates to alleviate production costs.
According to analysts, interest rates in Vietnam can be 2-3 times higher than in other market economies, and this has persisted for decades.
Economist Tran Dinh Thien noted that although Vietnamese businesses demonstrate remarkable resilience, their growth remains sluggish.
In the first half of 2024, 120,000 new businesses were established or returned, while 110,000 exited the market, reflecting a troubling 1:1 ratio that highlights the tenuous lifespan of many enterprises. Many businesses “fail” before they gain momentum, and despite their resilience, they often struggle with global competitiveness.
While significant corporations have emerged, they have yet to influence the national economy as intended, and investments in critical sectors such as clean energy, semiconductors, and hydrogen are still lacking.
