Nurturing industry-leading companies key for private sector to thrive: Expert

Former Director of the Central Institute for Economic Management (CIEM) Le Dang Doanh talked with The Hanoi Times on about steps to promote a strong and healthy private sector in Vietnam.

Former Director of the Central Institute for Economic Management (CIEM) Le Dang Doanh.

A recent survey conducted by the National Center for Socio-Economic Information and Forecast (NCIF) on Vietnam’s top 500 largest private enterprises (VPE500) showed only a handful of them have a revenue of over US$1 billion, while the value of Vietnam’s national brands is still lower than regional peers. What is your view in this regard?

There has been a high expectation for Vietnam to have many large-scale economic corporations that play a key role in the economy. But in fact, only a few are considered national brands, such as Vingroup, Thaco, FPT, Vietjet Air, Hoa Phat, or Vinamilk.

A key point mentioned by the NCIF is  the average productivity growth  5.3% per year of those in the VPE500, behind that of foreign-invested and state-owned companies.

In my view, Vietnam still needs more major corporations in the field of manufacturing and processing, which could serve as the driving force for local companies to integrate into the global value chains.

The Government, therefore, should provide more incentive policies to encourage major firms to shift to fields of high added-value, such as manufacturing, production, or hi-tech farming.

It is rare to see a small company grow into a large conglomerate, and more than 96% of operating companies in Vietnam are small and micro. What is the consequence of this situation?

Local companies in the private sector have not been able to form  strong linkages and cooperation to boost the overall competitiveness, not to mention their limitation in corporate governance, or the capability of integrating into the regional and global value chains.

In addition, a lack of working capital, especially in medium, small and micro companies, have impacted their capabilities of investing in new technologies or modern business operation method.

As Vietnam continues to push for global integration, such a situation may become a hindrance to the development of local companies, and result in the economy’s dependence on foreign firms, which are accounting for 70% of total industrial production value and export turnover.

Vietnam with a high level of economic openness has no other way but to build up its self-reliance against external shocks.

A strong business community, therefore, is essential to ensure economic resilience.

What are your recommendations for Vietnam to have more large-scale economic corporations?

All market-based economies consider the private sector the driving force for growth. Countries such as Japan, South Korea, and Singapore have all posted two-digit GDP growth during their respective phase of industrialization and modernization.

For Vietnam to become a prosperous country, it needs more large-scale companies with international reach.

The Government should encourage major companies to improve productivity and adopt more sustainable business models; promote linkages among businesses of large scale, state-owned, FDI to small and medium enterprises; enhance capabilities of local businesses integrating into the global value chains; create a movement for each locality to nurture their own major large own enterprises based on unique advantage and characteristics.

Only when the private sector can operate under the regulations of a market-based economy, then Vietnam could fully realize its aspiration to become prosperous.

An unpredictable legal environment has been a concern for local businesses, as stated in a recent survey of the VCCI. What do you think about this?

The Government has assigned the Ministry of Planning and Investment to draft a proposal on a comprehensive transformation of state management in the development of the private sector in Vietnam.

The aim is to change the mindset in state governance to push for the development of private companies, which are seen as the customers of the State.

Meanwhile, the Government is responsible for maintaining stability and consistency in the legal environment; ensuring macro-economic stability; and improving the business environment for the greater convenience of businesses and people.

A breakthrough in improving the business environment should be in line with international practices. Vietnam should take more drastic measures in removing obsolete policies that are causing difficulties for businesses, rather than just simplify administrative procedures, along with greater transparency and openness in the policy-making process.

In the mid-and long-term period, the Government should focus on improving the business environment, promoting the application of IT, innovation, and digitalization in the operation of state apparatus, and also among local businesses.

Policies are necessary to facilitate the involvement of the private sector in the global value chains; enhance the linkage and connectivity between domestic and foreign enterprises.

On other hand, the Government is responsible for accelerating the implementation of public projects and creating conditions for the private sector to purchase stakes in state-owned firms or participate in public projects.

How do you see the feasibility of the Government’s target of having 1.5 million enterprises by 2025, and the private sector contributing 60-65% of the GDP?

At present, Vietnam has 900,000 operating companies, so the figure remains modest compared to a population of 98 million.

The main issue is to ensure the efficiency of businesses, rather than the quantity, while pushing for the development of business households, estimated at five million, or 30% of the GD, and help them become registered companies.

Thank you for your time!