Critical support for private enterprises
With a surge of domestic private enterprises spurred on by a more business-friendly climate, the government is vehemently pushing up administrative reforms in favour of investors and businesses, which can enable the economy to grow beyond its initial target.
Prime Minister Nguyen Xuan Phuc will likely next week issue a directive on boosting the improvement of the Vietnamese business environment.
The directive will be the third document within three consecutive weeks to be enacted in order to fuel development of domestic enterprises, of which 97 per cent are privately-owned enterprises (POEs) of both small and medium size.
A fortnight ago, PM Phuc promulgated Decision No.1362/QD-TTg on approving a plan on sustainable development of POEs until 2025 with a vision to 2030, with six solution groups.
Last week, he also issued Document No.10028/VPCP-KSTT on solutions to improve the domestic business climate. It is aimed to provide more support for enterprises after the World Bank released its fresh Doing Business 2020 Report, announcing that Vietnam has slipped one place from last year, ranking 70th.
Of the 10 criteria covered in the report, Vietnam ranks between 25th and 27th in helping firms deal with construction permits, access to power, and capital funding. The scores in these three criteria are 79.3, 88.2 and 80.0, respectively.
Protecting minor investors is another issue. Vietnam scored 54.0 and ranked 97th in the report. Resolving insolvency is the worst criterion as the country scores only 38.0 and ranks 122nd out of 190 economies surveyed.
“The prime minister ordered relevant ministries and agencies to make thorough analysis of the situation, especially the causes behind the lowered rank of Vietnam, and to propose urgent breakthrough measures in order to quickly improve the domestic business climate’s rankings,” read the document.
Surge in POEs
According to the Central Institute for Economic Management, the government is placing great priority on supporting POEs which are benefiting from an improved business climate and whose numbers have been increasing strongly.
Last week, PM Phuc announced at the National Assembly (NA) that since early this year, Vietnam’s business climate has continued to improve significantly.
“It is expected that there will be 134,000 newly-established enterprises in Vietnam this year, and dozens of thousands of enterprises will resume operation,” he stated.
According to the General Statistics Office (GSO), the first 10 months of 2019 saw a record 114,400 enterprises newly established, with total registered capital of over VND1.43 quadrillion ($62.2 billion), employing more than one million labourers. This was up 4.4 per cent in the number of enterprises, up 28.5 per cent in capital, and up 10.8 per cent in the number of employees.
Last year, Vietnam saw 131,300 newly-established enterprises with total registered capital of over VND1.478 quadrillion ($64.26 billion), up 3.5 per cent in the number of enterprises and up 14.1 per cent in capital on-year.
“Never has the economy grown as strongly as it does today, and never have domestic businesses had a rise in confidence as they have now,” PM Phuc said. “Many high-profile international organisations, countries, and partners value Vietnam’s investment climate highly, and are highlighting the country as a bright spot in the region and the wider world.”
The Asian Development Bank forecast that Vietnam’s economy will grow 6.8 per cent this year, while Standard Chartered Bank believed that the rate will be 6.9 per cent, not only for 2019 but also for 2020 and 2021.
Under assessments of the US News and World Report 2019, Vietnam has been ranked eighth among the best nations in the world to invest in 2019, up 15 places as compared to 2018.
“In the remaining two months of 2019, we have to pay more attention to boosting administrative reform, and cutting down investment and business conditions as well as tax procedures. All are for the sake of people and enterprises,” PM Phuc stressed. “This is aimed to reach an economic growth rate of over 6.8 per cent this year, and inflation will increase below 3.5 per cent, with a rise in state budget revenue. This will make it favourable for us to formulate policies for 2020.”
Government’s great efforts
NA deputy Nguyen Nhu So who represents the northern province of Bac Ninh is optimistic about POEs’ strong development.
He cited the GSO, stating that in the first nine months of 2019, the private sector’s investment in the economy hit VND624.6 trillion ($27.1 billion), up 16.9 per cent on-year, and also the highest investment level as compared to that of the state-owned economic sector and the foreign-invested sector.
“The shift in the economy’s structure showed that the private sector has become an important propellant for the economy as it generates 40 per cent of GDP and 1.2 million jobs,” So said.
According to the government, the impressive results have been made by continued improvements in the domestic business and investment climate.
“Efforts have been made to simplify and reduce administrative procedures, save costs, and support enterprises in approaching markets and resources,” stated a government report recently delivered at the legislature.
In a specific case, over the past few years privately-owned An Do Agricultural Services and Trading Co., Ltd. in Hanoi has found it more favourable to do business thanks to the government’s annual Resolution 19 on improving the business environment and enhancing national competitiveness.
“The time it has taken us to conduct import and export procedures has reduced by about 30 per cent,” said company director Trinh Tu Anh.
Dau Anh Tuan, head of the Vietnam Chamber of Commerce and Industry’s (VCCI) Department of Legislation, last week cited a recent VCCI survey stating that 80 per cent of respondents found that it has been more favourable for them to perform obligations regarding value-added tax, corporate income tax, personal income tax, and export and import tax.
“The majority of respondents said it is now much easier to implement tax procedures than before, such as tax payments at 98 per cent, as well as purchase, registration, and reporting of the use of tax bills at 94 per cent,” Tuan said.
NA deputy Tran Tat The, representing northern Ha Nam province, noted that in recent years the government has taken drastic action to build up a more business-friendly climate for investors and businesses.
“So far, 30 per cent of around 5,000 business conditions have been eradicated or amended,” The said. “However, according to international experts and organisations, Vietnam remains slow-paced in administrative reform, and such reforms have yet to benefit enterprises significantly.”
The six solution groups for sustainable development of POEs
-Continuing to boost improvement of the domestic business and investment climate in order ensure confidence.
-Encouraging enterprises to apply sustainable business models, cleaner production technology, use natural resources more effectively, and protect the environment.
-Spurring startups and innovation, and boosting effective implementation of policies supporting small- and medium-sized enterprises.
-Supporting improvement of labour productivity in enterprises, developing high-quality human resources, and improving corporate management capacity and administration.
-Encouraging private enterprises to apply scientific and technological achievements, and exploiting opportunities from Industry 4.0.
-Strengthening the role of business associations in supporting private enterprises to develop effectively and sustainably.
The overall target of these six groups of solutions is to facilitate privately-owned enterprises to operate effectively, with the number of these enterprises expected to be 1.5 million by 2025 and two million by 2030.
In the 2021-2030 period, the number of employees in such enterprises will annually grow 6-8 per cent, and the average growth rate of employees’ income will be 25-30 per cent annually. Furthermore, the average growth rate of enterprises’ contributions to the state budget will be 23-25 per cent per year, according to Decision 1362.
Jacques Morisset, the World Bank lead economist and programme leader for Vietnam, expected that the government’s new pro-business moves will soon bear fruit.
“Vietnam needs to push for more reforms and a better business environment. If firms can compete and co-operate in a good environment, they will invest more and create more jobs,” he said.
According to Ousmane Dione, World Bank country director for Vietnam, government reform programmes are moving in the right direction. “If these reform programmes are sequenced and implemented effectively, they will open many positive opportunities for Vietnam,” he said.
Anh of An Do Agricultural Services and Trading Co., Ltd. hoped that these pieces of advice will become reality soon. “However, currently our company still often suffers from paying lots of money for many procedures,” she said. “It costs us thousands of US dollars per year to obtain a certificate of conformity for our products, while normally this certificate needs to be obtained once for each product.”
NA deputy Pham Phu Quoc, representing Ho Chi Minh City, also proposed that domestic private enterprises be given more support from the state via more sound policies.
“While creating 40 per cent of GDP, 30 per cent of state budget, and using 85 per cent of the economy’s labourers, POEs s are facing numerous difficulties,” Quoc said. “In 2017, the fifth plenum of the 12th Party Central Committee issued a resolution reaffirming the need to promote the private sector to be an important propellant of Vietnam’s socialist-oriented market economy. However, what is most important now is to boost administrative reform and remove sublicences for enterprises. This will increase enterprises’ confidence.”