Ms Pham Thi Thu Hang, Secretary General of the Vietnam Chamber of Commerce and Industry (VCCI), spoke with VET's Do Huong about the role and development of the private sector in contributing to sustainable growth.
How would you comment on the health of Vietnam’s private sector? What are the major challenges it faces in contributing to the economy’s sustainable growth?
From a short-term perspective, it is clear that the health of Vietnam’s private sector has been affected by the global economic crisis and internal weaknesses within the economy. Local enterprises and the government have attempted to address problems relating to inventories and some success has been recorded. Two years ago we spoke a lot about inventory issues and now they seem to have been largely resolved, except for real estate, but not completely resolved. This is shown in the Vietnamese Business Dynamics Report for the first six months of 2014, compiled by VCCI. The major reason businesses close or suspend operations is the health or otherwise of the market they are in, the survey revealed. Previously the major reason was lack of capital, but now the most pressing issue is markets. There are also issues relating to salary payments, production expansion, technological innovation, and new product development. The difficult market, minimum wage increases due to inflation and low labour productivity all make life difficult for enterprises. They acknowledge they must increase their minimum salaries to attract and retain staff, especially now the economy is recovering.
In the long term, as the private sector contributes to overall economic growth it is challenging for the sector to handle the root causes of their difficulties. State agencies have introduced many solutions to innovate the growth model, increase the quality of growth, and avoid falling into the middle-income trap. There needs to be growth in the range of 7-8 per cent or even higher for Vietnam to avoid the middle-income trap. The private sector plays a huge role in achieving this growth and needs to restructure to do so. Restructuring is seen in large and State-owned enterprises, but unfortunately most Vietnamese enterprises are small-scale, so restructuring is a problem. The private sector lacks sufficient resources to apply technological innovation and increase workplace productivity. These are major challenges for enterprises, especially given that small businesses have become even smaller in recent years. Their small scale impacts on business efficiency and they cannot become involved in domestic and global supply chains, which require businesses to meet certain standards in terms of size, management capacity, and production. So the private sector needs to find a way into supply chains to gain access to domestic and overseas markets.
What has VCCI recommended the government do to promote the development of the private sector?
VCCI has proposed a number of policies to the government, regarding improving the business environment and reforming administrative procedures to give small and medium-sized enterprises (SMEs) equal access to resources (finance, land, technology). The question is why policies and laws in place to support enterprises and SMEs haven’t worked. When laws are introduced the implementation of the regulations is problematic due to the attitude of enforcement officers, who create barriers to enterprises such as cumbersome procedures and inappropriate guidelines. Small enterprises don’t have the resources to follow administrative procedures. Reducing administrative procedures and improving the business environment would make it easier for the sector to focus on production, technological innovation, and workplace training.
VCCI has proposed solutions to the government to support SMEs in overcoming these barriers. For example, regarding credit, we recommended the strengthening of solutions to encourage banks to improve their credit assessments to create the conditions for SMEs to access loans. In terms of technological innovation, we have recommended strengthening the role of private investment funds to support enterprises in innovating technology. We also proposed the role of enterprise associations be strengthened in the process of consulting and building policies. It also needs to be mentioned that there are 4.6 million business households in the country who also need policy support.
What recommendations will be made to the government and relevant agencies in the future to promote the development of the private sector?
Within the action programme of the business community to improve the business environment and competitive capacity, VCCI has set goals that include 1 million businesses operating effectively and local brands being found in the ASEAN region by 2020. We also plan to propose the approval of the SME Act in the future and centralising support to SMEs to become branded companies in fields such as agriculture (handicrafts, fisheries, and animal feed) and support industries.
What does the private sector need to be able to participate in competitive markets and fully integrate into the global business community?
I think, firstly, enterprises need to be active in building their business strategy, not waiting for the government’s support policies, and they should take advantage of existing opportunities in the market by using policies already in place to support businesses. Secondly, enterprises need to improve their knowledge and management skills in the context of the global economy and the local economy, where rapid changes need to be fully understood. They need to be flexible, as the world is changing, resources need to be diversified, and a proactive response is needed to matters such as climate change and regional and global instability.