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Vietnam Today

Shying away

Released at: 15:30, 15/03/2015 ODA for private sector

Shying  away

Despite the advantages to be had from ODA projects it seems many private enterprises remain hesitant to take part.

by Minh Tuyet & Hung Khanh

After four years of being involved in the Danish Government's Global Competitiveness Facility (GCF) project, a sales manager at a private enterprise said it is happy with what it has gained. The official development assistance (ODA)-backed project has helped her enterprise to modernize its equipment and therefore the quality of its products.

Even so, at one time she believed her enterprise should not take part in the ODA project. "I thought it would be a waste of time," she said. Generally, private enterprises are very busy and afraid of participating in ODA projects, she believes, because of concerns over related procedures.

However, after being persuaded to participate in the project and realizing the benefits of participation, she said she would be willing to consider being part of another ODA project from the Danish Government or other foreign government and that the company had already received many invitations to take part in other ODA projects.

The Thuy Thien Nhu Joint Stock Company, a private enterprise in the agriculture sector, preferred not to join an ODA project to co-operate with Japanese enterprises despite lacking capital for investment. Ms. Lien Ha, a representative of the company, said she believes the project is not suitable. Complicated procedures and the time required were the most important factors. "In agricultural investment, investors don't need the huge capital needed to invest in infrastructure, but capital turnover must be very fast," she explained. "I can't wait for slow disbursement." ODA projects, she said, seem more suited to State enterprises than private enterprises.

Incentives

In the view of an expert who has spent years involved in ODA projects of the Vietnamese Government, the country's policies are now evaluated as being more open than previously. Mr. Luong Van Thang, Deputy Director of the Fostering Innovation Through Research, Science and Technology (FIRST) project, who have a lot of experience in managing ODA-funded projects in science and technology, said that "Since Decree No. 30 was released in 2013 it has provided more opportunities for the private sector to access ODA funds." The Decree emphasizes creating favorable conditions for the private sector to approach ODA funds and concessional loans on the basis of shared benefits and risks between the public and private sectors.

Director of FIRST Tran Quoc Thang said that ODA used to be focused on infrastructure about five years ago. "Nowadays the government can provide ODA to other sectors where it's more suitable for private companies to access these funds," he said.

Global Competitiveness Facility project
A major part of Denmark's support to the private sector has come through the Global Competitiveness Facility (GCF) project. The GCF is a funding facility providing support for innovative businesspeople who are engaged in improving the quality of their export products and in moving Vietnam up the value chain. After four years of implementation the results achieved have been very impressive. Through 42 projects the GCF has helped create around 30,000 jobs, trained more than 60,000 people with new skills, and generated incremental exports of around $220 million, resulting in income increases ranging from 10 per cent to 200 per cent for farmers and households.

But private enterprises hold weak positions in key sectors of the economy, according to the Central Institute for Economic Management (CIEM). Fifteen of the 20 largest Vietnamese enterprises are State-owned, and CIEM's research shows that State enterprises account for 99 per cent of fertilizer manufacturing, 97 per cent of coal exploitation, 94 per cent of electricity and gas supply, 91 per cent of telecommunications, and 88 per cent of the insurance sector. With such figures, private enterprises have few opportunities to take part in ODA projects in key sectors of the economy because State enterprises rule the roost.

And there are many private enterprises who simply don't want to take part in ODA projects. "My enterprise is strong enough so we don't need preferential loan capital from ODA projects," said a representative of a large group in the energy sector. He said that many banks have invited his enterprise to borrow preferential loan capital or even take part in ODA projects. "It's not easy for private enterprises to take part in ODA projects because requirements are very high," he said. Although his enterprise meets all such requirements, it doesn't need the capital so is not interested.

While private enterprises hesitate to become involved in ODA projects, international sponsors are phasing out the development assistance because of Vietnam's remarkable socio-economic development over the last 20 years.

Having supported the development of the private sector in Vietnam for over 15 years, there are many good examples of Vietnamese and Danish companies that have successfully developed partnerships, according to the Danish Ambassador to Vietnam, H.E. John Nielsen. Evaluating the ability of Vietnam's private enterprises to use ODA funds, he spoke of the development of wood pellet production in Vietnam. Thanks to successful partnerships between Danish and Vietnamese companies, jobs have been created and the local environment protected. It is expected to provide $500,000 in extra income to the local community and hundreds of new jobs at the production facility and plantations.

"Some of the companies have made a big leap forward in their access to the global market," Ambassador Nielsen said, in expressing his satisfaction with the results of the GCF. Moreover, many of the recipients of GCF funding are now expanding their export markets and earning higher export revenue than before they received support.

Challenges

Mr. Ta Ba Hung, a consultant at FIRST, identified a problem that appears to face the private sector in accessing ODA sources. "Many in the private sector lack the ability to write official proposals seeking funds from the government," he said. Private enterprises may perform well in practice but when this needed to be documented they found it difficult to do so.
Regarding the ability of private enterprises to access and use ODA, Ambassador Nielsen noted that the challenges were not always only on the company's side. "Some projects are challenged by the legal framework in Vietnam and lack an enabling business environment in some areas," he said.

He gave an example in the renewable energy sector, where Danish companies have cutting-edge technologies and show a strong interest in Vietnam, but uncertainty in renewable energy support schemes and the market in general have proven discouraging to investors. Even so, he was pleased that the results from supporting the private sector were often very positive. "In the coming years we will focus our ODA on the private sector and the potential partnerships between Vietnamese and Danish companies to the benefit of Vietnam, Denmark and the companies," he said.

"Generally, companies are effective in absorbing and utilizing ODA, bringing it to work in the most efficient way. Of course challenges related to skills, technology and know-how are relevant to address. However, the companies are fast learners and many are very innovative."

Danish Ambassador to Vietnam, H.E. John Nielsen

"The project uses ODA from the World Bank to support science and technology and promotes innovation via designing and piloting new policies to improve the national policy framework for science and technology capacity building for government research institutes towards further linkages with enterprises and market demands, promoting technological innovation at enterprises, and encouraging the establishment and development of science and technology enterprises. Three-quarters of the packages in the project focus directly on the development of enterprises, including both private and State-owned, and loans will be repaid by the government."

Mr. Tran Quoc Thang, Director of FIRST

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