Working Paper

Institutional Reform for the Development of Private Sector in Vietnam

In Vietnam, state-owned enterprises had a dominant role in the economy over decades, however, since Doi Moi and even more in recent years, we witness a rapid growth of the private sector and a significant contribution to the Vietnam’s economy. - constitutes more than 40% of GDP, - contributes more than 30% of State budget, - employs about 45 million workers, - is a driver for job creation. Some big risks, however, are also present. Vietnam’s private sector is still fragile, with a large portion of an informal sector. It comes along with risks and challenges such as limited risk management ability, unemployment protection, access to loans for SMEs, and missed income of taxes for the state budget. A co-orgniased workshop “Institutional Reform for the Development of Private Sector in Vietnam” between The Konrad Adenauer Stiftung and The Institute of State and Law today, 15 Sep 2020 in Hanoi will have a closer look in how far the government is aware of opportunities and also the challenges, and what policy recommendations we can give. For example, what improvements of the legal framework are necessary to enable small and medium private businesses to more easily access resources such as land and credit and/or are the current procedures on establishing a business, on taxes, on cross-border transactions, on resolving insolvency sufficient? VCCI recently reported that “administrative procedures remain the main bottleneck for the development of the private sector, with policies on accounting, taxation, and inspections discouraging a large number of trading households from becoming firms. And though Vietnam been actively making administrative reforms, the Vietnamese business environment is still ranked at the 68th position in the world – only at an average level among the ranked countries”. Both Vietnamese and European businesses shall profit from the removal of tariffs and customs under the EUFTA. According to the German Chamber of Commerce in Vietnam, 55% of German business firms want to expand their operations in Vietnam. However, concerns on the economic policy framework are increasing. 51% of companies cite economic policy as the greatest factor of uncertainty for their businesses in Vietnam. Other issues such as lack of skilled workers as well as labor costs might threaten their businesses here. Vietnamese businesses, at the same time, have a great opportunity to benefit from the huge European market, which, however, is very demanding and setting high quality standards. A lot of work is still necessary to get into full swing. Speaking at the event, Peter Girke – KAS Country Representative shared his hope that today’s workshop will be a small but significant part of the mosaic that are still to be done to develop the private sector further.