Improved economic governance helps increase confidence in private sector

A recent survey on business confidence conducted by the Vietnam Private Sector Forum (VPSF) showed that the confidence of private business leaders continues to increase, as the private sector is increasingly asserting its important role in Vietnam's economic growth in the near future.

Workers operate on a modern production line at Truong Hai Automobile JSC in Chu Lai Open Economic Zone, Quang Nam province. (Credit: NDO)
Workers operate on a modern production line at Truong Hai Automobile JSC in Chu Lai Open Economic Zone, Quang Nam province. (Credit: NDO)

However, there remain a number of barriers causing difficulties for businesses in their operations. Each industry has its own problems but the common concerns arise from complex administrative procedures and constraints during access to financial sources.

Don Lam, General Director of VinaCapital Group said that Vietnam has made great efforts to improve its business environment, evidenced by Vietnam's rankings which, according to the business environment rankings conducted by the World Bank, have improved.

However, up to 50% of enterprises surveyed by the VPSF confirm that regulatory barriers are causing problems for private enterprises. In particular, overlapping, unclear and inefficient regulations have caused the private sector to suffer informal additional costs and have proved to be time-consuming. This problem has led to a significant decline in the sector’s competitiveness.

Ho Sy Hung, Head of the Enterprise Development Agency under the Ministry of Planning and Investment, said that while the efficiency of business production and operation remains limited, the private sector is increasingly contributing to the socio-economic development. However, over the past few years, the size of private enterprises has not improved, both in terms of capital and the average number of employees.

Limited capital size is one of the major obstacles preventing private enterprises from taking full advantage of the opportunities for greater economic efficiency, Hung said, adding that businesses are not willing to invest in technology, machinery and fixed assets in order to reduce costs but place greater concern on the barriers and restrictions on administrative procedures, such as the inconsistency between the Law on Investment, the Law on Environmental Protection, the Land Law and the Law on Construction.

The lack of coordination in resolving the procedures on investment, land and business registration, or the overlapping situation as many agencies attempt to manage the same problem, makes it difficult for businesses, Hung pointed out.

Moreover, Hung also admitted the fact that businesses, especially small and medium enterprises, still find it difficult to access loans and credit guarantees. Therefore, it is necessary to develop solutions to support businesses in accessing loans; developing loan packages with reasonable interest rates, transparency and simple loan procedures; and encouraging diversification of banking products and services to increase access to capital. This will certainly increase business confidence in the current economic operating policies, Hung affirmed.

According to the economic experts, Dr. Vu Dinh Anh said that the private sector is suffering from internal conflicts: it strives for equality between the State-owned sector and the foreign invested sector, while requesting that the State deploys specific incentives. Meanwhile, the private sector is still waiting for distribution and relying on the State.

Therefore, it is necessary to remove the barriers that are preventing the sector from freely entering into the market, whilst at the same time, securing private ownership by special institutions that keep track of contractual obligations and adopting special precautionary measures to support the development of the private sector, such as tax and credit incentives.

Dr. Anh affirmed that the policies and mechanisms for the private sector must be based on the principle of "equality, no preference, respect and initiative."

The results of the survey conducted by the VPSF, assessing the business environment in Vietnam, also showed that 63% of respondents are expected to expand their business. However, 44% reported that they have missed out on business opportunities due to legal barriers and market restrictions.

Identifiers for these legal barriers are listed as too many sub-licenses; start-up activity facing difficulties due to failure to obtain a licence, as the start-up industry has yet to be listed; excessive and complex import and export licences; entangled administrative procedures; difficult access to land and finance; rigid tax and insurance policies; unfavourable equitisation policy of State-owned enterprises; and limited visa policy.

Against these issues, 37% of businesses also said that business operation is more favourable in 2017 than in previous years, while 43% of businesses expressed a positive expectation that the economy will improve with more positive results than ever before.