Private economic sector an indispensable part of the market economy

Vietnam’s upcoming admission to the World Trade Organisation (WTO) will be a comprehensive integration into the world economy, which will have certain impacts on the private economic sector. Therefore, if the sector fails to resolve weaknesses and pending issues, it is likely to suffer losses in the “game”, even right on its own ground.

Over the 20 years of implementing the Doi Moi (Renewal) process, the private economic sector has strongly developed and played a pivotal role in the country’s multi-sector economy.

 

In 2005, the sector accounted for 38.5 percent of GDP, equivalent to the proportion of the State economic sector (39.22 percent), a 5.4 fold increase against the collective economic sector and a 2.5 fold increase against the foreign-invested sector.

 

The private economic sector employs the largest number of workers, making up 89 percent of the country’s total number of labourers and one third of total social investment capital. It has the most diverse forms of production and business, especially after the Enterprise Law was promulgated in 1999.

 

The number of private enterprises in 1999 rose from 414 to 45,600 enterprises, 110 times against the 1991 level. In addition, three million industrial and commercial households, 11 million agricultural households and 130,000 farms have contributed significantly to developing the national economy.

 

The resolutions of the 10th National Party Congress affirmed that strongly developing all economic sectors including the State, collective, private and foreign-invested sectors and diverse forms of production and business according to the law is important component parts of the socialist-oriented market economy. These economic sectors are equal before the law for mutual long-term existence and development and healthy co-operation and competition.

 

Over the past 20 years, the national economy has done a lot of work. However, in order to define economic sectors, build institutions and create a unified environment for these sectors to operate effectively, the past period is just an initial step. State-owned enterprises still have many difficulties implementing the work, let alone the private economic sector whose development has been newly recognised after the national renewal process was launched.

 

Therefore, it is easy to understand why the private economic sector is also finding itself in a difficult position. Private enterprises are suffering most among the business circles. Approximately 85 percent of these enterprises have investment capital registered below VND1 billion. They often face have difficulties getting access to bank loans and preferential loans from the State because they do not have enough assets for mortgage. Hence, to effectively run business operation, they have to borrow loans with high interest rates. Furthermore, it is not easy for private enterprises to seek locations for production activities. They have to use their houses or hire the production areas of other businesses. For such reasons, they do not have long-term investment plans. Many enterprises encounter difficulties in seeking material sources, particularly imported materials, as well as outlets for their products, especially export products. Last but not least, they find it most difficult to get access to information sources.

 

In the agro-forestry and aquaculture sector, private enterprises often run into serious difficulties when they fix prices and seek outlets for their products.

 

Vietnam’s economy is integrating deeply into the regional and global economies. The country’s WTO accession will lead to a comprehensive integration in all economic sectors and all localities nationwide. This means the integration process will have diversified impacts on the private economic sector. Therefore, if the private economic sector fails to overcome its current shortcomings and disadvantages, the sector will suffer losses in the “game”, even right on its own ground.