REVIEW
of
FINANCE -
Feb. 2018
25
registered capital increased by 9.8 billion dong (up
24.3% over the same period of 2016). At present,
about 688 thousand enterprises are operating.
In spite of quantitative progress, the level of
operational stability still needs to be improved.
Nowadays, most of the enterprises in Vietnam are
small and medium enterprises (SMEs), regardless of
capital or labor standards. The size of capital and labor
of the private enterprises is about 24-25 billion VND/
Enterprise and 18-20 employees / Enterprise (Enterprise
Development Agency, 2017). These are considerable
obstaclesforprivateenterprisestoexpandtheirbusiness,
take advantages of economic scale.
Motivation to solve the issueof creating jobs
The private economy contributes to handle one of
Vietnam’s major challenges: labor surplus because of
privatization and migration of workers from rural to
urban areas. While in the past, the state sector created
the most jobs, in 2016, this position belonged to the
private sector (not including individual households).
In the whole enterprises, the private sector generates
about 62% of employment (Vu, 2016). Particularly
in the first 11 months of 2017, the number of newly
registered companies added 1,065,015 workers.
Some difficulties affect to the driving force of the
private economy
Firstly,
theproblemofinternalcapacityoftheprivate
economy.This sector has a shortage of skilled labor
and low labor productivity. The currentmanagement
style of many private enterprises is family style, less
approaching to modern management, international
practices. The eviromentwhere successful enterprises
rely on unhealthy relationships with policy makers,
exploiting the advantages of land and resources, etc.
affects the sustainable development of the economy.
As a result, the private sector is under pressure to
compete.
Secondly,
the private sector has limited in
investment in technology, leading to low levels
of production and technologies. This is due to the
fact that many private enterprises do not have the
financial capacity to invest in fixed assets, machinery
and technology to reduce costs, improve operational
efficiency. The average fixed asset of a small private
enterprise is only VND 7-8 billion and there is no
significant improvement during the period of 2011-
2015 (Enterprise Development Agency, 2017).
Mainly contributing to socio-economicdevelopment
The private economy plays an increasingly
important role in achieving the country’s socio-
economicgoals,especiallyinthecontextofrestructuring
and regulating the scope of SOEs. It contributes 43.22%
of GDP and 39% of total investment in total Vietnam
economy (Enterprise Development Agency, 2017).
However, the private economy is still able to
improve and further develop so as to contribute
more for the Vietnam’s economy. Product efficiency
in business of the private sector is still limited, of
whichthereasonsarepartlyfromprivateenterprises.
Their profit rate is quite low. Their rate of revenue
growth also decreased sharply from 34% in the
period 2007 - 2011 to 10% in the period 2012 - 2015.
In addition, the private economy also has
an increasing share in the development of the
whole society. The private sector tends to surpass
the state sector to become the largest economic
sector immplement investment capital from total
society. Investment capital from the whole society
in the private sector has increased steadily by
approximately 10% annually.
Promote theestablishment of newenterprises
Since Law on Enterprises 1999 removed the
obstacles for enterprises, the number of registered
enterprises has increased sharply. 2017 marked the
rapid growth in the number of newly established
enterprises with about 126,859 in total. Average
39% of the total
society investment
1.72% Pro t margin
43.22% GDP
FIGURE 1: CONTRIBUTION OF PRIVATE ENTERPRISES
TO SOCIO-ECONOMIC DEVELOPMENT
Source: Ministry of Planning & Investment
