Authors Riedel and Tran explored the rising private sector in Vietnam, its status and its potential role in the country’s industrialization, as well as problems it might face in the future. They cited their concern that the private sector’s already small (27%) share of the industrial sector was declining. Despite being poised to replicate the success of other export-oriented Southeast Asian countries, an underdeveloped or suppressed private sector, they argued, would limit Vietnam’s potential. To determine whether the “seeds” of private manufacturing had been sown and if the right conditions existed for them to flourish, Riedel and Tran interviewed 50 private companies in Vietnam in 1996.
While the whole private sector accounted for 60% of GDP, the corporate sector consisting of private limited liability and joint stock companies made up only 1%. Corporations faced multiple barriers, including: 1) the difficulty of securing credit, particularly the medium to long-term credit necessary for capital intensive development; 2) property and land use rights that put them at a disadvantage; 3) an irrational tax system; 4) protective trade policies; and 5) burdensome and often discriminatory bureaucracy and red tape.
The authors recommended that the Vietnamese Government remove many of the obstacles mentioned above, particularly those involving financing. They suggested establishing a special fund just to provide credit guarantees to private firms, a program that has proven successful in other countries. They argued that compared to massive state-run enterprises or very small family-run businesses, private firms were more efficient, flexible and profitable and thus the “best prospects for rapid long-term growth” in Vietnam. Hence, the authors concluded, every effort should be made to encourage their development and make way for their growth.
April 1997
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