Lower-than-expected growth needs more room for private firms

Wednesday, 2021-04-07 11:48:02
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Lower-than-expected economic growth in the first quarter has triggered an urgent need to support private enterprises.
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NDO - With the economy growing 4.48% in the first quarter of 2021, the expected rate in economic growth of 6.5% for the whole year may be far from reach if more efforts to create a level playing field for private enterprises fail to be made, especially in the context of COVID-19 showing no signals of stoppage across the globe.

Since early this year, thanks to the Vietnamese government’s efforts to enact policies to facilitate business and production activities, and to gradually implement an anti-COVID-19 inoculation drive, the country’s economic growth has bounced back to 4.48%, higher than the 3.8% rise in the first quarter of last year.

The year-on-year growth rate was for the agro-forestry-fishery sector, 6.3% for the construction and industrial sector, and 3.34% for the service sector.

Although lower than the target of 5.12% set in the government’s Resolution No.01/NQ-CP on key tasks for implementation of the socioeconomic development plan and state budget estimates for 2021, a 4.48% growth rate remains a positive sign especially amidst COVID-19 raging the global market. The key momentum for such growth has largely been the manufacturing and processing sector which create 80% Vietnam’s industrial growth – the key growth pillar of the economy.

Good performers

According to state-run Vietnam Oil and Gas Group (PetroVietnam), its total revenue in the first quarter of 2021 is estimated to be more than VND113 trillion (US$4.91 billion), a 6% decrease year-on-year. Nevertheless, PetroVietnam’s revenue from industrial activities climbed 2%, and that from the service activities fell 21% year-on-year.

Several of PetroVietnam’s products saw a year-on-year ascension in consumption in the first three months, such as fertiliser (7%), liquefied petroleum gas or LPG (29%), Condensate (12%), and assorted petrol (5%).

Though there has been a reduction of US$446.5 million or 18% in export turnover, the group’s total import turnover in the period reached US$198.9 million, representing a year-on-year increase of 17% – in which LNG imports ascended by 296,700 tonnes, up 6%.

With external demand going down because of negative impacts of the COVID-19 pandemic, these figures from PetroVietnam have demonstrated that the group’s industrial activities are gradually recovering.

The situation can be seen clearer at state-owned Vietnam Electricity (EVN), which has also reported that all the group’s activities have been going up year-on-year during the first three months of this year.

Specifically, EVN’s total gross industrial output is estimated to be around VND52.83 trillion (US$2.3 billion), up 3.18% against the same period last year. The produced and purchased electricity volume is about 55.45 million kilowatt hours, a 1.16% increase year-on-year. EVN’s commercial electricity totalled 50.79 million kWh, up 3.18%. In which, electricity for agro-forestry-fishery accounted for 3.97% of total electricity consumed, while the rate was 56.01% for construction and industrial activities, 31.46% for households – all was up against in the same period last year.

Notably, this group’s total revenue from power sales is estimated to stand at more than VND94 trillion (over US$4 billion), a 4.11% climb over the corresponding period of 2020.

In Vietnam, petrol and electricity are vital inputs for production activities, especially manufacturing and processing activities.

According to the General Statistics Office (GSO), in the first quarter of this year, despite massive difficulties and challenges, the Vietnamese economy’s production and distribution of electricity went up by 4.5% year-on-year. What’s more, the manufacturing and processing industry increased 9.45% year-on-year, higher than the year-on-year ascension of 7.12% in the corresponding period of 2020.

“All of these figures have demonstrated the fact that the economy has been strongly recovering with the gradual popularity of anti-COVID-19 vaccination,” said Mai Tien Dung, Minister, Chairman of the Government Office at last week’s cabinet meeting, also the last one in the 2016-2020 tenure of the government. “The confidence of businesses has continued going up, with them gradually resuming their normal performances.”

As of March 23, total registered foreign investment reached US$10.13 billion, a year-on-year rise of 18.5%. Total disbursement in the first three months of 2020 is estimated at US$4.1 billion, up 6.5% over the same period last year.

Dung cited former Prime Minister Nguyen Xuan Phuc stated at the meeting, “Vietnam has become a safe destination for investment. Many international organisations have praised the economy’s big potential and outlook for this year, including HSBC (7%), International Monetary Fund (6.5%), International Finance Corporation (6.5% in the 2021-2026 period), and Moody’s (changed Vietnam’s economic outlook from negative to positive).”

Making bigger room for private firms

According to experts, because the growth in the first quarter remains lower than expectation, one of the sturdy solutions now is to make bigger room for private enterprises to conduct production and business activities in the country, amid a rise in foreign investment shift to Vietnam.

Under the resolution of the recent 13th National Party Congress, the Party has specified a number of strategic breakthroughs for the country to drive forwards with higher economic growth.

One of the first strategic breakthrough will be “creating a good system of laws, mechanisms, and policies, while establishing a favourable, healthy, and fair investment and business climate for all economic sectors, with the promotion of innovation and the mobilisation, management, and effective use of all resources for development - especially land, finance, and public-private partnership.”

This breakthrough would mean the Vietnamese private sector will have opportunities to perform in a more transparent and equal investment and business climate.

“All obstructions and prejudice must be removed, while all favourable conditions must be created for the private sector to develop. The sector must be supported in innovation, technological modernisation, human resources development, and labour productivity improvement,” this report read. “Major economic groups with strength and regional and international competitiveness are encouraged for development. Efforts are to be made to see at least two million operational enterprises which can create 60-65% of GDP.”

In Vietnam, the private sector creates up to 40% of GDP, more than 50% of economic growth, 30% of the state budget revenue, and 85% of the labour force.

Vietnam currently has nearly 800,000 operational businesses, about 98 per cent of which are of small or medium size. According to the General Statistics Office (GSO), in 2020, there were nearly 135,000 newly established firms, with total registered capital of more than VND2.23 quadrillion (US$97 billion), employing more than a million labourers. This was down 2.3% in the number of registered businesses, but up 29.25% in registered capital.

The country also has some big private enterprises such as Mobile World Co. Ltd, Truong Hai Auto Corporation, VietJet Air, Vingroup, Masan Consumer, Minh Phu Seafood Corporation, TH Group, and Him Lam Corporation, among others.

The entrepreneurial spirit has spread widely in society and the robust development of the private economy in some industries such as construction, processing, manufacturing, automobile, air transport, and finance and banking has shaped powerful and potential national brands for Vietnam.

Nguyen Minh Cuong, principal country economist from the ADB, once told Nhan Dan Online that removing obstructions for the private sector will enable it to grow further and facilitate Vietnam to well accomplish the Socio-Economic Development Strategy for the 2021-2030 period.

He said that despite of recent improvement of regulatory framework, the main problem is still policy enforcement, notably in taxes, market access, and access to land. High corporate tax income discourages small- and medium-sized enterprises to scale up their production. Procedures to file taxes also remain burdensome.

According to his calculation, an enterprise must file 14 payments a year, taking 498 hours and amounting to 38.1% of total profits. Payment of value-added tax is onerous, taking around 219 hours, or 44% of the total time required to file tax.

CONG THANH