Presentation of Country Reports

Country: Vietnam

State and Non-State Cooperation in the Development of the Private Sector in Vietnam: the Experiences in the Implementation of the Government’s Socio-Economic Policies and Programs

by

Mr. Le Ngoc Hung[1]

Senior Researcher and Lecturer

Center of Sociology,

Ho Chi Minh National Political Academy, Vietnam

There have been a number of theories explaining the relationship between the state and private sectors. The theories of market emphasize the competition among economic sectors while, at the same time, highlighting the dynamism and flexibility of the private sector. Functional theory gives the importance to the complementary function of economic sectors that formulate the structure; Some people appreciate the fact that the state sector provides goods and services in the areas where it requires big investment, long time to pay back, etc. However, the application of these theories requires special attention to the specifics of s certain economy and social context.

The transition from a command, highly subsidized economic system to a market-based one should take consideration of both competition and partnership of the state and non-state sectors. The economic reform policies or DOI MOI in Vietnam give a great importance on the leading role of the state sector in a multi-sector economy. After 15 year Doi Moi implementation, Vietnam has achieved important results: The economy came out of the crisis, GDP grew at 6-7 % annually for the whole period of time and the economy has been re-structured in the direction that involves more and more non-state sectors.

One of important already taken measures is the re-structuring and equitisation of the state-owned enterprises (SOEs) that reduced the number of SOEs from 12,000 in 1990 down to 5,000 in 1998. During this time the number of private enterprises increased strongly from less than 100 to 30,000. The contribution of SOEs to GDP increased from 29% in 1991 to 39% in 2000.

The state and non-state cooperation is observed not only in the economic structure but also in the creation of employment and increase of income for the people: there is about 10 % of the social labor force works in the state sector and the rest of 90 % work in the non-state one, in which private companies create jobs for more than 12 % of the social labor force.

Along with the participation in the economic, the private sector has made big contribution to the provision of public services like education and health care. While the public hospitals dominate the provision of health care services that require huge investments for purchasing equipment, the system of private clinics, health care stations, chemist’s shops meet the needs for examination, treatments of normal cases and medicine for a big part of the people. The system of people- and community-based and private schools together with public ones have been attracting students from grade 1 to university, from language learning to professional, vocational training.

Many factors affecting Doi Moi process of enterprises and promotion of private sector, where the role of Doi Moi policies should be emphasized. For example, after two year of the implementation of the Enterprise Law the number of newly established enterprises is 30,000 equal to the number of enterprises created during the ten previous years.

However, along the positive impact of the state and non-state cooperation, new problems emerged that need the search of measures and solutions. One of the important problems is the low effectiveness of enterprises, especially the low rate of profit making SOEs. Weak competitiveness of enterprises in both local and international markets also needs more effective policies. This situation has laid down the task of further reforms to provide better environment for the cooperation, healthy competition between the state and private economic sectors.

This paper aims to provide an analysis of the present situation of the state and private economic enterprises in the multi-sector economy in Vietnam in order to prompt some thought about the further reform of policies to strengthening the partnership capacity and effectiveness of the all sectors, in which the state sector plays a leading role, in a socialism-oriented market economy.

Background: the Development of a Market Economy of Multi-Sectors

Since 1986 Vietnam has developed a multi-sector economy, which includes six main forms of enterprises as follows:

(1)      The state-owned enterprises,

(2)      Collective enterprises,

(3)      Private enterprises,

(4)      Household/individual enterprises,

(5)      Enterprises with foreign direct investment 

(6)      Mixed enterprises.

Among them state-owned enterprises are to take the leading role in holding and producing essential public goods and services for the economy and society. In 1996, the state economy created employment for 3.2 million people (shared about 9 percent of the total 35.6 million people). The state enterprises created a modest number of employments, about 5 percent of the total number of employment in the whole country. But the share of GDP made by the state economy accounted for 42 percent and SOEs created 37 percent of the total national revenues and 28 percent of the GDP in 1996.

Table 1. Numbers of enterprises by sectors in 1990-1997

Note: a = Data in 1991, b = Data in 1995, c = Data in 1996, - No data

Source: General Statistical Office. Statistical year book 1990-1998. Center for International Economics. Canberra & Sydney. 1998. Policies for industrial development and enterprise reform. T.A. No. 2696-VIE. P. 10

Table 2. The contribution of the state sector and state-owned enterprises to national economy in 1986-1996, %

Note: * Including SOE and public administration

Source: General Statistical Office. Statistical YearBook 1986-1996.

Center for international economics. Canberra & Sydney. 1998. Policies for industrial development and enterprise reform. T.A. No. 2696-VIE. P. 9.

The Reforming of the State-Owned Enterprises

Since the start of the socio-economic reforms (1986) the state sector, namely state-owned enterprises have been reformed in four main forms: (1) Renovating SOE management mechanism focusing on the removing of subsidized, bureaucratic and centrally management system; (2) Re-arranging, re-organizing, consolidating and strengthening state-owned corporations; (3) Equitizing SOEs; and (4) selling, leasing out SOEs.

Equitization of state-owned enterprises: After ten-year of realization of SOE equitization policy, by 2001, there were 470 SOEs equitized, accounting for 1 percent of the total state - owned capital in the enterprises and 9 percent of the total SOEs (See table). Most of equitized companies have small scale of capital or value of assets (about VND one billion, equal to 700 thousand US$), strong financial position and potential for the development. The policy of assigning, selling and leasing our SOEs has been implemented at slow space. By august 2000, only 27 had been sold and non SOE had been contracted out or leased out.

Table 3. The number of equitized SOEs, 1992-2000

Sources: The General Statistical Office.  Hanoi. 2002.

The contribution by the state-owned economic sector to GDP has been stabilized for the last 15 years. At the same time, the non-state economic sector has slowed down and the foreign investment has grown strongly for ten year of the Doi Moi period, 1986-1996 and after then stabilized (See Table 4).

Several studies on the SOE reform indicate the lag in this work. This lag has been attributed by the following reasons:

Table 4. GDP structure by economic sector, 1986-2001 (%, at current price)

Sources: The General Statistical Office.  Hanoi. 2002.

With the support and attention paid by central government and local authorities, the non-state or people-based economic sector has contributed greatly to the total social investment, about one fifth: in 2001, the state investments shared 55.4 percent, the non-state investment shared 24.6 percent and FIEs contributed 20 percent to the total investment.

The Domestic Investment Law (revised, 1998) has had strong impact on the promotion of the people’s investments. In 2001, there were 2425 investment projects in the whole country, totaling VND 24135 billion. As compared to 2000, the number of the investment projects that have been subject to the support policy of the Government increased by 1.5 times, total capital invested increased by 1.4 times, total new jobs created - by 1.8 times. The state - private investment structure has been changing in the direction to be more equal. For example, in 2000, SOEs still shared 70 % of the total investments of the economy and more than 50 % of the number of the investment projects. But, in 2001, this structure changes dramatically with the greater rate of the private sector.

Table 5. The number and structure of investment projects, 2001.

Sources: The General Statistical Office.  Hanoi. 2002.

State-Private Cooperation in the Creation of Employment

In 2001, Vietnam had 40 million people of the working age (aged 15 and over) and were involved regularly in the economic activities, of them female accounted for 49.4 percent and male  - 51.6 percent.  At that time, the state economy created about 8.7 percent for the people; the rest of 91.3 percent were created by the private sector. In industries and construction only, the state enterprises provided about 14.4 % while the private ones created 54.1 %. The effectiveness of the state and private cooperation can be seen most clearly in 2000-2001. The enforcement of the Enterprise Law (approved in 1999 and became effective January 1, 2000) and after two year implementation of this law, more than 30 thousand private enterprises were founded, providing employment for millions of workers. Off-farm business households and individuals increased also rapidly: In 2001, there were 2 million family enterprises nation-wide, creating 11 employment for 11 million people. In rural areas, there were dozen thousand of farms, providing new jobs for hundreds thousands off-farm workers.

Table 6. Employment structure by the economic sector, 2001, %

Sources: The General Statistical Office. Yearbook. Hanoi. 2002.

State and Non-State Partnership in Health Care

In 1996 there were 25,698 private medical practitioners in the whole country, accounting for 12 % of the total number of state medical and health care staffs (213,099 people). It is noteworthy that 82.8 % of the total number of medical doctors who are licensed with the permission of providing private medical and health care are working in the state-run medical and health care organizations. Out of the people who work in health care private sector doctors share 37 %, medical chemists – 24 % and health care and treatment practitioners – 13 % (See table 7 below).

Table 7. The number of practitioners awarded with permission of providing private medical and health care services, October 1996

Source: WB-SIDA. Vietnam: health for sustainable development: comprehensive study of health care. May – 2001. P. 93.

The public health sector plays a leading in providing stay-in treatment services (more than 90 %), while, at the same time, the private sector is dominant in providing stay-outside health care and treatment services: 71.74 % in 1993 and 59.86 % in 1998 (See table 8 and 9).

Table 9. The rate of patients visiting health care service providers 4 days before they were interviewed, 1998 (%)  

 Sources: The General Statistical Office - UNDP. Living standard in the booming economy. Statistical publishing House. 1999.

State and Private Cooperation in Education

Before the Doi Moi, 1986, there were no private or so-called people-based schools in Vietnam. All pupils, students then went to public schools, from the kindergartens up to universities. After 15 year Doi Moi, private and people-based schools emerged in all levels of education in the whole country of Vietnam.  

Table 10. Numbers of schools and students by sector[2], 2000-2001  

Note: * Students of both crèches and pre-schools

Source: The Ministry of Education and Training, December 2000 and March 2001 (from Save the Children Sweden, 2002).

Conclusions

SOE reforms in Vietnam are a part of the industrialization and modernization target and the construction of a multi-sector economy by the market-based system under the state management and oriented to socialism. The state - private cooperation can be observed at all levels, from the macro level through the building up an open, equal legal framework for enterprises down to micro level, including business activities of enterprises, families, individuals to promote the economic growth, creation of employment and increase incomes, capacity strengthening, education, training and health care improvement to ensure sustainable development. All forms of reforming state-owned enterprises aim to increase the productive, effectiveness of enterprises to increase the leading role of the state economic sector and provide equal opportunities for the development of the private sector. The state-private cooperation in SOE reforming and non-state sector enterprise development, including private enterprises require: (1) strong political commitment of both central government and local authorities; (2) Improving the legal and institutional framework; (3) effective implementing legislation and policies; (4) increasing the national and sector competitive capacities and active integration in the region and world; (5) creating the motive to facilitate the development of a multi-sector economy; (6) renewing the information, constructing social capacity, psychology and consciousness.

[1] Dr. Center of Sociology, Ho Chi Minh National Political Academy, Hanoi Vietnam.

[2] Save the Children Sweden. On the Road to Education for All: Lessons learnt from Inclusive Education in Vietnam. National Political Publisher. Hanoi. 2002. P.  7.