Business Meeting Calls for More Incentives for Domestic Investment

Aug 3, 2004

Nam Dinh - More efforts are needed to promote domestic investment and spread the benefits of economic growth more evenly across provinces of Viet Nam, said participants to the Fourth Domestic Business Meeting, held today in Nam Dinh.

Organized by the Ministry of Planning and Investment (MPI) and the UN Development Programme (UNDP), the Meeting brought together representatives from government agencies and business communities of 17 provinces from the Northern region. UNDP and MPI have organized three previous Domestic Business Meetings in different regions of Viet Nam around key business development.

UNDP Resident Representative, Jordan Ryan said the Government held the key role in fostering and sustaining the entrepreneurial activities by making a “strong and unambiguous policy commitment” and combining it with regulatory reforms to eliminate artificial constraints to the domestic private sector’s growth.

The recognition of the crucial role of the non-state sector, one of the most critical policy shifts made possible by the adoption of doi moi, was materialized through successive regulatory reforms including the Domestic Investment Encouragement Law. Since the Law’s passage in the mid 1990’s, business creation rate has accelerated significantly, creating millions of badly-needed new jobs and contributing to sustainable poverty reduction and improved livelihoods for Vietnamese people.  Mr. Ryan noted that the private sector needs to be made a development tool to reduce poverty and achieve the Millennium Development Goals (MDGs).

Since the enactment of the Enterprise Law in early 2000, the domestic private sector has witnessed a real boom, which has helped create some 136,000 businesses with a total investment of about 185 trillion VND. However, the domestic private sector remains small, and the playing field is far from level. Different enterprise groups, classified mainly by ownership, are governed by separate legislations and regulations.

“Placing obstacles in the way of firm growth in the mistaken belief that small is always beautiful or that either private or public ownership is always superior would be self-defeating. Viet Nam needs national industrial champions in the private and public sectors that can compete globally based on their technological prowess, flexibility and efficiency,” Mr. Ryan said.

Participants from enterprises pointed out many of these challenges which include the difficult access to crucial factors of production such as land and credit, affecting particularly small and medium enterprises. In addition, businesses suffer from a lack of information, weak telecommunications infrastructure and complex regulations on technology transfer.

These challenges are believed to cause the uneven progress in private sector development throughout the country with the majority of new businesses concentrated in Ha Noi and Ho Chi Minh City. According to recent UNDP research this disparity is due in many cases more to differences in policies, implementation efforts and attitudes than to infrastructure gaps.

The Government supports domestic investment through the Fund for Development that offers investors preferential interest rate. Some provinces have been creative in tackling the credit issue. Tuyen Quang’s provincial Bank for Investment and Development, for example, has granted significant trust guarantee loans to private enterprise. This approach is followed by Ha Giang province which goes further by providing zero interest rate loans to efficient enterprises.

But these examples are far from typical and the Fund for Development is only available for a limited range of projects concentrating on a number of areas encouraged by the Government or in remote and difficult areas. Investors often find credit inaccessible because of the complexity of lending procedures. Many small enterprises lack to capacity to design a business plan to submit for loan. Another example is the Credit Guarantee Fund for SMEs which exists only in paper due to the lack of funding at the provincial level. Commercial banks are often reluctant to contribute to the Fund they view as unsafe.

Studies also show that successful provinces are those who regularly listen to local businesses, encouraging their dialogue with government and thereby identifying constrains and specific pro-business reforms to remove them. 

Mr. Ryan said the Meeting will provide inputs for the drafting of the Common Investment Law and Unified Enterprise Law which will integrate by 2005 different laws regulating businesses to create a uniform legal framework. He called for continued, even more frequent dialogue between government authorities and private sector at both national and local level, and creation of public-private partnerships to improve the enabling environment for business growth and achieve provincial economic development plans.

Contact information

Do Thi Nguyet Nga, (EXT: 254)