Institutional changes help boost economic growth, said experts

Wednesday, Jun 15, 2016 16:21

A fock-lifter loads a container at Tiên Sa Port in Đà Nẵng city. Việt Nam has to change institutions to create more favourable conditions for businesses development. — VNS Photos Cong Thành

DA NANG (Biz Hub) — Slow institutional change is seen as a ‘bottle neck' in boosting Viet Nam's economy and growth in the context of world development during the next two decades, according to Nguyen Van Vinh.

Vinh, Vice director of Strategy Institute under the Ministry of Planning and Investment, made his remarks during a workshop entitled Viet Nam 2035 Aspirations: Development of Dynamic Private Sector and Need for Institutional Modernisation in the central city on June 15.

Vinh emphasised that institutional reform in Viet Nam has yet to catch up with rapid changes in the world economy and trade, and the country can sometimes appear backwards, in comparison to other nations.

Vinh, who is a member of the compilation council for Viet Nam's Report 2035 by the World Bank, said Viet Nam remains behind other countries in the region and world in economic development.

"Viet Nam is a success story, following a 30-year renewal process, but we lag behind other countries economically due to different reasons, including the small scale economy, low income, poor productivity, serious environmental degradation and ineffective state owned sector investment," Vinh said, as the main speaker at the workshop.

"Reform is always urgent and it's a key for Viet Nam's aspirations in 2035, in moving towards prosperity, creativity, equality and democracy," he said.

Vinh stressed that the private sector and market economy will play a key role and focus in Viet Nam's economy in the future.

Meanwhile, senior economic advisor Pham Chi Lan said per capita income in Viet Nam in 2013 remains less than 40 per cent of the world average, in terms of PPP (Purchasing Power Parity), and 20 per cent in terms of market prices.

She pointed out that serious existing problems in the economy include low and decreasing productivity, weak innovation systems, and ineffective urbanisation related to growth, as well as ‘grey' growth and climate change.

"Viet Nam has been seen as having the quickest growth and a stable economy, as well as the successful alleviation of poverty. However, total factor productivity (TFP) was seen as very poor, falling from 5.5 per cent per year to 3.4 per cent in early 2000," Lan said.

She blamed ineffective investment in the public sector and state-owned enterprises, noting that this was one of the major reasons for ‘brown' growth in Viet Nam.

Lan also said the Foreign Direct Investment sector, which contributed 70 per cent of the country's exports and 50 per cent of manufactured industry, has no link with domestic enterprises, since the FDI sector only uses 26 per cent of domestically produced materials.

Meanwhile, the private sector – one of three major economic elements in Viet Nam – is operating with largely small and medium sized investments, noted Lan.

She said the scale of investment in the private sector fell 50 per cent, in comparison to 2002, and the number of enterprises with over 300 labourers is rare.

Lan added that the country issued many laws, but the enforcement of these laws is seen as being very poor. 

Tran Thi Lan Huong, from the World Bank, said institutional changes are a key for the country's growth in 2035.

"Drastic institutional reforms would clear the way for Viet Nam's aspirations in 2035, along with more transparency and publicity. People and businesses have more rights to approach information from the Government in policy, planning and others," Huong said.

She said corruption is still a challenge for Viet Nam's economic redevelopment.

"A survey from the World Bank revealed that 91 per cent of businesses said they had to pay informal charges to access information regarding legal documents and investments from local administrations, while they still receive information about the Government's projects or plans through personal relations."

Huong said appointments still depend on relations, and not only the capacity of proposed officials.

The General Secretary of the Viet Nam Chamber of Commerce and Industry (VCCI), Pham Thi Thu Hang, said Viet Nam needs to build new and flexible institutions to determine how to boost private sector and labour productivity.

She said the development of domestic businesses must be linked to FDI and global supply chains, as well an enlarged investment scale.

Hang said Viet Nam has 500,000 enterprises and 4.5 million household businesses, but the number of labourers in businesses has fallen from 49 to 25, on average.

She also said Da Nang has been seen as a dynamic development city in Viet Nam, leading in the Provincial Competitive Index (PCI) for many years.

According to the city's investment promotion centre, it takes investors only five days to obtain business licences in Da Nang.

Of note, in 2013 the Viet Nam Tokai company's automobile and spare parts and accessories plant received a business licence in just one hour – being the quickest example in Da Nang. — VNS

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