The bus assembly line of Truong Hai Group Joint Stock Company. (Photo: HAI NAM)

The private sector – a key economic driver

Between 2016 and 2021, the private sector contributed an average of nearly 46% of GDP, generated about 30% of state budget revenue, and attracted approximately 85% of the workforce. The sector’s corporate income tax contributions accounted for 34.1%, surpassing the 27.7% share contributed by state-owned enterprises.

Notably, the private sector’s contribution to total state budget revenue increased from 13.88% in 2016 to 18.5% in 2021. It also accounted for 35% of total import turnover and 25% of total export turnover.

With such contributions, the private sector has been a crucial force in job creation, poverty reduction, improved living standards, and promoting inclusive and sustainable economic growth in Vietnam. However, signs are emerging that this sector is "losing momentum".

Dr Bui Thanh Minh pointed out that the private sector is increasingly overshadowed by foreign direct investment (FDI), as 72.52% of Vietnam's export turnover comes from foreign-invested enterprises. This dominance is evident in various aspects, from measurable economic figures to qualitative concerns, such as the perception among private business owners that they face unequal treatment.

Currently, 72.52% of Vietnam’s export turnover comes from foreign-invested enterprises (FDIs). Moreover, while the FDI sector focuses on exporting high-tech and high-value-added products, domestic enterprises primarily export raw materials, agricultural products, and labour-intensive light industrial goods.

On the other hand, certain barriers hinder domestic businesses from investment, production, and operation.

Surveys conducted by the Private Sector Development Research Board over the past two years consistently indicate that business confidence among private-sector entrepreneurs remains low and is recovering more slowly than in the state-owned and FDI sectors.

This sentiment is reflected in recent data from the General Statistics Office, which presents a bleak outlook. In January 2025, the number of businesses withdrawing from the market surged. Specifically, 52,800 enterprises registered for temporary suspension; nearly 3,500 businesses ceased operations while awaiting dissolution procedures; and 2,021 enterprises completed dissolution, down 8.3%. The total number of businesses exiting the market reached 58,300, marking an 8.1% increase year-over-year. Compared to January 2024, the number of newly registered businesses in January 2025 plummeted by 30.3%, while the number of businesses temporarily suspending operations rose by 20.2%. This means that business exits outnumbered new business formations by a ratio of 5 to 1—a phenomenon unprecedented in recent years.

Dr Le Duy Binh, Director of Economica Vietnam, noted that these trends highlight the ongoing challenges faced by businesses, particularly private enterprises. He also pointed out alarming signs regarding the Incremental Capital-Output Ratio (ICOR) in private-sector investment. In 2010, the State sector required 9.8 units of capital to generate 1 unit of GDP, whereas the private sector only needed 4.3 units for the same output. However, this trend has reversed since the outbreak of COVID-19. The private sector needs 23 units of capital to produce 1 unit of GDP, while the state sector has maintained its previous efficiency levels. This is a concerning indicator.

Many private enterprises focus on investing in equipment and technology. (Photo: NAM ANH)

Strengthening the internal capacity of private enterprises

Given this reality, Dr Le Duy Binh emphasised the need to enhance the internal capacity of private enterprises and focus on expanding the number of businesses to ensure sustainable development.

He pointed out that establishing a business is not difficult, but ensuring its long-term survival and growth requires significant effort. “It is time for the Government to prioritise the development of existing businesses rather than solely focusing on increasing the number of newly registered enterprises. Additionally, bold reforms are needed to create a favourable legal framework, especially for individual business models”, Dr Binh stated.

In addition to encouraging business transformation, Dr Bui Thanh Minh stressed the importance of reinforcing private sector confidence by creating a conducive business environment to stimulate production and commercial activities.

To achieve this, the Government must establish a comprehensive policy ecosystem, particularly in startup support and developing small and medium-sized enterprises (SMEs). The main objective is to foster a favourable environment that enables businesses to operate, grow, and accumulate capital, technology, and resources—eventually evolving into large enterprises that drive the economy. Support policies for startups and SMEs typically include business incubators, financial assistance, and tax incentives to facilitate their growth.

From this group of enterprises, policies should prioritise businesses with strong potential, enabling them to maximise their capabilities through adopting modern technologies. China and Taiwan (China) are prime examples of the "latecomer model", where state-funded research institutes actively seek cutting-edge foreign technologies and integrate them into the local context. This approach has enhanced technological and innovation capacity, allowing businesses to make significant contributions to global value chains. Additionally, support programmes should focus on developing new products, strengthening R&D capabilities, and promoting startups in emerging fields, such as biotechnology.

Moreover, industrial and domestic investment mobilisation policies are essential. Effective industrial policies directly influence the formation and growth of high-potential enterprises.

In addition to supporting specific industries, domestic enterprises must be encouraged to engage in intense and fair competition. Given the current geopolitical shifts, Vietnam has a significant opportunity to join the global semiconductor and artificial intelligence (AI) value chains. Furthermore, new industries linked to the global green transition will be crucial in achieving the Net-Zero target by 2050.

On the other hand, FDI must be linked to technology transfer requirements. In the initial stages, FDI plays a vital role, but its economic impact will be significantly enhanced if policies promote stronger linkages and technology transfers between FDI enterprises and domestic businesses.