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The recent economic efficiency of Vietnamese enterprises
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Vietnamese economy in the period of 2005 to 2007 expressed a quite rapid growth rate, with a number of macroeconomic indicators moving towards a positive direction that facilitated development. Based on the Report on the Enterprise Census in 2009 of the General Statistical Office (GSO), this article attempted to analyze the development of enterprises in term of quantity. An emphasis was placed on business and production efficiency of enterprises in the state-owned sector, the private sector and the FDI sector.

1. Enterprises and recent business efficiency

In the years from 2005 to 2007, Vietnamese economy gained a quite rapid growth rate. The sector of enterprises made the greatest contribution to this development. Data provided by the General Statistical Office showed the changes of some economic indicators as in Table 1.

Table 1: Some macroeconomic indicators of Vietnamese economy during 2000 - 2007

Region

2000

2005

2007

GDP of the whole country, at 1994 prices (trillion VND)

263.7

393.0

461.3

GDP of the whole country at actual prices (trillion VND)

441.7

839.2

1,143.7

Total budget revenue (trillion VND)

90.7

228.3

315.9

Budget revenue to GDP (%)

20.5

27.2

27.6

Total domestic budget revenue (including crude oil) (trillion VND)

69.8

186.4

251.3

Budget contribution from enterprise sector (trillion VND)

53,8

161.6

220.3

Rate of contribution in total domestic budget collection (%)

77.1

86.7

87.7

Sources: GSO, Statistical Yearbook 2008, Hanoi, 2009, p. 73, 74 and 85; Status of Enterprises: Results of Surveys in 2005, 2006, 2007, Hanoi, 2009, p. 126.

A census conducted in July 1, 2007 found that the country had 3,934.4 thousands of business and production units of all kinds (including branches and individual units) - interpreting an increase rate of 44.7 percent after a 5 year period. In comparison to the data of a survey in 1995, this number even showed a double increase. While the number of business units in the headquarters of State-owned enterprises decreased by 24 percent, this number of non-State enterprises and FDI enterprises increased by 154 percent and 113 percent, respectively. The sector of individual business also witnessed an increase of 43 percent. A special importance was attached to better technologies, for example, the application of information technology observed an increase of three times, with more than one million computers in use, of which 800 thousands were internet connected, and 1.7 million workers were skilled in computer operation.

For a better comparison and analysis, this article would use just one source of data on enterprises in the Enterprise Census Report published by GSO in 2009. This Census took into consideration only the economic units that (i) ran an independent economic accounting and had its own legal entity; (ii) were established and operated in accordance with the State-owned enterprises Law, the Cooperative Law, the Enterprise Law, the FDI Law or an Agreement with a foreign partner. They were enterprises under management of the central or local governments, collective enterprises established under the Cooperative Law, private enterprises, collective-name companies, limited companies, joint-stock companies, and FDI enterprises. Data of the GSO only counted the enterprises under operation until December 31; it excluded the enterprises that were granted a business permit and a tax code but did not come into a real operation; it also excluded dissolved enterprises and enterprises’ branches. Therefore, data of this survey was less than statistical figures collected by Ministry of Finance and Ministry of Planning and Investment. This census considered an enterprise that had branches in different localities as only one unit that operated at the locality of the enterprise’s head-quarter; and only the main business field would be counted. In some cases, for a clearer picture of enterprise efficiency, the 2009 Public Report of the State Auditing Agency would also be used.

1.1. Number of enterprises

As of the end of 2004, the whole country had only 91,756 enterprises under operation; three years later, by the end of 2007, there were 155,771 enterprises under operation - an average increase of 19 percent per year over the three years. However, the re-organization process reduced the number of State-owned enterprises by 5 to 10 percent per year, equivalent to a decrease of 500 units. Thus, up to December 31, 2007, only 3,494 State-owned enterprises were under operation; they were quite equally managed by the central government and local governments.

Private enterprises, mostly small and medium enterprises, saw a rapid growth in term of quantity, with an increase of almost 20 percent annually. This sector was diversified in forms of enterprises; the majority was in form of a limited company (accounted for almost half the number), or a private enterprise (accounted for more than a half), or a private joint-stock company (accounted for almost 15 percent).

FDI enterprises also experienced a rapid growth in quantity with an increase of 15 to 20 percent per year, with 4,961 units under operation until December 31, 2007. Most of them were enterprises with 100 percent of foreign capital (accounted for 80 percent); and the other 20 percent was joint-venture enterprises. In term of business field, the majority of enterprises engaged in the field of services; but in term of capital, most concentrated on processing industry (although the number of enterprises in this industry made up only 20 percent of the total number of enterprises).

1.2. Regional structure of enterprises

The Census of economic and administrative unites also provided information on how enterprises developed regionally.

Table 2: Enterprises by region in the period of 2002 to 2007

Region

Number of enterprises on July 1, 2007

Growth rate after a 5 year period (%)

Number of employees in 2007

Employee growth rate after a 5 year period (%)

The whole country

3,934,366

44.7

13,661,005

65.1

Regions having the growth rates of enterprises’ number and new employees below the average

Red River Delta

994,628

27.8

3,658,117

North East

350,991

45.0

1,046,145

61.0

West East

62,232

55.4

160,292

49.0

North Central Coast

459,047

34.1

1,038,345

62.0

South Central Coast

347,808

53.5

1,026,739

45.0

Central Highlands

162,341

45.9%

449,246

57.0

Regions having the growth rates of enterprises’ number and new employees above the average

South East

749,890

56.6%

4,282,905

82.0

Mekong River Delta

807,449

61%

1,999,216

68.0

Source: GSO, Results of the Census on Economic-Administrative Sectors 2007. Part 2. The Statistical Publishing House. Ha Noi 2008. P. 29 – 55.

The table showed that, along with a rapid increase in number, enterprises in the South also attracted more workers, even from other regions. Up to now, according to mass media, a backward situation was observed in which, workers who were trained and working in the South coming back to the Central and the North. This caused a “shortage” of skilled labours in the South. As explained in the beginning of this paper, the Census only counted enterprises that were under operation and carrying tax duties to the State; usually, these enterprises made up only two-third, even lower, of the total accumulate number of enterprises registering their business over years.

1.3. Structure of business fields

This structure increasingly moved towards a rapid increase in the industry field; recently, there was a strong movement towards the service sector. Thus, in the condition of today economic recession, the service sector, especially domestic commercial and services still received a strong push, created a developing supply for the economic; and thus, provided an internal force for the general development of the economy.

In term of business field, the common tendency was a positive development into industry and services. In the last seven years, the total number of enterprises raised four times, equally to 20 percent increase per year. However, during the process of business and production reorganization, the number of aquacultural enterprises reduced roughly by half, equally to a decrease rate of minus 8.7 percent annually. The economic branches that witnessed an increase of enterprises higher than the average growth of the whole country, from top down, were: power, gas and water industry (58.4 percent annually) due to an expansion of power and water suppliers for economic components; healthcare enterprises (45.4 percent annually, especially medicine suppliers and private clinics), property business and relevant consultation service (41 percent annually), education and training (37.7 percent annually), culture and sport (25.4 percent annually), and even mining (21.7 percent annually). Other industries and services experiencing a lower growth rate were commercials (19.6 percent annually), restaurants and hotels (17.9 percent annually), processing industry (16.9 percent annually). Enterprises of agriculture and forestry saw a low growth rate of 3.2 percent annually. The change in number and structure of these enterprises was one of the important factors in the general structural transfer of the whole economy; and the internal factors of this process can be recognized by a deep analysis of labour attraction, capital investment, and business efficiency.

Table 3: Enterprises’ structure by business field, 2000 - 2007

2000

2005

2006

2007

Total

42.288

112.950

131.318

155.771

Agriculture and forestry

925

1.071

1.092

1.151

Aquaculture

2.453

1.358

1.307

1.296

Mining industry

427

1.277

1.369

1.692

Processing industry

10.399

24.017

26.863

31.057

Power, gas and water production

112

2.407

2.554

2.804

Construction

3.999

15.252

17.783

21.029

Commercials

17.547

44.656

52.505

61.525

Restaurants and hotels

1.919

4.730

5.116

6.062

Transportation and communication

1.796

6.754

7.695

9.858

Finance and credit

935

1.139

1.741

1.494

Science and technology

6

24

33

54

Property business and consultation

1.375

8.674

11.050

15.219

Education and training

77

393

785

721

Healthcare and social aid

25

206

256

344

Culture and sport

120

397

491

584

Services for individuals and communities

173

595

678

878

Hired works

0

0

8

3

Source: GSO, The Statistical Yearbook 2008. The Statistical Publishing House, Hanoi 2009, p. 124-127.

These business units increasingly attracted labours: 5.27 millions in 1995, 8.27 millions in 2002, and up to 13.66 millions in 2007 - an increase of 54.9 percent in comparison to 2002 and almost 2.6 times in comparison to 1995. That meant they created work for more than 1 millions labour annually, which contributed to the reduction of unemployment in urban areas and job shortage in rural areas(1). These findings also indirectly confirmed a movement of labours from rural to urban areas, when urbanization rate, up to April 1, 2009 already reached 29.6 percent.

The Census of economic and administrative units in 2007 found a tendency of drastic movement towards service sector (traditional services such as wholesale, retail, storage and transportation, and communication... as well as new services such as administrative service, lawyer offices, investment consultation, intermediary, stocks etc), of which during the 5-year period of 2002 to 2007, banking and insurance increased 2.5 times and property business increased 5 times. This survey also saw an increase in the number of non-State enterprises (including domestic and FDI enterprises) due to a large decrease of State-owned enterprises (workers in State-owned enterprises reduced from 34.8 percent in 2002 to 17.7 percent in 2007); this reduction mostly came from the process of State-owned enterprises’ equitization and ownership diversification.

The table showed that, in the condition that economic experienced a fast growth at the average rate of 8.34 percent a year in a period of three years, and that a promotion was placed on the economic reform and international integration(2) (especially after the country joined WTO in January 2007) and the administrative reform and completion of legal foundation, enterprises also experienced a rapid development. Especially after the amendment of the Enterprise Law, the Investment Law in 2005 and other laws, investment environment was significantly improved. It can be said that laws issuing during the reform era, especially the new laws that were recently issued, created a better economic condition for the operation and business of enterprises of all economic components. The strong development of private enterprises and the gigantic development of FDI enterprises, as well as the important contribution of the State-owned enterprises, established a growing economic potential for the country. In comparison to the total domestic budget revenue (including oil and gas), the contribution to the State budget from the enterprises increased and reached the set quota, making up almost 88 percent of the domestic State budget revenue.

The figures being analyzed in this article were collected in the condition of a rapid economic growth rate of above 8 percent in Vietnam. In the mean time, the latent roots of economic weakness, economic recession and financial crisis of the international economy were still hidden. Therefore, the findings of the survey were quite simple; however, since 2008, they also allowed a detection of factors that could interfere with the process of reform and helped cope with negative impacts of the global economic recession. Some obstacles were subjective.

2. A comparison of business efficiency between State-owned, private and FDI enterprises

According to the survey, enterprises of different ownerships, different business fields, and in different locations made different contributions. The analysis of this result can be used to identify the potential resources for the time to come. Generally, the survey proved an increase in the number, the scale, the growth rate, and the efficiency of enterprises in all economic sectors, economic zones, and economic fields.

The status of labour attraction, capital investment, and technological investment in all economic sectors and by business efficiency indicators will be analyzed below.

2.1. Labour attraction

Up to December 31, 2007, almost 7.4 million labours were working in all enterprises in the whole country - increased 10 percent in comparison to 2006 and almost twice in comparison to 2000, equally to an average increase of 10 percent per year. In term of labour attraction, private enterprises and FDI enterprises attracted more and more labours. These types of enterprises played a role in providing jobs to people in the working ages and especially the youth who newly entered the labour force: these enterprises employed more than one million labours a year. State-owned enterprises usually were large scaled with more than 500 labours per enterprise. FDI enterprises also had more than 330 employees per enterprise, while private enterprises were small and medium ones with less than 30 employees per enterprise. While State-owned enterprises and FDI enterprises owned a higher concentration of business and production, private enterprises - at their small and medium scales - were good at attracting local labours; their production aimed at satisfying local diversified demands. It is worthy to note that FDI enterprises were the best in attracting female labours (60 percent in 2000 and 67 percent in 2007); following was private enterprises (43 percent in 2000 and 38 percent in 2007); the last was State-owned enterprises (40 percent in 2000 and 34 percent in 2007). In general, the female labour percentage largely depended on business field. For example, a garment enterprise not only preferred young workers, but also used more female employees because they were patient and good at working in details.

The average labour scale in private enterprises became somewhat smaller because of the new establishment of this type of business all over the country. Another reason was the concentration of capital and the improvement of production in State-owned enterprises and FDI enterprises when they applied modern production technologies to enhance competitive capacity in the domestic and international markets.

The census also showed differences in worker quality of enterprises of different ownerships. According to the 2007 Census, more than 700 employees in all enterprises were with college graduation - a double increase. They accounted for only 12 percent of the enterprises’ labour force. Moreover, the percentage of college graduated workers in FDI enterprises were twice as much as that of State-owned enterprises. Enterprises in the fields of finance, banking, communication and education also bore a higher rate of college graduated workers.

Table 4: Labour attraction in 2000-2007

2000

2005

2006

2007

Total of Labour

Average Number of Labour/Enterprise

3.536.998

83

6.237.396

55

6.715.166

51

7.382.160

47

Labour of State-owned Enterprise

Average labour number/enterprise

2.088.531

362

2.037.660

499

1.899.937

513

1.763.117

505

Labour of Private Enterprise

Average labour number/enterprise

1.010.902

30

2.979.120

28

3.369.855

27

3.933.182

27

Labour of FDI Enterprise

Average labour number/enterprise

407.565

267

1.220.616

330

1.445.374

343

1.685.861

340

Source: GSO,.Enterprises Situation. The Statistical Publishing House, Hanoi 2009, p. 126-128 and p. 144-146.

Enterprises increased rapidly in term of number but unequally distributed between regions and economic branches.

2.2. Capital investment

Up to December 31, 2007, the total business capital was of 4,863 thousand billion VND - increased 43.8 percent in comparison with 2006 and was 4.4 times higher than that of 2000, equal to an average increase of 23.6 percent annually. Similarly to the issue of labour, State-owned enterprises and FDI enterprises usually made larger capital and asset investments; private enterprises owned backward technological equipment that reflected its local and scattered characteristic of business and production. These figures helped confirm the conclusion drawn by many studies of Vietnamese economy that the capital factor (K factor) has become the most essential factor of economic growth (made up two-third); the labour factor (L) or the total productivity factor (TFP), and other factors made up only one-third(3).

Enterprise’s capital included the invested fixed assets (counted the remaining value), the incomplete basic construction value, long-term financial capital, as well as mobile assets (value less than 10 million VND with usage duration of less than one year) and short-term investment. The past years witnessed a strong improvement in capital investment and thus technological investment. This contributed to the enhancement of enterprises’ competitiveness. The imported modern production technologies and management skills that were altered to adapt to Vietnamese situation, were useful in a variety of economic fields such as agriculture, lumber processing, aquaculture, oil and gas, and production of highly competitive products such as computer and computer parts, computer softwares, electrical production and distribution, construction, machine assembly, as well as important services and consultation services like banking, finance, monetary, property, stocks etc. Copyright of inventions was better recognized and the purchase was more widely applied.

Table 5: Average annual invested capital, 2000-2007

2000

2005

2006

2007

Growth rate (%)

Total invested capital (bilion VND)

998.423

2.430.727

3.035.416

4.157.902

22.6

State-owned enterprise

670.234

1.333.935

1.575.959

1.956.849

16.5

Private enterprise

98.348

607.271

85.848

1.442.319

46.8

FDI enterprise

229.841

489.521

604.609

758.734

18.6

Capital structure (%)

State-owned enterprise

67.1

54.9

51.9

47.1

Private enterprise

9.9

25.0

2.8

34.7

FDI enterprise

23.0

20.1

19.9

18.2

Source: GSO, Statistical Yearbook 2008, Statistical Publishing House, Hanoi 2009, p. 144.

The table showed that the private enterprises made drastic capital and technological investments. At the time of the survey, this sector accounted for more than one-third of the total capitals of all enterprises of the country and created a wide variety of jobs and servicing products that satisfied local demands. FDI enterprises and State-owned enterprises were experiencing a reduction of capital, which was a healthy tendency. The level of capital investment in all enterprises of all economic sectors was under a positive movement that was great for enhancing enterprises’ efficiency.

On average, capital investment of enterprises increased 14.7 percent annually, equaling to a double increase over a 5 year period. This showed that enterprises paid more attention to modern technological equipment. The private enterprises had the best level of capital investment of 37.1 percent per year on average. Following was State-owned enterprises with 33.1 percent per year, while FDI enterprises saw only an increase of 9.5 percent per year (because FDI enterprises already started off with a quite high level of capital and technological investment). In term of fixed assets and long-term financial investment, the capital scale was higher and the general increasing rate was 29.1 percent annually, while that of the private enterprises was more than 50 percent annually. This showed that the policy on business encouragement successfully facilitated all economic sectors in business investment.

Table 6: Capital investment

2005

2006

2007

Growth

rate (%)

Invested capital per enterprise (bill VND)

23.7

25.8

31.2

14.7

State-owned enterprise

353.6

470.1

626.0

33.1

Private enterprise

6.6

8.0

12.4

37.1

FDI enterprise

142.8

155.3

171.1

9.5

Fixed capital and long-term invested capital per labourer (mill VND)

153

213

255

29.1

State-owned enterprise

421

523

640

23.3

Private enterprise

66

89

150

50.8

FDI enterprise

221

233

231

2.2

Source: GSO, Data of the Enterprise Census, p. 144 – 146.

Capital and technological investments improved in all economic fields, regions and components and contributed to business efficiency of all economic components, especially the private enterprises.

Table 7: Business efficiency

2005

2006

2007

Growth

rate (%)

Profit/Invested capital (%)

4.35

4.93

4.58

2.6

State-owned enterprise

3.31

3.49

3.49

2.6

Private enterprise

1.49

2.01

2.57

31.1

FDI enterprise

11.25

13.15

11.66

1.8

Profit/Turnover (%)

5.23

6.08

6.24

9.2

State-owned enterprise

5.40

6.12

6.76

11.9

Private enterprise

1.21

1.74

2.79

51.6

FDI enterprise

11.82

14.19

13.11

5.3

Productivity/Net turnover (%)

356

409

483

16.5

State-owned enterprise

421

523

640

23.3

Private enterprise

289

339

427

21.6

FDI enterprise

411

420

450

4.6

Source: GSO, Data of the Enterprise Census, p.144 – 146.

However, the contribution to the State budget did not grow correspondingly to the improvement in business productivity and efficiency.

Table 8: Contribution to the State budget over business turnover

2005

2006

2007

Growth rate (%)

Budget Contribution/Turnover (%)

7.28

7.00

6.18

-7.9

State-owned enterprise

7.88

7.27

7.35

-3.4

Private enterprise

3.49

2.98

3.48

-0.1

FDI enterprise

12.74

14.12

10.42

-9.6

Source: GSO, Data of the Enterprise Census, p.144 – 146.

The above enhancements, especially the renovation of economic mechanism positively impacted the direct contribution to domestic State income (excluding oil and gas) of enterprises. The table below showed that, in 2000, the State-owned business contributed 43 percent of the domestic income, while the private business contributed only 23 percent. But in 2007, this of the State-owned business went down to only 29 percent and non-State business (domestic and international) made a contribution of 36 percent of the total domestic State income.

Table 9: Contribution of enterprises to the State budget revenue, 2000 to 2007

2000

2005

2006

2007

Budget revenue (exclude crude oil) (bill. VND)

90.749

228.287

279.472

315.915

State-owned enterprise

19.692 (43%)

39.079 (33%)

46.344 (32%)

50.371 (29%)

Private enterprise

5.802 (13%)

16.938 (14%)

22.091 (15%)

31.178 (18%)

FDI enterprise

4.735 (10%)

19.081 (16%)

25.838 (18%)

31.388 (18%)

Source: GSO, Statistical Yearbook 2008, Statistical Publishing House, Ha Noi 2009, p. 85.

The relative deduction in contribution percentage in the context of the general increase in the level of contribution (an increase of 2.5 times during seven years) reflected a partial impact of equitilization in the State-owned business but mostly was because of a great enhancement in business efficiency of non-State business under the new economic mechanism. In the same period of 2000 to 2007, contribution of the private enterprises also increased 5 times, equaling to a 5 percent increase, which was a healthy development. These figures of FDI enterprises were 6 times and 8 percent which reflected the improvement in their contribution to the economy. A deeper analysis also showed that, along with the mobilization of FDI capitals, project selection should be carried out more carefully to provide direct impacts and support a proper orientation of development plans for business fields and regions, as well as to create an equal positive reach to the whole economy.

2.3. Business results and resource utilization

During this same period, enterprises’ pure turnover and contribution to State budget also saw a good increase. The relevant increasing rates of growth and contribution of FDI sector proved a positive tendency of development, especially in the context that Vietnam has become a WTO member since 2007.

Table 10: GDP and share of business sectors, 2000-2007

2000

2005

2006

2007

GDP (1000 bill. VND, at real price)

441.646

839.211

794.266

1.143.715

State-owned enterprise

38.52 (+7.72%)

38.4% (+7.37%)

37.39% (+6.17%)

35.93% (+5.91%)

Private enterprise

48.2% (+5.04%)

45.61% (+8.21%)

45.63% (+9.37%)

46.11% (+7.23%)

FDI enterprise

13.28% (+11.44%)

15.99% (+13.22%)

16.98% (+14.33%)

17.96% (+13.04%)

Source: GSO, Statistical Yearbook 2008, The Statistical Publishing House, Hanoi 2009, p. 72, 73, 76, 80.

These factors created a huge impact to the GDP growth during the period of 2000-2007. The State-owned economy went through a deduction in both growth proportion and rate, while the private sector and FDI sector saw a reverse. This was a healthy development tendency that showed a good management of equitization process in the State-owned enterprises. The diversification of business ownership was a proper direction; however, a close control was needed to avoid over-development. A deeper analysis of economic development in the new context is needed because, along with the main contribution from enterprises themselves, there were other factors that also contributed to GDP of these sectors.

3. Some remarks

3.1. The top position of the State-owned enterprises

In the analysis of the State-owned business efficiency in the context of general development, a comprehensive analysis of the overall efficiency should take into its consideration the fact that the State-owned enterprises also participate in provision of social services and main products for the economy, creating the premises for the socioeconomic stability. For example, the industry of electricity was not just a business; it was also responsible for ensuring power supply to all socioeconomic activities. Similarly, the gas-and-oil corporation was not just in charge of exploring underground resources to make contribution to the State budget; it also helped control the overall energy balance (primary energy resources of petroleum and gas); its State-budget’s contribution was an important source of income since crude oil business itself made up 20-25 percent of the State budget income. In the mean time, some shortcomings in relevant to management of the State-owned enterprises should be recognized since these negatively impacted the operation of this sector to below its potential.

According to the Public Report of the State Auditing Agency in August 2009, side activities, conducted by many big national corporations and companies, showed low business efficiency, even caused losses. For example, the equitization of Vinaconex cost more than 810 billion VND; this amount was being revoked to the State fund. Many projects of Shipping Industry Corporation and Coal and Mineral Corporation were inefficient etc. There were many more examples but listing was not the purpose of this research. The reason of this inefficiency was because a management mechanism applied to economic corporations was not well established and implemented. A distinction between management function and ownership function was lacked, causing an inefficient utilization of the State-funded resources(4). According to the State Auditing Agency, in spite of receiving subsidies and incentives from the State(5), more than 7 percent of enterprises belonging to economic corporations experienced losses in business. Another reason was the popularity of the “everyone’s business is nobody’s business” situation: the monetary value of properties and capital resources that the State Auditing Agency discovered increased by hundreds of billions VND(6). Through the audition, turnover increased, cost decreased and therefore, pre-tax profits increased(7). More seriously, the rate of debt to the average total capital was 60 percent, the rate of owner’s capital to the total capital was low; business relied mainly on loans and appropriated capital, thus, finance was unstable(8).

The State-owned business and the economic corporations played an extremely important role in the economic regulation, especially during the current process of economic start-up. Therefore, the issue was not about how important the State-owned sector was, but how to set up a management mechanism for an efficient operation. There should be a real representative of the State ownership who participates in controlling the business in the highest efficiency without over-interfering with the enterprise’s internal activities.

3.2. The efficiency of the private sector

The private sector was formed under various types of business (collective, private, collective named, limited, joint-stock with or without the State capital). This sector was under a constant development: the number of enterprises increased from 83 percent in 2000 to 95 percent in 2007, the amount of capital increased from below 10 percent in 2000 to 35 percent in 2007; this increase greatly improved the role of the domestic capital in the economy.

Small and medium private enterprises were strongly proving their impacts. In the last few years and under the economic recession, the private sector has well implemented its social “obligations”: creating the highest number of jobs in the whole country and contributing to “poverty reduction” for rural and urban population of all classes. This sector attracted labours that were not skillful enough to work in the State-owned sector and the FDI sector.

As analyzed above, the private enterprises usually employed a small number of workers that was appropriate to its family business or village scale, with an average number of 30 employees per enterprise (while the average employees of a FDI enterprise was more than 300 and that of a State-owned enterprise was more than 500). Capital investment of the private sector was also smaller; the average amount of 2007 was only more than 12 billion VND per enterprise (roughly equivalent to 700 thousand USD); fix asset investment and long-term financial capital was 150 million VND per employee (equivalent to 9 thousand USD per person). This was quite a simple level of a capital investment.

- In comparison with the State-owned sector and the FDI sector in term of capital for the same period, the private sector was 50 times lower than that of the State-owned sector (more than 600 billion VND per enterprise) and 15 times lower than that of the FDI sector (10 million USD per enterprise). In general, the capital amount of a private enterprise was equal to only one-third of the average capital amount of all types of enterprises.

- In comparison with the State-owned sector and the FDI sector in term of fixed assets and long-term financial investment, the average level of the State-owned sector was of 511 million VND per worker which was three times higher than the level of 150 million VND per worker in the private sector. This of the FDI sector was of 231 million VND, which was also 1.5 times higher than that of the private sector. The level of fixed assets and long-term financial investment of the private business was equal to only 60 percent of the average level of all types of enterprises.

Therefore, establishing a private enterprise was easier; and types of ownership can be flexible; it was also simple to bring it into operation right after business registration was approved because an enterprise could be formed under a family business; or business can be carried out at a village scale. Also, recruitment could be done fast; and management was simpler. This was why the level of contribution to the economy from this sector was seeing a constant increase.

- Private enterprises contributed more than three-seventh of the net turnover of the whole country;

- Contribution to the State budget was roughly equal to 50 percent of the average level of contribution of all types of enterprises;

- The rate of profits to capital was equal to 50 percent of the country’s average level;

- Labour productivity (pure turnover/labour) almost reached the average level of labours working in enterprises of all economic sectors.

Of course, the pure turnover of an individual enterprise was very modest because of the limited business scale and modest capital. These enterprises were best to act as “satellite” suppliers of i) products and services for the State-owned enterprises and the FDI enterprises (in the forms of auxiliary industries and services); ii) fresh vegetables and food products for urban areas and; iii) services for all rural and urban areas in the whole country, or as producers of traditional handicraft and art products etc.

However, a natural shortcoming of business of this type was a low technology and especially a lack of technological know-how. Workers’ skills, in general, were also low; labour rotation was popular etc; without a close support between one another, and without the function of being the “satellite” supplier for the State-owned and the FDI enterprises, they would go through a limited development. The role of the private enterprises was increasingly recognized; they needed a better management; the envious competition, observed in localities, showing through an exaggerative reporting manner, should be avoided, especially in the current situation of scattering local budget.

3.3. The FDI enterprises: efficiency, potentiality and needed adjustments

After 20 years in operation (1988 - 2009), more than 4,200 FDI under-operation enterprises were playing an increasingly important role in the economy; they contributed more than 30 percent of the total investment capital in 2008; and created an increasing contribution to the GDP(9), especially in the South East region where they occupied 68.7 percent of the total enterprises and 72.6 percent of the total business and production capitals.

FDI business influences were:

- Providing a great capital source and a high technology that helped enhance competition; also, that created positive impacts to many fields. Up to now, effective FDI projects had a total capital of more than 150 billion USD and a total regulated capital of more than 50 billion USD. Annual business capital was more than 10 billion USD that really improved the competition of the economy. They had the best ratio of turnover to capital among all the economic sectors.

- Attracting skilled labours and transferring modern management skills. Up to now, there were more than 1.5 million direct workers and millions of labours working in the supportive sector that created a wide development spread for the whole economy.

- Widening domestic market and especially trading highly competitive products and services to the international market. This role became even more important since Vietnam became a WTO member; and Vietnamese products had a good competition;

However, some registered FDI projects could not satisfy the regional development plans and the economic development plans of some industries. Production mainly was under the form of doing outwork. Budget distribution for investment projects took so long; some projects brought low efficiency; investment capital coming from multinational corporations was limited. Thus, in the coming time, an adjustment in FDI capital attraction was needed to achieve a better efficiency, create a wide development in the whole economy, and established a close global economic association./.

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(1) Direct and comprehensive surveys helped adjust the errors of annual estimates and accumulated errors such as macro figures (total population, urban and rural population, and male and female population etc) and other detail norms.

(2) According to “Doing business 2009” report published by the World Bank in 2008 that provided comparative investigations of 181 economies in terms of law and business environment, in general, Vietnam ranked 92/181. In a comparison with regional countries, Vietnam was lower than Singapore (1/181), Hongkong - China (4/181), Japan (12/181), Thailand (13/181), Malaysia (20/181), South Korea (23/181), Taiwan - China (61/181), China (83/181), Brunei (88/181), but higher than India (122/181), Indonesia (129/181), Cambodia (135/181), Philippine (140/181), Laos (165/181). This report also provided the ranking of other criteria such as: enterprise start-up (ranked 108), construction (ranked 67), labor for hire (ranked 90), property registration (ranked 37), credit absorption (ranked 43), investment protection (ranked 170), tax collection (ranked 140), over-border business (ranked 67), contract (ranked 42), and enterprise close-down (ranked 124). At the global scale, the last six years received figures and database for comparative evaluation from more than 10,000 experts.

(3) According to a quote in a research of Prof. Kenichi Ohno and calculations of the National Account Department (GSO), the TFP factor accounted for roughly 20-30 percent and labor factor accounted for more or less 10 percent of the growth. Up to two-third of the growth came from capital factor which showed somewhat a “similar situation” with other Southern Asian countries, where growth largely depended on the advantage of the rapid increase of savings - investments from domestic and international sources.

(4) See Nguyen Quang Thai “Trends and Efficiency of Public Investment in Vietnam”, in Vietnam’s Socio-Economic Development Review, Issue 57, March 2009.

(5) For example, the Vietnam Machinery Assembly Corpopration, up to December 12, 2007, had an accumulated loss of 23.4 billion VND; Sai Gon Construction Corpopration lost 90.4 billion VND; Transportation Construction Corpopration No. 8 lost 93.4 billion VND; Transportation Construction Corpopration No. 5 lost 102.7 billion VND etc.

(6) Vietnam Electricity Corporation had an increase of 270 billion VND; Coal and Mineral Industry Corporation had an increase of 192 billion VND; Vietnam Maritime Corpopration had an increase of 171 billion VND.

(7) Vietnam Electricity Corporation had an increase of almost 159.8 billion VND, Coal and Mineral Industry Corporation increased 315.6 billion VND; Sai Gon Real Estate Corpopration increased 78.4 billion VND; Transportation Construction Corpopration No. 5 increased 64.8 billion VND; Vietnam Maritime Corpopration increased 58.9 billion VND; Sai Gon Construction Corpopration increased 55.5 billion VND; Sai Gon Beverage Corpopration increased 110 billion VND.

(8) Particularly, some State-owned Corporations had owner capital accounted for only 1 to 5 percents such as the Transportation Construction Corpopration No. 5 with 1.1 percent; the Transportation Construction Corpopration No. 8 with 3.2 percent; and Vietnam Machine Assembly Corpopration with 5.25 percent etc.

(9) Produced 100 percent of gas and oil, manufactured 98 percent of air conditioners, 98 percent of washing machines, and 94 percent of refrigerators; assembled 68 percent of automobiles; produced 66 percent of motorbikes and 40 percent of garments of the whole country.

References

· General Statistics Office. Results of Censuses of Economic and Administrative Units in 2007. Volume 2. Business and Production Units. Statistical Publishing House, Hanoi 2008.

· General Statistics Office. Statistical Yearbook 2008, Statistical Publishing House, Hanoi 2009.

· General Statistics Office. Enterprises’ Status through the Surveys in 2006, 2007, and 2008. Statistical Publishing House, Hanoi 2009.

· Ministry of Investment and Planning. Foreign Investment in Vietnam in the First 7 years of XXI Century. Statistical Publishing House, Hanoi, 2008.

· The State Auditing Agency. Public Report: Auditing Report 2008. Hanoi 2009.

· Nguyen Quang Thai. Some Issues of Economic Structure Shifting. Economic Studies Review, No. 5 and 6, 2004.

· Nguyen Quang Thai (Ed.). Overview of Vietnamese Economy: Macroeconomic Overview and Local Economic Overview. National Political Publishing House, Hanoi 2004.

· Nguyen Quang Thai (Ed.). Overview of Vietnam’s Economy: Vietnam’s Economic Branches. National Political Publishing House, Hanoi 2006.

· Nguyen Quang Thai. Some Issues of Enterprises’ Development. Economic Studies Review, 2007.

· Nguyen Quang Thai. Trends and Efficiency of Public Investment in Vietnam. Vietnam’s Socio-Economic Development Review, No.57, March 2009, p. 3-12.

· The World Bank. Doing Business 2009. Comparing Regulations in 181 Economies. Washington 2008.

· The World Bank. Capital Mobilization and Utilization. Hanoi 2008.
 
 
Source: The Vietnam’s Socio-Economic Development Review - No.62, June 2010
 
Nguyen Quang Thai