Development in quantity only
In the six years since the Enterprise Law was issued in 1999, nearly 160,000 companies have been registered, four times the total number of new firms established in the previous ten years.
However, the recent development of companies in Vietnam is only strong in numbers, as their scale is very small. More than 95% of companies are small or medium enterprises by Vietnam standards (with chartered capital of VND10bil – US$625,000 and staff of no more than 300).
Dr. Pham Duy Nghia, lecturer of the Law Faculty of the National University in Hanoi said, “The 1999 Enterprise Law facilitates investors to join the market, reduce costs and the time taken for establishment. However, the law doesn’t help them develop from small-sized establishments to major enterprises.”
As of 1992, Vietnam added regulations protecting rights for free business operations by all citizens to it’s constitution. But it was not until 1999 that this regulation was institutionalized by law. However, the law doesn’t deal with every barrier put up during the operation of businesses, such as licensing and other conditions.
Inequality
One of the factors hindering development of the private sector is the unequal treatment offered to private and state-owned enterprises.
In 2005, Vietnam issued the new Enterprise Law which facilitates all kinds of businesses, in the hope to create an equal business environment for all economic sectors.
Nevertheless, Dr. Le Dang Doanh, senior advisor to the Ministry of Planning and Investment, said that the Enterprise Law can’t ensure an equal competition environment because there are many other laws and regulations, including unwritten rules that state-owned enterprises can rely on to regain advantage for themselves.
According to Mr Doanh, the largest advantage of SOEs is backing by governing bodies. Moreover, in business processes, SOEs often rely on relationships rather on the law. This is one of the factors that ensure power remains with SOEs and companies that are owned by state officials.
The second advantage of SOEs is sectoral development planning. Apparently, development planning of a sector is issued by ministries but it is compiled by state-owned corporations. “They plan in order to limit others and benefit themselves. For example, the cement industry development planning doesn’t allow foreign investment in new cement projects implemented before the end of 2008,” said Mr Doanh.
In addition, SOEs call on many other advantages such as favourable credit terms, easy land procurement, and the right to exploit natural resources. Mr Doanh said that state-owned farms now control up to 25% of the total agricultural land area, but they create only 1% of the total gross domestic product (GDP).
In terms of finance, according to statistics compiled by lecturers of the Fulbright Economic Teaching Programme, from 1994-2003, the state subsidized SOEs a total of VND60-70tril (US$3.75bil – 4.375bil) through debt freezes and wipes, and preferential credit grants. The total profit of the state-owned sector was around VND150tril ($9.375bil), and it paid corporate tax of around VND60tril ($3.75bil).
However, the above statistics are inaccurate according to Pham Chi Lan, a member of the Research Committee of the Prime Minister, as profit from this sector would hit rock bottom, or create loss, should the state abolish all advantages offered to SOEs.
Ms Lan said that granting preferences for this sector has directly influenced the development ability of the private sector.
Change must begin with the law
To open opportunities for domestic companies to develop in terms of scale, especially the private sector, it is necessary to reconsider the legal system. Experts at the seminar said that the law must be designed to support business operations and create equal competition between all sectors.
Dr. Pham Tuan Khai, Deputy Head of the Legal Construction Committee of the Government Office, said that the legal system of Vietnam leans toward management rather than support. Law compilation agencies mainly develop regulations to facilitate themselves rather than the community of enterprises.
One significant issue that needs to be resolved is ensuring transparency during the process of legal development. Moreover, this process must have participation or opinions contributed by the subjects of the law, which are ultimately the community of enterprises, through representatives or professional associations, to ensure feasibility of the law after issuance.
Recently several bills were put out for comment from the community of enterprises. However, these bills were not directly for legal development, so many were not supported by enterprises.
Tran Huu Huynh, Head of the Legal Department of the Vietnam Chamber of Commerce and Industry (VCCI), said that for their partial interests, many state agencies don’t want to invite enterprises to contribute to draft documents. “In many cases, to cope with public opinion, they reluctantly invite some ‘close’ enterprises to contribute opinions to their drafts,” he added.