Background

Vietnam's development strategy aims to achieve an effective economic growth. Its success depends to a considerable degree on the development of the private sector, which consists mainly of SME. Since around the year 2000, the reform of the private sector has accelerated markedly and initiated a fast growth of private small and medium enterprises. However, Vietnam's integration into the world market and particularly the country's entry into the WTO in 2007 require a further acceleration of the reform process.

An extensive adjustment of the legal and institutional framework is required and a consistent strengthening of the competitiveness of the still young private industrial sector. The central problem is that the Vietnamese private sector in general, and the SME sector in particular, is not yet sufficiently competitive. As a result, the majority of the sector cannot withstand the competitive pressure resulting from liberalization and the opening to the world markets.

The legal framework for the private sector and SME in particular has been adjusted, especially with the reform of the Enterprise and the Investment Laws. However, the implementation of these laws has not been very effective as implementation regulations have been incomplete. Another important challenge is the weak implementation capacity on the provincial level, which is particularly critical due to the continued decentralisation process that enhances the role of the provincial administration.

Institutional structures and promotional programmes are still not in line with the requirements of the private sector. For example, only a few provinces have established structures for the promotion of investments or business start-ups. Employers or industry associations are still weak. There is a lack of regular mechanisms for a policy dialogue between the public and the private sector, both on the national and the provincial level.

In many sectors, growth and export potentials are not sufficiently utilized. Private SMEs are still not sufficiently integrated in (international) business and trade relationships or predominantly offer products that are unprocessed and of low quality. In many cases, international environmental and social standards are not adhered to. Associations and technology institutes lack the capacity to support enterprises in the way that they should be supported in order to fulfil the requirements of the world markets.

The range of business services offered and especially the availability of advanced business services, which will guarantee enterprises access to international markets, is insufficient, both in terms of quality and quantity.

The result is that the contribution that the private SME sector could make to the country's economic growth, to export and to the generation of jobs and income does not realize its potential. Without a dynamic and sustainable growth of the private sector, the provinces outside the growth centres risk becoming detached from the mainstream of development, which means that the objective of an effective economic development cannot be achieved.