Productive, diversified private sector key to growth

Vulnerable economy: An alley is blocked with trash cans and a Vietnamese flag in Vung Tau, near Ho Chi Minh city. The latest wave of Covid-19 infections since July has dealt a severe blow to business and employment in the country. — AP

HANOI: As Vietnam moves toward recovery, the development of a productive and diversified private sector will become more imperative given scarce public resources, international experts have recommended.

Vietnam has demonstrated leadership and swift action in containing the virus since it broke out in early 2020 which made it one of the few countries in the world to register positive growth last year.

However, the latest wave of Covid-19 infections since July this year has dealt a severe blow to business and employment, mirroring the downward pressure on Vietnam’s recovery path.

To resume its ambition of realising a high-income growth trajectory by 2045, Vietnam needs to strengthen private sector development to help the country recover from the pandemic and unlock its potential, according to the Vietnam Country Private Sector Diagnostic (CPSD).

The report, conducted by International Finance Corp (IFC) and the World Bank, said while the private sector has played a frontline role in Vietnam’s outstanding development in recent years, it’s now time to fully exploit the potential of this sector to boost productivity growth.

“The private sector has helped propel Vietnam to join the ranks of middle-income economies in just one generation, and the country was preparing for its next economic transformation when Covid-19 hit,” said Kim-See Lim, IFC regional director for East Asia and the Pacific.

“With another wave, it’s all the more imperative for Vietnam to help develop a dynamic, diversified and innovative private sector for the post-Covid 19 recovery phase, as public resources become scarce.”

According to the report, several factors make businesses in Vietnam vulnerable to the crisis, including the country’s integration in trade and global value chains and its reliance on investment flows and the tourism sector.

Not yet recovering from the previous infection waves, many businesses, especially small firms and firms in manufacturing, services and agriculture, suffered revenue shocks amid renewed lockdown measures.

Even after a recovery in demand, in a climate of uncertainty, being saddled with debt and negative expectations can reduce investment and threaten bankruptcies and job losses that could slow growth even further.

However, Vietnamese businesses also continue to respond to the new normal by adopting digital technologies.

Close to 60% of firms in September-October 2020 had adopted or increased the use of digital platforms in response to Covid-19. Uptake was higher among larger firms and service firms.

E-commerce activity has surged following the outbreak with leading e-commerce sites such as Tiki and Shopee seeing an explosion in the number of purchase orders, and big retailers have seen a dramatic increase in online sales.

Small and medium enterprises (SMEs) have been more likely to use digital platforms for less complex front-end business functions, suggesting potential capacity or resource constraints.

The Covid-19 outbreak has demonstrated the urgency for Vietnam to step up the pace of adoption and diffusion of technologies and digital solutions to support business resilience and growth.

“The country’s emerging and dynamic private sector has demonstrated resilience during the Covid-19 pandemic and has contributed in making Vietnam one of few countries attaining positive economic growth in 2020,” said Carolyn Turk, World Bank country director for Vietnam.

“Continued bold reforms are needed to create a more robust basis for competition and innovation in the economy, through which a private sector-led low-carbon economic growth model can enable Vietnam’s goal of becoming a high-income country by 2045.”

Vietnam’s ambition will require it to ramp up productivity growth and develop on a new growth model, the report said. — Vietnam News/ANN

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