In emerging economies around the world SME’s, SMEs contribute up to 45% of total employment and 33% of GDP. When taking the contribution of informal businesses into account, SMEs contribute to more than half of employment and GDP in most countries irrespective of income levels[i]. Vietnam is no different and with over 600,000 private companies, of which over 94% are SME’s or micro companies.
It is estimated that in Vietnam, SME’s create over 9 million jobs and contribute more than 40% of GDP. It is the Government’s target to have over 1 million private companies by 2020 and 1.5 million by 2025.[ii]
However, there are a number of constraints that limit their contribution to industrialization and integration. Traditionally SME’s have weak links to the domestic economy and play a very limited role in FDI driven industrialization, largely due to the influential role of the State Owned Sector (“SOE”) and the preferential treatment afforded SOE’s. One also has to remember it was only in the year 2000 that the private sector was officially recognized prior to which there were less than 5,000 private companies in Vietnam.
At recent meetings of the Vietnam Business Forum and also other public platforms the Government has been calling for more viable support and linkages with the FDI sector to help spurring more broad based growth and to play more of a role in the global supply chain by partnering with the FDI companies. It is however widely acknowledged that SME’s have a lack of business knowledge, corporate governance, financial knowledge and legal knowledge, not to mention an understanding of the implications and benefits of the numerous multi-lateral and bi lateral trade agreements.
Lack of access to finance is often cited as one of the barriers to SME development. Only 55% of domestic SME’s have a bank account[iii] in comparison to 80% across East Asia, however more recently credit guarantee funds have been established to provide financial support to SME’s.
According to Nguyen Minh Cuong it is necessary for SME’s to strengthen linkages with the Global Value Chain and the domestic economy, and initially with large domestic enterprises. This could also help address the growing imbalance between the FDI and non-FDI sectors. It is also necessary for SOE reform to be accelerated to level the playing field between the state and private sectors. Attention must also be given to developing the capabilities of SME’s through capacity building and vocational training. Measures should also be taken to help boost innovation and application of technology.
Productivity growth and improvement is also a key issue and last year was the first year since I can remember in my 30 years here that productivity growth was higher than wage growth.
Vietnamese are eager to learn and have amazing entrepreneurial spirit, they need to be given the support to help them grow whilst understanding the need for governance, transparency and financial management.
[i] IFC 2010
[ii] Vietnam News April 1st 2019
[iii] Nguyen Minh Cuong Country Economist ADB