Head and deputy head of department. Or the Department of Environmental Protection Control under the General Department of Environment, the leader: specialist ratio is 3:1. The above statistics have partly demonstrated that the management apparatus is very cumbersome, causing costs for regular expenditure activities.
As of 2017, units continued to implement the arrangement and consolidation of the organization, apparatus, and staff of the government system towards streamlining, effective and efficient operations according to Resolution No. 18-NQ/TW and of public service units according to Resolution No. 19-NQ/TW of the Party Central Committee (12th tenure) dated October 25, 2017. However, the recent streamlining of the apparatus has mainly focused on streamlining staff rather than increasing productivity, making public administrative reform not yet effective on a large scale. The merger of a number of agencies with equivalent functions still faces many obstacles and has only stopped at the pilot stage. This situation partly demonstrates the limitations of the state in streamlining and increasing the effectiveness of the public management apparatus.
Another issue is the expenditure for public mass organizations, including subsidy activities (for the Fatherland Front, unions) and support (for associations, specialized associations). Social costs for these units are estimated to account for 1-1.7% of GDP. Specifically, the amount spent on organizations and associations increased from 781.3 billion VND in 2006 to nearly 1,900 billion VND in 2014. This amount accounts for about 1.1% of the total central budget expenditure estimate for ministries and central agencies; equivalent to the expenditure for the Ministry of Planning and Investment, the Ministry of Industry and Trade (Nguyen Duc Thanh et al., 2015). Of which, the amount spent on specialized associations accounts for about ¼. The role of these units cannot be denied when some associations have created many positive externalities; For example, the Vietnam Chamber of Commerce and Industry is a unit that strives to promote the removal of barriers to business conditions and improve the business environment... However, this is only a small number of about 8,000 specific associations today. Many units operate on the budget but work inefficiently, are cumbersome in terms of apparatus and staff, and cover almost all provinces and cities, causing a significant loss in budget expenditure.
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Development investment expenditure
While recurrent expenditure is abundant, development investment expenditure, considered the main funding for basic infrastructure, is quite modest. In 2001, development investment expenditure accounted for 30.8% of total budget expenditure, the highest in the 2000-2017 period (Figure 4.10). After that, the proportion gradually decreased. This decrease is related to the restructuring of public investment towards gradually reducing the proportion of investment from the state budget. In recent years, development investment expenditure has improved when in 2017 it reached more than ¼ of total expenditure, the highest since 2010 but still quite low compared to the role of this expenditure. Budget revenue is also not
enough to cover development investment expenditures because it has to provide resources for regular expenditures and debt repayments. This affects the ability to create initial economic and social infrastructure, stimulating economic growth. In addition, many public investment projects are still ineffective. Many localities carry out investment according to trends such as airports, monuments, seaports, etc., causing waste and loss. Limited spending capacity combined with instability surrounding the effectiveness of this spending item will make it difficult to meet economic development needs. Therefore, borrowing is inevitable. This leads to a chain effect on public debt ratio, fiscal space and pressure to find revenue sources for spending.
The overdue debt of basic construction is also a problem in development investment spending, although it has decreased significantly. In 2011, the overdue debt amounted to 91 trillion VND, and in 2013 it decreased to 43 trillion VND (World Bank, 2017). Many localities have overdue debt of up to 2-3 trillion VND in basic construction but lack resources to handle it; or have completed projects and put them into use but have not yet settled, commonly 400-500 projects, many up to 3,000 projects (Manh Bon, 2018). For various reasons such as insufficient budget, legal procedures for projects, acceptance procedures for handover to put works into use, inspection work, etc., the authorities of some localities have to extend the settlement time, wait for funds allocated from the central government and accept the overdue debt. Such slow settlement negatively affects the economy because it leads to a chain of effects: lack of investment capital causes the project to be prolonged and behind schedule; the construction unit owes the material supplier, the first contractor owes the second contractor, etc., forcing businesses to appropriate each other's capital and owe workers' wages for a long time. This is also a manifestation of the situation of public spending crowding out investment.
60%
50%
40%
30%
Development investment expenditure
20%
10%
Regular expenses
0% penetration
-10%
Figure 4.13. Growth rate of regular expenditure and development investment expenditure
Source: Budget settlement reports over the years, Ministry of Finance
billion dong
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1% increase in investment expenditure (billion VND)
1% increase in regular expenditure (billion VND)
Figure 4.14. Absolute value of 1% growth in public expenditure
Source: Budget settlement reports over the years, Ministry of Finance
Not only is it overwhelmed in terms of scale and proportion, but the growth rate of development investment expenditure also encounters problems. Development investment expenditure fluctuates quite precariously, in some years it even decreases compared to the previous year (2014, 2016) or almost does not increase (2010, 2013). Meanwhile, although regular expenditure has slowed down in recent years, the growth rate has never been negative (Figure 4.13).
At the same time, because the total regular expenditure has a large value, each % of its growth is also much larger than that of development investment expenditure (Figure 4.14). In 2002, a 1% increase in regular expenditure corresponded to 715.6 billion VND, 1.78 times higher than that of development investment expenditure (402.4 billion VND). Later, this gap widened because the absolute value of a 1% increase in development investment expenditure was quite unstable, while that of regular expenditure continued to increase. By 2017, these values were 8,223.4 and 2,965.4 billion VND, respectively; that is, a 1% increase in regular expenditure was 2.77 times higher than that of development investment expenditure.
It cannot be denied that the government has controlled the budget deficit quite well in recent times, in 2017 it was only 2.74% of GDP compared to the peak of 6.7% in 2009. But if
If the entire loan is not used to cover the deficit but is transferred to development investment expenditure, the difference in expenditure structure can be partially improved, although it is still very low compared to the country's development needs.
4.3.2. Private investment in Vietnam
4.3.2.1. Strengths
Up to now, it is necessary to affirm the great importance and core role of the private sector in the Vietnamese economy. After more than 30 years of renovation, from being unrecognized, up to now, capital from the non-state sector has affirmed its position. Specifically, in the pre-renovation period, with a centrally planned economy, state-owned enterprises and collective economy were the two main types of ownership in the economy, considered the foundation of the national economy. Private trading activities were restrained due to the view that private ownership is the origin of capitalism. After renovation, along with the liberation of ideology, many more practical actions have been taken to develop the private economy. In the early 2000s, a series of legal documents related to private enterprises were issued and came into effect, especially the 1999 Enterprise Law. These moves created a more equal playing field between state-owned enterprises, foreign enterprises and other types of enterprises such as limited liability companies, joint stock companies, partnerships, private enterprises, etc. Later on, the role of the private economy became more evident when it was affirmed that "it is the core to develop an independent and autonomous economy", an important driving force in Vietnam's economic development.
The private economy has demonstrated its influence in aspects such as: contributing to socio-economic development, promoting the establishment of a business ecosystem, and creating jobs... The massive development of private capital in recent times has contributed to the formation of an extremely dynamic business environment, with capital and the number of newly established enterprises increasing rapidly each year. In the first 11 months of 2017 alone, the number of newly registered enterprises created jobs for more than 1 million workers. Up to now, the private sector has been the unit that creates the most jobs for the economy, contributing to solving the problem of labor surplus due to urbanization and migration of workers from rural to urban areas. 2017 was also the year with many new businesses being established, increasing by 45.4% compared to 2016, 2.5 times the number of businesses in the previous 6 years (in 2011 there were only 513,700 newly established businesses). However, the growth rate of capital is still slow, with 2017 only 1.6 times higher than in 2011.
2017
1,295,911
126,859
2016
891,094
110,100
2015
601,519
94,754
2014
432,286
74,842
Capital (billion VND)
Number of businesses
2013
398,681
76,955
2012
467,265
69,874
2011
513,700
77,548
Figure 4.15. Capital and number of newly established enterprises over the years
Source: Department of Enterprise Development (2018)
In 2017, private enterprises contributed nearly 45% of GDP value and accounted for 40.6% of total social investment capital, creating many jobs, contributing greatly to the country's socio-economic development. The graph below shows that this is always the sector that contributes the most to total investment capital as well as GDP in the economy. The GDP proportion of the private sector always accounts for more than 42% of the country's total GDP, regardless of whether the economy is prosperous or in recession. The remaining amount is divided into public sector enterprises (35-37% of total GDP) and FDI enterprises (15-20% of total GDP). This figure shows the indispensable role as well as the dynamism of the private economy in affirming its importance. At the same time, the investment capital of this sector increases every year in a straight line and tends to increase very rapidly in the following period. Before 2014, the amount of investment capital from the public sector was often the highest in the country; in some years, private capital surpassed it but not significantly. However, from 2015 onwards, the amount of private capital began to accelerate and far exceed that of the state sector. This was achieved thanks to the government's efforts to create an open business environment, encourage businesses to invest capital, promote the start-up movement, etc. In addition, the improved economic situation is also an important factor promoting investment activities of businesses in all economic sectors.
trillion dong
700
70%
600
60%
500
50%
400
40%
300
30%
200
20%
100
10%
-
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
State capital FDI capital
%GDP Non-State Economy
Non-state capital
%GDP Public sector
%GDP FDI sector
Figure 4.16. Capital and GDP structure by economic sector in Vietnam
Source: Vietnam Statistical Yearbook over the years
trillion dong
1,500
1,300
1,100
900
700
500
300
100
(100)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Collective economy
Private economy
Individual economy
Figure 4.17. GDP value of non-state economic sectors
Source: Vietnam Statistical Yearbook over the years
In the private sector, the product value of each specific group of enterprises is shown in Figure 4.17. Comparing among non-state economic sectors, the individual economic sector accounts for the highest proportion in the level of creating total product value. This is achieved mainly because this sector accounts for the highest proportion in the total number of enterprises in the non-state sector.
4.3.2.2. Weaknesses
Looking at the total figures, the private sector’s capital values and GDP are quite good as they always lead the economy. However, when looking deeper into the matter, the situation is not entirely positive.
First , the size of the business is not large yet.
This is also a common point of many emerging and developing economies in Asia. The number of small and medium enterprises accounts for about 95-99% of the total number of enterprises in the ASEAN region, 96% of the total number of enterprises in the Asian region ( Yoshino and Taghizadeh-Hesary, 2018) . This is a force that contributes significantly to the success of many Asian economies. Similarly, in Vietnam, the number of enterprises as well as the total amount of capital coming from the private sector is the highest in the country. Many famous private companies and corporations also emerged from this region, such as Vietnam's leading information technology group FPT (currently with more than 15,000 employees), DOJI gold and gemstone group, Vingroup, Truong Hai automobile, Mobile World... Contrary to the beautiful picture above, most private enterprises are small and medium-sized.
Thousands of businesses
400
350
300
250
200
150
2006
2011
2017
100
50
0
Large Business Medium Business Small Business Enterprise
microscopic
Figure 4.18. Number of enterprises over the years
Source: General Statistics Office (2013, 2018)
According to the results of the 2017 Economic Census (General Statistics Office, 2018), the number of large-scale enterprises was 10,100, double that of 2006 (5,018 enterprises). The remaining number, accounting for 98.1% of the total number of enterprises, are small and medium-sized enterprises, including 385.3 thousand micro-enterprises, an increase of 5.05 times compared to 2006.
in 2006 (76.3 thousand enterprises). In the period 2006-2017, large enterprises increased by an average of 6.6%/year, less than half of the 14% of small and medium enterprises. Obviously, there is currently a huge gap between small and large enterprises. In other words, there is a gap belonging to medium-sized enterprises, creating a phenomenon of "missing middle". That is, the economy almost only has small and micro-sized enterprises (accounting for 96.4% of the total number of enterprises in 2017) and large enterprises (accounting for 1.9%), but there are not many medium-sized enterprises (accounting for only 1.64% in 2017). The absence of medium-sized enterprises will cause the necessary transition from small enterprises to large enterprises to be missing, which will make it difficult to expand the potential of enterprises. This will affect the ability to mobilize capital, apply science and technology, as well as the competitiveness in the market... of the enterprise. In reality, many small enterprises "refuse to grow" due to many different reasons, including issues related to the internal capacity of the enterprise, as well as fear of the inconvenience when changing the form of ownership, operation...
Second , holding the largest GDP among economic sectors and the ability to create huge jobs, but labor productivity in the non-state sector tends to be quite gloomy.
NSLD
400 (1000 VND/person)
Labor productivity growth rate (%)
40
350
30
300
20
250
10
200
0
150
-10
100
-20
50
-30
0
-40
Private sector labor force National labor force
Labor productivity in the state sector Labor productivity in the FDI sector
Labor productivity growth rate in the private sector Labor productivity growth rate in the public sector Labor productivity growth rate in the FDI sector
Figure 4.19. Labor productivity of economic sectors in Vietnam
Source: Vietnam Statistical Yearbook over the years