ECONOMYNEXT – Vietnam has defined private businesses as the main driving force, promising a level playing field, reduced regulations and equal access to land and resources to modernize the economy and integrate with the world as Sri Lanka struggles, sending mixed signals.
The move comes as the state workers are reduced by 20 percent.
Vietnam’s private economic sector now had more than 940,000 enterprises, more 5 million business households in operation, contributing 50 percent of gross domestic product and employed 82 percent of the total labour force, the Politburo of the Communist Party of Vietnam (CPV) said.
The private economy was “creating jobs, being an important force promoting innovation, improving labor productivity, increasing national competitiveness, contributing to hunger eradication, poverty reduction, and stabilizing social life,” the Politburo resolution issued in May noted.
“Many private enterprises have grown strongly, with their brands capable of reaching out to regional and world markets.”
Barriers to Private Enterprise
The private economy is still facing many barriers that hinder its development, the resolution noted, involving regulations, weak property rights and lack of economic freedoms.
Key identified problems according to the Politburo were :
– thinking and awareness of the position and role of the private economy in the economy are still inadequate, not keeping up with development requirements;
– institutions and laws are still entangled and inadequate; authorities have not paid due attention to the development of the private economy;
– the rights to property and freedom of business have not been fully guaranteed.
“The private economy still faces many difficulties and obstacles in accessing resources, especially capital, technology, land, resources and high-quality human resources,” the politburo noted.
“Some preferential and support policies are not really effective and difficult to access; business costs remain high.”
Vietnam started to move away from central planning and state monopolies in 1984, with its open economic policies under the banner of Doi Moi or renewal.
“Emerged from a centrally planned, bureaucratic, and subsidized system — one marked by social stigma and policy bias — the private economy has grown robustly during the Doi Moi era,” General Secretary of the Communist Part of Vietnam, To Lam, wrote shortly after the politburo decision.
“Today, it contributes significantly to the state budget, generates employment, taps into local potential and strengths, and plays a pivotal role in socio-economic development, national defense, and security.
“The private sector has firmly affirmed itself as a key driver of international integration.”
Free Trading International Integration
Unlike in Sri Lanka, Vietnamese private enterprises no longer hide behind import duties to exploit the public with high prices, especially in food and rice, but exports goods at competitive market prices and is integrated to the world.
The same product is both imported and exported simultaneously. Rice is exported and is priced the same as the rest of the world. Without protection, the quality of local rice has gone up and Indian rice is now imported to feed pigs.
Vietnam exports rubber to China and also imports from Cambodia and Thailand. A somewhat similar situation exists in Sri Lanka.
With aquaculture for export and animal husbandry taking off Vietnam is now a net importer of maize along with a fall in malnutrition and exporter of protein rich foods.
In Sri Lanka, the so-called ‘de-liberalization’, reversing Sri Lanka’s open economy, started in November 2024, when the a 25-page gazette to slap import duty surcharges, without prior parliament debate President Donald Trump style, as money was printed to keep interest rates down triggering forex shortages.
In subsequent years, economic nationalism and self-sufficiency (autarky) doctrine re-emerged, with dramatic rises in CESS and PAL taxes, most unfortunately in food, while import substitution re-emerged under the new name of ‘import replacement’, in policies promoted by macroeconomists who ran the finance ministry.
In the current administration, the Finance Ministry has taken politically difficult decisions to re-structure debt, after a default, impose unpalatable new taxes, including tax export services and also bank deposits in a bid to strengthen government finances and avoid a second default.
The new taxes may part-way to finance higher spending on state worker salaries and new hires, without taking more loans contributing default.
Sri Lanka’s cabinet last week approved a Finance Ministry decision to sell shares in a Canwill, a half-built building expropriated in 2011 from the private sector by the ousted Rajapaksa regime to which money, including from the Employees Trust Fund, had been injected.
Related : Sri Lanka to proceed with Hyatt building sale, Deloitte kept as advisor
The decision will free the government using people’s taxes and or EPF savings to expand yet another state enterprise and send the first signal about state involvement in the the economy, analysts say.
Sri Lanka’s industries ministry has also allowed the import of some coconut products after a shortfall, which happens routinely in East Asia.
Coconut industrialists asked for the economic freedom in February, when Indonesian coconuts were still cheap. Though the cabinet gave quick approval, the actual permissions did not come fast enough. The first shipments are only coming to the country after April.
Sri Lanka’s President Anura Kumara Dissanayake visited Vietnam earlier this year, and expressed interest in learning from the experience in the country, Vietnam media reported.
“The visiting leader expressed admiration for Viet Nam’s remarkable economic achievements, noting that in just 50 years since reunification, Viet Nam has emerged as one of the fastest-growing economies globally, with rising international standing and prestige,” the online portal Nhan Dan Daily reported.
“He voiced his country’s interest in learning from Viet Nam’s experiences in economic development, institutional reform, corruption combat, and national governance.”
Vietnam is also engaged in a drive to reduce the public sector by 20 percent. Earlier this year Vietnam reduced the number of ministries instead of raising taxes in sharp contrast to state expansion under ‘revenue based fiscal consolidation’.
RELATED : Vietnam passes US$1.7bn retirement package, rejecting Sri Lanka style revenue based fiscal consolidation
Both valued added and income taxes are lower in Vietnam than Sri Lanka.
The May politburo decision promised lower tax rates but said it will also broaden the tax base. All retailers have now been asked to set up POS machines. Accounting software is given free of charge.
Mixed Signals
In Sri Lanka however signals are mixed.
Some of the controversial decisions that backfired on the people and undermined the economic credentials of the government both the current and the last administration, have come from the Trade Ministry controlling the economic freedoms and undermining food security through licenses and taxes.
Any supply shortfall leads to a crisis in Sri Lanka due to government regulations and controls.
Caught in a web of import licenses, taxes and price controls, foods disappear from shelves due to the actions of the Consumer Protection Authority, an agency coming under the Trade Ministry which ironically has responsibility for ‘food security’.
During the last currency crisis which ended in default, the consumer authority slapped price controls on eggs, leading to killing of layer chicken for meat, the culling of parent stock in hatcheries and collapse in egg production that took took almost two years to recover.
License Raj
In late 2024, price controls by the Consumer Affairs Authority, led to the disappearances of red rice during New Year, perhaps for the first time in living memory, as price controls were imposed, disrupting a seasonal rise in prices and imports of other rice were controlled by licenses.
High taxes of around 320 dollars a tonne on imported rice was also not removed, and import licenses were briefly relaxed only state agencies failed to import food in time, undermining food security.
The import licensing and protectionism since 2007, has given rise of private oligopolies in food, building materials and tyres in particular which hurts export industries through artificially high expenses compared to countries in East Asia.
Sri Lanka was also hit by high salt prices as the Trade Ministry kept taxes and import licensing system in place at the request of producers who wanted self-sufficiency.
Trade Ministry was quoted as saying that a lease of salterns which will run out in 2017 will not be renewed and salt will return to being a state monopoly as it was under British rule and the Dutch East India Company.
The Trade Ministry is also planning to revive the defunct Co-operative Wholesale Establishment (CWE) marking a return of the state to wholesale trade, Minister Wasantha Samarasinghe told parliament.
The CWE was set up by an act of parliament in 1949 and just as British rule ended, in a 75-year old policy. At the time British Fabians and the Labour Party strongly supported greater state interventions in the UK itself.
Ironically, Leonard Woolf, who was instrumental in setting up salt as a government department under the colonial administration of Ceylon, – at the time naturally crystallizing salt was collected – was also admirer of British Fabian socialist thinking and was associated with the New Fabian Research Bureau.
Ending State Control
Meanwhile Vietnam’s Communist Party Leader To Lam said the country will strike out in a different direction.
“The most fundamental and urgent task moving forward is to further strengthen the institutional framework of the socialist-oriented market economy — particularly through transformative shifts in mindset, awareness, and action,” General Secretary To Lam said.
“This involves defining the essential features of such an economy under State management and Party leadership, while steering clear of outdated and rigid models in comparison with the previously managed socialist-oriented market economy under State control.”
“On May 4, 2025, the Politburo issued Resolution No. 68-NQ/TW on private economic development with unprecedented goals, viewpoints, tasks, and breakthrough solutions; identifies the Party’s renewed perspective on private economic development within a socialist-oriented market economy framework, aiming to elevate the private sector as a key driver of economic growth.”
Private Enterprise in Socialism
General Secretary said it was private enterprise that led to the expansion and modernization of both China and Vietnam.
“The practice of economic development — particularly of the private economy — in China, Russia, and during the 40 years of Doi Moi (Renewal) in Viet Nam offers extremely valuable lessons,” To Lam said.
“For Russia, even during the centrally planned economic era, V.I. Lenin’s New Economic Policy (NEP), implemented from 1921 to 1991, promoted the development of various economic sectors, including the private sector.”
“For China, the “Reform and Opening Up” policy initiated in 1978 led to a constitutional amendment in 1988 to strengthen the protection of private enterprises.
“The 15th National Congress of the Communist Party of China in 1997 officially recognized the private economy as an important component of the socialist market economy, pledging to protect the legitimate rights and interests of private and individual economic actors.
“Consequently, China’s private economy has experienced rapid growth, leading to the emergence of major corporations which not only dominate the domestic market but also expand their footprint globally.
“These enterprises play a vital role in key sectors such as technology, telecommunications, and e-commerce — contributing over 60 percent of the country’s GDP, generating 80 percent of urban employment, and producing more than 70 percent of national innovations and inventions.”
Vietnam’s Private Economy after Doi Moi
“In Viet Nam, the multi-sector economy was officially recognized in the documents of the 6th National Party Congress (1986),” he said.
“The encouragement of private sector development was affirmed at the 7th Congress (1991) and further emphasized at the 8th Congress.
“The 9th National Party Congress (2001) marked significant progress, affirming that the private capitalist economy plays a long-term and important role in the socialist-oriented market economy.
“For the first time, a resolution on “Continuing to renew mechanisms and policies to encourage and create conditions for private economy development” was issued.
“The 10th Congress clarified the matter of Party members’ participation in private economic development.
“The 12th (2016) and 13th Congresses (2021) strongly reaffirmed the role of the private sector as a critical driver of the national economy.
“Emerged from a centrally planned, bureaucratic, and subsidized system — one marked by social stigma and policy bias — the private economy has grown robustly during the Doi Moi era.
“Today, it contributes significantly to the state budget, generates employment, taps into local potential and strengths, and plays a pivotal role in socio-economic development, national defense, and security. (Colombo/June03/2025)
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