Policies needed to boost private investment

Private investment is improving but remains incommensurate with the potential

Slow improvement in private sector investment

Private investment accounts for 55-60 percent of all investment capital in the country, and the recovery and development of this sector will drive economic growth. However, in the first quarter (Q1) of this year, according to the General Statistics Office of Vietnam (GSO), the country’s total investment capital reached an estimated VND613.9 trillion, up 5.2 percent year-on-year, while the growth in Q1 of 2023 was 3.7 percent.

Of this, state investment was estimated at VND162.7 trillion, accounting for 26.5 percent of the total and increasing by 4.9 percent year-on-year; the non-state sector reached VND340.7 trillion, accounting for 55.5 percent and increasing by 4.2 percent; and the foreign direct investment (FDI) sector reached VND110.5 trillion, accounting for 18 percent and increasing by 8.9 percent. Thus, the private sector ranked the lowest among the three economic sectors in terms of investment capital growth in Q1 2024.

In Q2, investment capital in the country totaled VND834.3 trillion, up 7.5 percent year-on-year, including VND228.7 trillion worth of state investment, up 4.4 percent year-on-year; VND456.4 trillion worth of non-state capital, up 7.9 percent; and VND149.2 trillion worth of FDI, up 11.4 percent.

These took investment capital in the country to more than VND1.451 quadrillion in the first half of 2024, up 6.8 percent year-on-year, including VND392.1 trillion worth of state investment, accounting for 27 percent of the total and increasing by 4.8 percent year-on-year; VND799.6 trillion worth of non-state capital, accounting for 55.1 percent and increasing by 6.7 percent; and VND259.6 trillion worth of FDI, accounting for 17.9 percent and increasing by 10.3 percent.

In 2023, according to the GSO, investment capital in the country totaled an estimated VND3,423.5 trillion, up 6.2 percent year-on-year, with state investment increasing by 14.6 percent and FDI growing by 5.4 percent. The private sector’s investment increased by only 2.7 percent, the lowest growth rate in recent years. According to economists, this was a key reason why Vietnam’s GDP growth in 2023 did not meet expectations.

The Government should reactivate and unblock private investment, making it become an important long-term growth driver

Making private investment a growth driver

The Government has recently adjusted the growth target to 6.5-7 percent for 2024, instead of the 6-6.5 percent target set at the beginning of the year. This remains a highly challenging target, given the unpredictable global economic developments impacting supply chains and affecting Vietnam’s growth goals.

Economist, Dr. Le Duy Binh, Director of Economica Vietnam, stated that to achieve a 7 percent growth rate in 2024, Vietnam needs extraordinary efforts to increase domestic private investment by 10-15 percent and maintain this growth rate over a long period.

Binh suggested that the Government, ministries and local authorities generate special efforts to further improve the business environment, enabling Vietnam’s economy to make breakthrough improvements in global business environment rankings, innovation capacity, economic freedom, and other rankings.

Dr. Le Duy Binh also noted that investment activities by both large and small private enterprises are showing signs of stagnation. Large projects face legal issues, while small businesses are affected by an unfavorable business environment.

A safe and favorable business environment with low costs remains crucial and fundamental. Both small investment projects and those worth hundreds of billions of VND depend on the business environment. Thus, improving the investment environment is a fundamental and decisive factor for Vietnam to achieve high growth targets in 2024 and the following years.

Lawyer Bui Van Thanh from the Mat Troi Moi (New Sun) law firm said a transparent and equitable business environment, including equal access to resources, policies, land, and capital, is the most important to boost private sector investment.

Dr. Nguyen Bich Lam, former General Director of the GSO, argued that alongside boosting public investment and attracting FDI, the Government and local authorities need to focus on restoring and promoting non-state investment through specific policies and solutions, given the significant limitations of this sector in terms of capital, management skills, integration capacity, management experience, and skilled human resources.

The Government needs to reactivate and unblock private investment resources, making them become an important long-term growth driver, Dr. Lam said.