# **SUMMARY AND CONCLUSIONS**

**New growth in the private sector.** Implementation of private sector reforms, highlighted by introduction of the Enterprise Law in January 2000, has introduced a new era for the formal private sector in Vietnam and provides hope in addressing Vietnam’s pressing employment needs.  By reducing the financial and time costs of registering companies, and by sending a positive message to entrepreneurs about the government’s general attitude towards the private sector, the new law has led to a remarkable 35,440 registrations over its first two years—nearly two thirds the total number of registered firms for the entire preceding decade.1  Preliminary evidence suggests that the increase in the number of genuinely active private companies has been between one third and one half of the number of new registrations.

**The private sector picture remains mixed.** The current picture shows the domestic formal private sector still dwarfed by both the state sector and the informal household economy.  A more encouraging image emerges, however, when the focus is growth over time: private companies are not only creating more new wage jobs than any other economic sector, but are also drawing increasing volumes of investment and gaining increasing access to higher spending foreign markets.  GDP effects of new registrations are likely to emerge over the next couple years.

**The current base is still small...** Domestic private companies’ official shares of GDP and employment are eight and two percent, respectively.  The capital-intensive state sector, in turn, represents a larger 30 percent of GDP and five percent of employment. Data on the private sector, however, are likely to somewhat under-represent the actual size of the private sector, as there are significant incentives for private companies to under-report both revenues and employment.  Survey data gathered for this report indicates that employment in the domestic formal private sector would be more accurately reported at about three percent of total employment.  Private sector activities are also concentrated in a limited number of industries.  More than half of all domestic private companies are trade and retail service companies.

**... but growing rapidly.** The sudden jump in new registrations following the introduction of the Enterprise Law—as well as the improving business environment that supported it—is likely to speed up growth of private sector activities in the next few years.  The private sector already contributed 15 percent to industrial growth between 1995 and 2000—quite a substantial contribution given its small size.  The freeing up of trading rights also led private exports to take off: 43 percent of export growth in 1999 and 2000 originated from the private sector.

**Large growth in employment** **_._** The largest growth can be seen in employment.  From 1996 to 2000, employment in the formal private sector more than doubled, creating more than three times as many new non-agricultural jobs as state enterprises and almost twice

> 1 According to the latest figures available at the time of publishing for this report, registration of new companies in 2001 totalled 21,040 firms, with VND 26.5 trillion in registered capital (Statistics from Ministry of Planning and Investment, SME Department—supplied by the Central Institute for Economic Management).  Corresponding figures for 2000 are 14,400 registrations and VND 13.9 trillion in capital.  At publishing, CIEM had not yet resolved problems with province-by-province data, and therefore had not yet made that available.

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