Minh City to the north and Can Tho to the south.<sup>34</sup> A total of 1,011 new companies registered in these six provinces in 1999 and 2000, but the same period of time saw the number of existing companies fall from 4,117 to 3,590.

53. Very specifically, the problem lay with small food and beverage processing firms. The number of sole proprietorships active in food and beverage processing in these six provinces fell from 1,213 firms in 1998 to 910 in 2000—single-handedly putting the subsector at negative growth for the whole country. This would quite clearly not appear to be an instance of consolidation since the number of workers for these firms fell by a comparable 27 percent. Weather may have been a factor, as this region has been hit very hard by flooding in the past two years—though frequent flooding in previous years does not seem to have had much effect on entrepreneurship.

54. The most plausible story comes from evidence in the media and in individual firm interviews that many domestic food and beverage processing businesses focused on local markets have failed in the past two years because of competition from both foreign invested firms and from imports. Official statistics also show that output in the canned fruit industry has fallen across all industry types. Local producers have not been able to match the technology or marketing of foreign products and have developed a significantly inferior reputation for quality among consumers. The devaluation of regional currencies in the wake of the Southeast Asian financial crisis may also well have led to a rapid increase in certain food and beverage imports. Further research into the economic consequences in this region of relatively high private sector activity would be useful.

55. While there has been convergence, broadly speaking, between regions, the growth appears to still be very much focused on urban commercial centers. Again, this is normal considering private companies’ tendency to grow in groups, but the case of southern China has led to a hope that the countryside can also benefit from private sector development. The recent difficulties of the private sector in the Mekong Delta—home to the second highest number of private firms in Vietnam—indicates that current trends do not have Vietnam replicating the rural successes of China. Ho Chi Minh City increased its dominant position, increasing its share from 24 percent in 1998 to 29 percent in 2000.<sup>35</sup> Hanoi also increased its share from eight percent of total private companies to 12 percent. As a result, the two main commercial centers increased their collective share from 32 percent to 41 percent. Growth has also been centered on secondary cities like Hai Phong and Danang and in industrialized provinces near commercial centers such as Binh Duong and Dong Nai—two provinces bordering Ho Chi Minh City and well-known for their pro-business local governments.

# **Is the Formal Private Sector Increasing Its Activities in Export-oriented and Laborintensive Industries?**

56. Vietnam’s need to create jobs for its rapidly increasing labor force is potentially also the country’s greatest strength. Relatively well-educated, low-cost labor is broadly

> 34 Long An, Dong Thap, Tien Giang, Vinh Long, Ben Tre, and Tra Vinh.

> 35 Ho Chi Minh City’s dominant role in ongoing growth is particularly clear when one looks at employment figures. As noted in an earlier footnote, preliminary CIEM data on the first two years of new registrations under the Enterprise Law show half the new jobs with new firms to be located within Ho Chi Minh City.

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