Regions and Countries

	Table of Contents
p. 14 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Operations IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Viet Nam : III. Sector Strategies

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F. Private Sector Development

64. The private sector in Viet Nam remains small and constrained by numerous impediments, despite its proven employment generation potential. The major impediments to private sector growth include: (i) slow processing of business license applications; (ii) slow and cumbersome procedures for approving changes in business activities and scope, including permission to export; (iii) limited transparency to outsiders of government decision-making; (iv) differential treatment of domestic and foreign-owned businesses; (v) difficulty in opening bank accounts and obtaining access to foreign exchange; (vi) high taxation; (vii) inability of lenders to obtain or enforce satisfactory collateral; (vii) distortions in the banking sector and disintermediation of banks; and (viii) a low regard for the private sector generally, compared with the state sector. Private sector growth has been held back in recent years partly by the effects of the regional financial crisis of 1997 and partly by the above impediments. Foreign direct investment has fallen sharply since 1998, and unemployment is rising. However, a small upturn in business activity in the SME sector has been noted in 2000. Many large private/BOT infrastructure projects are still stalled. For example, water sector BOTs continue to be held back, partly because increases in drinking water tariffs to economic levels have not been implemented. The Government has begun addressing some of these issues through revisions of the Foreign Investment Law (May 2000) and through reform programs, including program loans supported by ADB in the agricultural, financial, and industrial and SOE sector, but considerable room for improvement remains.

65. The only implemented Bank private sector project to date is a $30 million loan for a large cement plant, approved in 1996. The first disbursement for this project was made in 2000. Further private sector projects are under consideration in higher education, health care, water supply, ports, and bitumen, diesel and fuel oil production. A private equity fund for SMEs is also being considered in conjunction with IFC. Closer integration between ADB private and public sector operations and opportunities for private-public partnerships will be sought during the program period, in accordance with ADB’s Private Sector Development Strategy. SME development will provide an opportunity to address some of the general constraints to private sector expansion. Focus on private provision of tertiary health and education services would also complement the public sector approach, by freeing fiscal resources to be devoted to primary and secondary services.

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