ADB is helping Viet Nam make doing business in the country simpler and quicker for small and medium-sized enterprises (SMEs). The project will support the government's key reform priorities, including efforts to improve the policy framework for SME development, strengthen business competitiveness, and enhance SME access to finance.
|Project Name||Second Small and Medium-Sized Enterprises Development Program - Subprogram I|
|Project Type / Modality of Assistance||Loan
|Source of Funding / Amount||
|Strategic Agendas||Inclusive economic growth
|Drivers of Change||Governance and capacity development
Private sector development
|Sector / Subsector||
Industry and trade - Small and medium enterprise development
Public sector management - Economic affairs management
|Gender Equity and Mainstreaming||Some gender elements|
1. I submit for your approval the following report and recommendation on (i) a proposed program cluster, and (ii) a proposed loan for subprogram 1, both to the Socialist Republic of Viet Nam for the Second Small and Medium-Sized Development Program.
2. The program will support the government's key reform priorities aimed at achieving sustainable high economic growth, supported by an increased contribution from small and medium-sized enterprises (SMEs) and the private sector. The reform priorities include efforts to improve the policy framework for SME development, strengthen business competitiveness, and enhance SME access to finance. The design and monitoring framework is in Appendix 1. The development policy letter is in Appendix 3. The program has a medium-term focus. Appendix 4 presents the policy matrix and medium-term direction and goals for subprogram 1, and triggers as well as milestones for subprogram 2.
|Project Rationale and Linkage to Country/Regional Strategy||
3. The government's Socio-Economic Development Plan 2006 2010 (SEDP 2006 2010) emphasizes the importance of increased private investment in generating economic growth and employment. Since SMEs represent more than 97% of enterprises in Viet Nam, the government places SME development as one of the key pillars of its efforts to transform the economy from government-led to private sector-led. 1 The government recognizes that sustainable development of SMEs requires a consistent policy framework, supported by a sound policy, legal, and institutional environment. Therefore, integrated with the SEDP is the government's SME Development Plan (SMEDP) 2006 2010 to promote SMEs. The Asian Development Bank (ADB) has directly supported the government's SME development policy reforms through loans for the first SME Development Program, also prepared as a program cluster.2 The ADB country strategy and program identifies SME development as a key priority. In addition, ADB has been supporting Viet Nam's economic transformation through program clusters for state-owned enterprise restructuring, microfinance developments, and inclusive growth.
4. Reforms implemented under the SEDP and SMEDP have produced significant results. Time required to process business registration has been reduced significantly from about 50 days in the early 2000s to about 10 working days in 2010. This has facilitated a large increase in the number of new enterprises, averaging 20% 30% annually since 2006. Bank credit to SMEs and the private sector has expanded by about 34% annually since 2005. SME access to land has improved significantly, as has access to international markets, with domestic sector exports expanding by about 25% annually during the last 4 years before the global financial crisis. With improvement in the business environment, investment has expanded rapidly, led by nonstate and foreign direct investment. As a result, employment generated by the domestic private sector increased rapidly and its share expanded from 29% in 2000 to more than 53% in 2007.
5. Mixed progress and continuing challenges. Despite significant progress, some challenges remain. The project completion report for the first SME Development Program recommends two continued priorities to improve effectiveness and sustainability of policy reforms to support SME development: (i) improving the business environment and regulatory framework, and (ii) enhancing access to finance. These areas of reforms are confirmed by the Central Institute for Economic Management (CIEM)-Institute of Labour Science and Social Affairs (ILSSA) survey, which identifies four areas where the government could best help in removing enterprises' constraints for growth: (i) enhancing access to finance, (ii) improving access to land and premises, (iii) enhancing SME policies, and (iv) reducing bureaucratic impediments.7 The review of implementation of the first SME Development Program also finds that improved dialogue between government and stakeholders contributed significantly to developing and improving policies to support SMEs and the private sector. The government intends to strengthen these activities by institutionalizing the framework and improving the participation of provincial stakeholders and the role of women as owners of businesses.
6. Business environment and regulatory framework. Although the government is giving high priority to developing supportive business-related regulations, the lack of clarity and inconsistencies in the increasing volume of implementing regulations still generate significant problems for business. With gradually increasing decentralization, local governments are responsible for the issuance, implementation, and/or enforcement of many regulations that impact the private sector. This adds significant cost and uncertainties to SMEs and the business sector. While business registration procedures have been significantly streamlined, other administrative procedures for some key business activities such as making tax payments, dealing with customs, and completing land use rights remain complicated. With uneven progress in business environment reforms, international comparisons tend to show that Viet Nam has been lagging in improving its business environment in relative terms. Consolidation of
effort and a comprehensive framework is needed to achieve maximum results.
7. Access to finance. Despite significant progress achieved in improving SMEs' access to finance in the last 5 years, a number of surveys still find that access to finance remains the top constraint for business growth. This is in part explained by the large increase in new enterprises during this period. In the next 5 years, the government targets to double the number of new enterprises. These new entrants face collateral and other traditional access constraints. In addition, existing enterprises are constrained by the lack of medium-term credit for investment and innovation. The CIEM-ILSSA survey finds that more than 65% of enterprises in the manufacturing sector depend on retained earnings to support their investment. The heavy reliance on self-financing for investment partly explains the relatively slow graduation of enterprises from micro to small and from small to medium size. Because constraints across different sizes of SMEs are not uniform, a more comprehensive approach is needed to meet their different financing needs. In this context, significant efforts are still required to enhance SME access to medium-term credit, nonbank financing, credit guarantees for longer-term investment loans, and equity financing for larger SMEs.
8. New approach to reflect the new environment. The project completion report for the first SME Development Program reiterates the importance of making SMEs more efficient, productive, and competitive by addressing key institutional and structural impediments affecting SME development. The key challenge is to anticipate future needs, including continued efforts to simplify national and provincial administrative procedures. From this perspective, the priority for Viet Nam is to sustain high economic growth to create productive jobs for an estimated 1.7 million young workers entering the labor market annually. The experience in the last 2 years suggests that this task has become more difficult. Economic overheating and the global financial crisis presented significant challenges to the SME sector. The government provided extensive temporary measures to assist SMEs to cope with the impacts of the crisis. At the same time, the government recognizes that, over the medium-term, creating sufficient jobs will require accelerated reforms to address existing constraints. This will require a stronger policy response to enhance the business environment and improve the country's competitiveness. In this context, the draft SEDP 2011 2015 includes a number of key steps, including policies to (i) systematically simplify business-related procedures, (ii) implement a robust process of controlling the quality of laws and regulations, (iii) introduce new custom and tax payment systems, and (iv) enhance implementation of the Law on Competition.
|Impact||Increased contribution of SMEs and the private sector to support sustainable high economic growth|
|Description of Outcome||Improved business environment for more competitive SMEs and private sector operation|
|Progress Toward Outcome|
|Description of Project Outputs||
1. Policy and institutional framework for SME development improved
2. Business competitiveness strengthened
3. SME access to finance enhanced
|Status of Implementation Progress (Outputs, Activities, and Issues)|
|Geographical Location||Viet Nam|
|Summary of Environmental and Social Aspects|
|Stakeholder Communication, Participation, and Consultation|
|During Project Design|
|During Project Implementation|
|Procurement||Loan proceeds will be used to finance the foreign currency expenditures for the reasonable cost of imported goods required during the program produced and procured in ADB member countries, excluding ineligible goods and those financed by credits from official international or bilateral aid agencies.|
|Responsible ADB Officer||Lam, Jacqueline|
|Responsible ADB Department||Southeast Asia Department|
|Responsible ADB Division||Public Management, Financial Sector and Trade Division, SERD|
Ministry of Planning and Investment
6 B Hoang Dieu street, Ba Dinh district, Hanoi, Viet Nam
|Concept Clearance||20 Jul 2009|
|Fact Finding||25 Jun 2009 to 03 Jul 2009|
|MRM||30 May 2009|
|Approval||18 Oct 2010|
|Last Review Mission||-|
|PDS Creation Date||05 Feb 2009|
|Last PDS Update||27 Oct 2010|
|Approval||Signing Date||Effectivity Date||Closing|
|18 Oct 2010||24 Dec 2010||26 May 2011||31 Mar 2011||31 Dec 2011||15 Jul 2011|
|Financing Plan||Loan Utilization|
|Total (Amount in US$ million)||Date||ADB||Others||Net Percentage|
|Project Cost||40.00||Cumulative Contract Awards|
|ADB||40.00||18 Oct 2010||42.16||0.00||100%|
|Cofinancing||0.00||18 Oct 2010||42.16||0.00||100%|
Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.
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|Title||Document Type||Document Date|
|Second Small and Medium-Sized Enterprises Development Program: Program Completion Report||Project/Program Completion Reports||Sep 2016|
|Loan Agreement for Second Small and Medium-Sized Enterprises Development Program Cluster - Subprogram I between Socialist Republic of Viet Nam and Asian Development Bank dated 24 December 2010||Loan Agreement (Special Operations)||Dec 2010|
|Second Small and Medium-Sized Enterprises Development Program||Reports and Recommendations of the President||Sep 2010|
|Second Small and Medium-Sized Enterprises Development Program||Summary Poverty Reduction and Social Strategies||Sep 2010|
Safeguard Documents See also: Safeguards
Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.
None currently available.
Evaluation Documents See also: Independent Evaluation
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None currently available.
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