Hanoi, Vietnam, September 22, 2021—As Vietnam battles another wave of COVID-19, accelerating the pace of reforms, upgrading workforce skills and infrastructure will strengthen the private sector to help the country recover from the pandemic and unlock its potential, according to a new World Bank Group report.
The Vietnam Country Private Sector Diagnostic (CPSD) report, by IFC and the World Bank, says while the private sector has played a frontline role in Vietnam's outstanding development in recent years, it's now time to fully exploit the potential of the private sector to boost productivity growth so Vietnam can achieve its goal of becoming a high-income country by 2045.
"The private sector has helped propel Vietnam to join the ranks of middle-income economies in just one generation, and the country was preparing for its next economic transformation when the COVID-19 hit," said Kim-See Lim, IFC Regional Director for East Asia and the Pacific. "With another wave, it's all the more imperative for Vietnam to help develop a dynamic, diversified and innovative private sector for the post-COVID 19 recovery phase, as public resources become scarce."
The report finds a shift toward efficient, productive and green private investment is essential to sustain Vietnam's rapid and sustainable economic development. This will require bolstering the private sector by reducing constraints on entry and competition, upgrading global value chains, diversifying into knowledge-intensive sectors, addressing skills gaps, and increasing digitalization across sectors.
"The country's emerging and dynamic private sector has demonstrated resilience during the COVID-19 pandemic and has contributed in making Vietnam one of few countries attaining positive economic growth in 2020," said Carolyn Turk, World Bank Country Director for Vietnam. "Continued bold reforms are needed to create a more robust basis for competition and innovation in the economy, through which a private sector-led low-carbon economic growth model can enable Vietnam's goal of becoming a high-income country by 2045."
The report says key areas for the reform agenda include leveling the playing field to ensure sound competition among all businesses, expanding access to finance for small and medium enterprises, improving availability of long-term capital, strengthening and greening infrastructure services, and ensuring a skilled labor force for a productive, innovative and high-value growth model.
"Sustaining and building on Vietnam's development success story requires further reforms aimed at empowering the private sector to grow and drive the economy into a sophisticated, innovative, and sustainable growth trajectory," said Kyle Kelhofer, IFC Country Manager for Vietnam, Cambodia, and Lao PDR. "The COVID-19 pandemic has reinforced the urgency to address private sector development challenges to seek public-private solutions to best leverage and incentivize the private sector. This is especially important as the government's resources, already constrained, have been prioritized for health care and livelihood support."
While power, logistics, education and skills training, agribusiness, and tourism are some of the sectors with strong potential for private sector participation, the report says regulatory constraints remain significant. Demand for sustainable electricity and logistics services has been on the rise, driven by further industrialization, a growing middle-income population, and urbanization. Private investment in these sectors could help ease the burden on the state budget and contribute to greening of infrastructure and production through new investments in renewable energy and climate-smart solutions.
As Vietnam aims to move up the global value chain by growing knowledge-intensive exports, services, and higher value-added industries, the demand for skilled labor and sophisticated technologies will increase, requiring an overall strategy to address the skills gap and shortage in the country. Moreover, as agribusiness and tourism continue to be key contributors to economic growth and job creation, improvements in productivity, operating costs, quality and safety, and sustainability will help boost further expansion across sectors.
The findings of the report will be used to craft IFC's strategic inputs for the World Bank Group's new Country Partnership Framework with the government of Vietnam, paving the way for joint programming to create markets and unlock private sector potential.
The full Vietnam CPSD can be downloaded here.
About the Country Private Sector Diagnostic (CPSD)
The World Bank Group's Country Private Sector Diagnostics aim to identify sectors where private sector solutions can create or expand markets and make substantial contributions to development impact. The diagnostics use a structured approach to analyze key sectors with unrealized private sector potential in each country, select several sectors for deeper analysis, and make recommendations for policy action. The sector analyses, conducted with significant input from teams across the World Bank Group and from external partners including governments, provide valuable information on the challenges and opportunities to better leverage the private sector to achieve developmental objectives. The CPSD aligns with the World Bank Group's Maximizing Finance for Development (MFD) approach, which looks to private sector solutions to reach the 2030 Sustainable Development Goals.
About IFC
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2021, IFC committed a record $31.5 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of the COVID-19 pandemic. For more information, visit www.ifc.org
About the World Bank Group
The World Bank Group plays a key role in the global effort to end extreme poverty and boost shared prosperity. It consists of five institutions: the World Bank, including the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA); the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID). Working together in more than 100 countries, these institutions provide financing, advice, and other solutions that enable countries to address the most urgent challenges of development.
For more information, please visit www.worldbank.org, www.miga.org, and www.ifc.org.
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