Private sector play key role in Vietnam’s provincial economic reform

17 July 2012

New research from IDS and the Vietnam Chamber of Commerce and Industry (VCCI) finds that the private sector plays an important role in driving forward economic reform in Vietnam’s provinces.

Who Drives Economic Reform in Vietnam’s Provinces? is the latest research report published by IDS. Launched earlier this month at an event in Hanoi attended by over 250 policymakers, business leaders and researchers, it concludes a two-year study of Vietnam’s economic reform and investment climate, led by IDS Research Fellow Hubert Schmitz.

The project asked who is driving economic reform in Vietnam’s provinces, exploring the role of business, government and alliances between the two. Vietnam continues to surprise the world with the speed and depth of its economic transformation. The report finds that the decentralisation of economic power from central to provincial government has contributed to this success.

Launching the report, IDS Fellow Hubert Schmitz said:

‘Some of Vietnam’s provinces have made big improvements in reforming their investment climate in recent years, but others have not. We set out to explore who initiates economic reform in the provinces and who drives it forward, considering the role of the private sector, provincial leaders and government agencies. We also examined the influence of the Communist Party and central government.

We found that the private sector plays a really important role. Although there was no formal public-private coalition, a dynamic existed of proactive government seeking input from the private sector, and the private sector lobbying for and contributing to responsive and effective government.

‘This research is important because it provides new insights into how to organise the reform process and tailor it to local conditions. Allowing provinces to find their own way forward was central to Vietnam’s progress in institutional and economic development.’

Key research findings include:

  • The recent reform process in Vietnam has been a continuation of the previous practice of learning by experimenting, with each province being given the space to try out new things.
  • Pro-active provincial government working in consultation with the private sector has been critical.
  • National enterprises have exerted positive influence on economic reform, as evidenced in successful provinces.
  • However the policy process is often hampered by the lack of organisational capacity within the private sector.
  • Despite decentralisation, the Communist Party has been the key force in managing an increasingly complex political system.
  • Party and Government need to combat more forcefully two corrosive practices: the avoidance of tax and the hoarding of land.

About the project

The researchers conducted over 120 interviews with firms, business associations, government officials and academics in Bac Ninh, Hung Yen, Dong Thap, Ca Mau and Hanoi, as well as quantitative analysis across all 63 provinces.

Find out more about the project: Challenging the Investment Climate Paradigm: Governance and Growth in Vietnam.