Private sector development in a transition economy: the case of Vietnam

Since Vietnam introduced its Doi Moi reform policy in 1986, the development of the private sector has been a main policy concern for the government and the ruling Communist Party. The main development challenge for Vietnam is how to sustain economic growth and reduce poverty as the labour force continues to expand. It is envisaged that the private sector will play a major role in that respect. This article looks into the issue of whether the private sector can live up to widespread expectations. High and stable economic growth indicates that reforms have been consistent but also that private sector initiatives have moved ahead of formal institutional changes. Private sector development is new in Vietnam and starts from a low level. The public and foreign investment sectors are major players compared to the domestic private sector, which comprises many small firms. Poverty reduction has been impressive but it is only now that private sector development is becoming an important contributor. Stemming the growth in inequality remains a challenge where the private sector's contribution to increasing public revenue has yet to materialise.