This chapter offers an overview of governance arrangements in SME and entrepreneurship policy in Viet Nam. The chapter highlights how SME policy has a recent history in Viet Nam dating back to the early 2000s. More recently, the SME Support Law (2018) signals the commitment of the government to the promotion of the domestic SME sector and sets out some important measures for its further development. Some aspects of the SME Support Law are working well (e.g. incubator and cluster development), others may require some adjustments (e.g. formalisation of household businesses), while others are still waiting for formal approval by the Parliament (e.g. SME preferential taxation). SME and entrepreneurship policy sees the involvement of different ministries and provincial governments in Viet Nam, thus calling for appropriate institutional co-ordination arrangements. In this regard, the role of the SME Development Council could be revamped with the aim to enhance policy co-ordination. Finally, there is adequate monitoring of SME support measures, but a lack of more rigorous impact evaluations.
SME and Entrepreneurship Policy in Viet Nam
4. The governance of SME and entrepreneurship policy in Viet Nam
Abstract
The SME and entrepreneurship policy framework
SME policy has a recent history in Viet Nam
Small and medium-sized enterprises (SMEs) have only recently become a policy target in Viet Nam, notably through a national law in 2001 which first set the SME legal definition and the legal foundations for an SME Development Agency and the SME Development Council.1 Later, between 2009 and 2010, the government set up the SME Development Fund and the Credit Guarantee Fund, as well as a number of other programmes addressing regulatory simplification (e.g. Project 30, see chapter 3) and access to land and business premises (CIEM/MRI, 2016[2])2 In 2012, with support from the Asian Development Bank (ADB), the government issued its first five-year SME policy plan, i.e. the SME Development Plan 2011-2015,3 which set out the legal framework for the SME Assistance Fund (ADB, 2017[1]).4 As part of its SME policy, the national government has also set targets in terms of number of registered businesses. The 2016 Enterprise Development Policy set a target of at least 1 million registered enterprises by 2020,5 while the Prime Minister’s Plan for the Sustainable Development of the Business Sector set a further target of at least 1.5 million registered enterprises by 2025 and 2 million by 2030.6
The SME Support Law signals the commitment of the government to SME development
Today, the activity of Vietnamese SMEs is guided by the 1999 Enterprise Law and by the 2018 SME Support Law. The former deals with everything which has to do with registration and incorporation, governance and operations of business enterprises regardless of their size. The latter signals the attention of the government for the domestic SME sector and addresses the following policy and programme areas for enterprises that comply with the national legal SME definition (see Table 2.1, chapter 2):7
Access to credit (e.g. credit subsidies and the credit guarantee fund);
Preferential tax and regulatory regimes (e.g. simpler and lower corporate income taxation for SMEs and simplified tax administrative procedures and accounting regimes for micro-enterprises);
Access to business premises (e.g. rent subsidies for SMEs in industrial zones, high-technology zones, and industrial clusters);
Assistance in technology acquisition and technology development (e.g. intellectual property protection and development; support for research, training and technology transfer; tax incentives for public-private partnerships to establish incubators, co-working spaces, and technical labs);
Access to markets (e.g. rent subsidies and lower corporate taxation for companies in supporting industries);
Access to information, consultancy and legal issues (e.g. publication of relevant policy information on the national SME web portal and ministerial websites);
Assistance with human resource development (e.g. access to subsidised training courses).
Most provisions in the SME Support Law apply to all SMEs, such as access to the credit guarantee fund and to subsidised training and advisory services. A preferential tax regime, if and when approved by the Parliament (see chapter 3), will also apply to all SMEs. However, the law also offers additional benefits to specific target groups such as innovative start-ups, SMEs that participate in value chains and clusters, and household businesses. The latter, in particular, are expected to receive a temporary tax relief from corporate income taxation if they become formally registered enterprises (see chapter 3 for more details), while SMEs in global value chains (GVCs) and clusters are expected to benefit, in co-ordination with the Supporting Industry Law, from enhanced access to credit, land and premises (through rental subsidies), among others.
The presence of an SME Support Law is a positive development for Viet Nam not only because of the specific programmes that the law introduces, but also because of the emphasis it places on domestic SMEs as a possible source of future growth. On the downside, the SME Support Law does not cover certain policy areas relevant to entrepreneurship development (e.g. entrepreneurship education and youth entrepreneurship)8, and there are other important laws that affect SMEs (e.g. the Investment Law, the Enterprise Law, the Science and Technology Law and the Tax Law) that have not gone through a regulatory impact assessment (RIA) to evaluate their effects on SMEs.9 Viet Nam’s main laws and programmes, other than the SME Support Law, with a direct impact on SMEs and entrepreneurship are briefly outlined in Table 4.1.
Table 4.1. Main national policies and programmes affecting SMEs (besides the SME Support Law)
|
Policy document |
Policy objectives |
|---|---|
|
Technology and innovation |
|
|
National Programme on Technology Innovation through 2020 (Prime Minister Decision No. 677/QD-TTg dated 10 May 2011) - Ministry of Science and Technology |
One of the aims is to support SMEs to improve their technologies. This includes building a database on new and advanced technologies and on technology experts for SMEs; supporting SMEs in applying IT and building communication systems; providing training on technology management and administration to engineers, technicians and managers of SMEs. The target of this programme is to increase the number of enterprises renewing technologies by an average of 15% per year, of which 5% will apply high technology (no specifics about which percentage of these will be SMEs). |
|
Prime Minister Decision No. 844/QD-TTg of 18 May 2016, on Approval for “Assistance Policies on National Innovative Start-up Ecosystem to 2025” - to be implemented by the Ministry of Science and Technology |
It intends to create favourable conditions for the development of young enterprises (aged less than 5) that have the potential for rapid growth through the utilisation of intellectual property assets, technology and new business models. It offers supporting activities such as education, incubation and networking; sets up a national start-up ecosystem portal; provides funding to organisations that supply services, facilities, technical infrastructure, telecommunications services and investment in start-ups. The target is to assist 2 000 innovative start-up projects and 600 start-ups by 2025, 100 start-ups of which to be supported under a scheme financed by venture investors (estimated amount of VND 2 trillion). |
|
Supporting industries |
|
|
Decision No. 68/QD-TTg dated January 18, 2017 approving the Programme on Development of Supporting Industries during 2016-2025 - Ministry of Industry and Trade |
It promotes and supports industrial enterprises to become suppliers of domestic and foreign customers (in three fields: components and spare parts; textiles, garments and footwear; high-tech industries) and attracts foreign investment in supporting industries. Targets include: 1 000 Vietnamese enterprises participating in the Programme; 130 of which become direct suppliers of manufacturing enterprises or assemblers of complete products; 2 000 supporting-industry enterprises given consultancy and training to meet the manufacturing requirements of global value chains, of which 1 500 successfully apply these standards; 1 000 enterprises supported on R&D, technology transfer, and experimental manufacturing of components, spare parts and material, of which 500 successfully apply the new technologies and processes. Total State budget allocation of VND 1.736 trillion. |
|
Human resource development for SMEs |
|
|
Circular No. 05/2019/TT-BKHDDT dated 29 March 2019 issued by the Ministry of Planning and Investment and Circular No. 49/2019/TT-BTC dated 8 August 2019 issued by the Ministry of Finance on management and use of state budget to support human resources development of SMEs. |
It offers detailed guidance on the planning, organisation, management and funding of training assistance and activities for SMEs (training courses on starting a business, business management, and specialised business administration). |
|
Financing and investment in SMEs |
|
|
Decree No. 38/2018/ND-CP dated 11 March 2018 on investments in small and medium-sized start-up enterprises |
Following up to Article 19 of the SME Support Law (investment in start-ups), this decree provides guidelines for investments in small and medium-sized start-up companies (incentives for private investors); the establishment, management and operation of venture capital funds; the use of science and technology development funds; and for local government budgets to make investments in start-ups. |
|
Entrepreneurship in the education system |
|
|
Prime Minister Decision No. 1665/QD-TTg dated 30 October 2017 approving the Scheme for Supporting Students’ Start-ups to 2025 - Ministry of Education and Training and Ministry of Labour, Invalids and Social Affairs. |
All higher education institutions to offer entrepreneurship and innovation learning/training in their curriculum, either as elective or required courses or programmes. Activities include promoting entrepreneurship using media, conferences, festival events, forums, websites, etc.; training lecturers, coaches, mentors in entrepreneurial and innovation learning; developing and publishing related learning materials. Followed up by: 1) the Ministry of Education and Training “Supporting Student Entrepreneurship 2017-2020 with a Vision towards 2025” plan (Decision No. 1230/QD-BGDDT of 30 March 2018) to promote entrepreneurship and equip students in educational and training establishments with knowledge and skills on entrepreneurship; and 2) the Ministry of Labour, Invalids and Social Affairs’ (MOLISA) strategic plan to integrate entrepreneurship education at vocational colleges and schools. |
|
Youth entrepreneurship |
|
|
National Youth Start-up Programme 2016-2021– implemented by the Viet Nam Youth Federation (VYF) Supporting Centre for Youth Start-ups (SYS), established in 2017 |
It aims to foster start-up activities among young people through advice and support, opportunities to gain experience and receive assistance from entrepreneurs, and co-operation with other organisations in implementing ideas related to start-ups. |
|
E-commerce |
|
|
National E-Commerce Development Programme (2014-2020) (Prime Minister No. 689/QD-TTg dated 11 May 2014) – Viet Nam Electronic Commerce and Information Technology Agency (VECITA) under the Ministry of Industry and Trade. |
It encourages the start-up of e-commerce enterprises, the integration of e-commerce by existing enterprises, the deployment of e-commerce applications and sales solutions for SMEs, and the development of credible cross-border e-marketplaces. Policy target: 50% of enterprises to have an Internet presence by 2020 and business-to-business (B2B) transactions to account for 30% of import-export turnover. |
|
Productivity and quality |
|
|
Prime Minister Decision 712/QD-TTg dated 21 May 2010 approving the National Programme on Improving of productivity and quality of products and goods of Vietnamese enterprises through 2020 - Ministry of Science and Technology |
It aims to develop and apply a system of standards, technical regulations, management systems, models and tools to improve the productivity and quality of Vietnamese enterprises. A strong focus is on national standards: 6 000 new national standards to be developed, 60% of which to be aligned with international standards. Targets: 100 000 enterprises guided to apply advanced scientific and technological solutions and to apply management systems, models and tools to improve productivity and quality (e.g. lean management, 5S, Total Productive Maintenance, ISO standards). There is no mention in this decision of SMEs and specific targets for their inclusion. |
Sources: Vietnamese government’s websites.
Gaps in the SME and entrepreneurship policy framework
This section looks into gaps in Viet Nam’s SME and entrepreneurship policy framework, which includes not only the SME Support Law, but also other laws and policies that affect SMEs, as detailed in Table 4.1.
SME digitalisation has not received enough attention
Although digitalisation is increasingly important for SME development, this topic does not feature in the SME Support Law. According to the World Economic Forum (WEF) Country Readiness Index for the future of production, Viet Nam is at a nascent stage of readiness for the 4th Industrial Revolution (WEF, 2018[5]).10 Furthermore, similar to other ASEAN countries, Viet Nam is also still lacking the technology infrastructure, capabilities and innovation to fully capitalise on the 3D printing technology, with most manufacturing companies lacking the capital and knowledge to set up their own 3D printing and prototyping facilities (WEF, 2018[5]).
Industry 4.0 has recently become a government priority. In 2017, the Prime Minister issued a directive on this issue, tasking several ministries with specific policy actions;11 however, the directive makes no specific mention of SMEs. Since the Central Institute for Economic Management (CIEM) was in the process of drafting a National Strategy for Industry 4.0 in 2019, an effort should be made to include SMEs as a target group of this strategy.
Vietnamese policies in favour of e-commerce are more developed. Some of the objectives of the National E-Commerce Development Programme (2014-2020) are to encourage the start-up of e-commerce enterprises, facilitate the integration of e-commerce by existing enterprises, and develop credible cross-border e-marketplaces. The target was for 50% of enterprises to have an Internet presence by 2020 and for B2B transactions to account for 30% of import-export turnover (see also Table 4.1). In this case, too, there were no targets set for SME representation.
The government could develop a comprehensive set of policy measures to support the digital transformation of SMEs, from encouraging the use of e-commerce, to helping SMEs introduce automation in the production process, to assisting SMEs in the use of software programmes such as Enterprise Resource Planning (ERP) or Customer Relationship Management (CRM). These measures could form part of a new SME Digitalisation Strategy or could be integrated into existing programmes, such as the National Programme on the Development of Supporting Industries, the National Programme on Technology Innovation, or the National Programme on Improving the Productivity and Quality of Vietnamese Enterprises.
There could be stronger co-ordination in youth entrepreneurship support
The government has recently implemented some important programmes to help young people consider entrepreneurship as a career option, as shown by the Scheme to Support Student Start-ups (Project 1665), the National Youth Start-up Programme 2016-2021, and the National Innovative Start-up Ecosystem initiative (Project 844). The existence of these programmes makes much sense in Viet Nam, as about 40% of the population is under the age of 25, and 45% are under the age of 30.
However, at present, there is no formal co-ordination among these three programmes. Moreover, the Viet Nam Youth Federation, responsible for implementing the National Youth Start-up Programme, has limited staff resources and mostly relies on partnerships to deliver its range of programme activities. The Ministry of Planning and Investment (MPI) could explore the feasibility of building collaborative linkages between the implementing partners of these three programmes to achieve a more cohesive approach to youth entrepreneurship policy.
The policy objective of household business formalisation requires new thinking
As mentioned in chapter 3, the SME Support Law offers incentives to encourage household businesses to become formal (i.e. to obtain an Enterprise Registration Certificate, ERC, under the Enterprise Law), such as an exemption from the corporate income tax for two years, exemptions from enterprise registration fees and licensing fees for three years, free consultancy on administrative procedures, and reduction of or exemption from land rental, land levy and the levy on non-farming land for a limited period of time.
However, these concessions have not yet been able to transform many household businesses into formal enterprises. A simplification in the transition and registration procedures, including allowing the re-use of available licenses for business households/establishments, could help accelerate the formalisation process, something that the government of Viet Nam was considering at the end of 2019.12 Above all, a new simplified and separate corporate tax regime for household businesses could be conceived, following the example of Brazil’s Micro Empreendedor Individual (MEI), on condition that this regime would only apply to household businesses employing a very small number of workers (see chapter 3).
The existing regulatory impact assessment should include an SME test
The 2008 Law on Legal Normative Documents and the follow-on 2015 Law on the Promulgation of Legislative Documents require that all draft laws adopted by the National Assembly and decrees/policies adopted by the government go through a regulatory impact assessment (RIA) before being submitted to the final decision makers. The RIA report is to focus on the following aspects: i) problem that the new law is expected to solve; ii) objectives of the proposed policy; iii) policy alternatives to solve the same problem; and iv) best policy option to solve the problem (Vo and Nguyen, 2016[4]). While these are all important sections of a RIA, there is currently no requirement to assess the impact of new laws or revised regulations on SMEs. Furthermore, the RIA is not yet uniformly applied (OECD/ERIA, 2018[3]).
In many OECD countries, governments make use of the SME Test as part of the RIA process. The SME Test typically involves consultations of the government with SME representative organisations, an in-depth analysis of the impact of new legislation on SMEs and suggestions for remedial measures if the new legislation is expected to have a negative impact on SMEs. The SME Test should be adopted as part of the RIA regime in Viet Nam and should be applied to the Enterprise Law, the Investment Law, the Science and Technology Law and other laws that potentially impact on SMEs but that are currently blind to enterprise-size considerations.
Main institutions involved in SME and entrepreneurship policy
The Ministry of Planning and Investment and the Agency for Enterprise Development are the leading players in SME and entrepreneurship policy
The Ministry of Planning and Investment (MPI) has the lead responsibility for SME and entrepreneurship policy in Viet Nam. Within the MPI, the Agency for Enterprise Development (AED) is designated as the central government agency co-ordinating SME policy.13 In particular, the AED is to elaborate documents, policies and laws on supporting SMEs and to submit them for approval by the competent authorities; guide ministries and localities in the implementation of the SME Support Law; collaborate with relevant ministries and agencies to formulate the state budget for the implementation of SME programmes; and organise the periodic monitoring of SME support nationwide. The AED also has responsibility for the Assistance Centres for SMEs in the North (Ha Noi), Central Region (Da Nang) and the South (Ho Chi Minh City), commonly referred to as TACs from their previous name of Technical Assistance Centres (see also chapter 7).
Several other ministries and agencies are also involved in SME and entrepreneurship policy
In addition to the MPI, the AED and the TACs, the SME Support Law outlines the roles of other state ministries and agencies in delivering policy support to SMEs, such as the Ministry of Science and Technology (MOST), the Ministry of Industry and Trade (MOIT) and the Ministry of Finance. Furthermore, under the scope of other national laws, other ministries and national agencies are involved in SME policy support, such as the Ministry of Education and Training (MOET), the Ministry of Labour, Invalids and Social Affairs (MOLISA) or still the Ministry of Justice. In a large country like Viet Nam, provincial governments (People’s Councils and Committees) also play a critical role in the implementation and monitoring of SME policies at the local level. Table 4.2 provides a summary of the main government institutions involved in SME and entrepreneurship policy in Viet Nam.
Table 4.2. Main government institutions involved in SME and entrepreneurship policy in Viet Nam
|
Ministry/agency/other |
Responsibility relative to SME policy and support measures |
|---|---|
|
Ministry of Planning and Investment (MPI) |
It has the main responsibility for national SME policy, formulating and executing plans for SME assistance, training officials and employees in SME policy, and reporting to the Government and Prime Minister on the implementation of SME policy. It is also responsible for the delivery of the SME Development Fund. |
|
Agency for Enterprise Development (AED) |
Under the MPI, it is designated as the central government agency co-ordinating SME policy. |
|
Assistance Centres for SMEs (former Technical Assistance Centres, TACs) |
Managed by the AED, the three TACs – Ha Noi (North), Ho Chi Minh City (South) and Da Nang (Centre) – have the mission in their respective regions to organise and implement SME support policies and programmes, including management training and business incubators. |
|
Ministry of Finance |
It provides instructions on tax administrative procedures and the accounting regime for SMEs; has responsibility for establishing preferential tax policies and incentives for SMEs and innovative start-ups; develops the regulations of the SME Guarantee Funds; and supervises the financial performance of the Viet Nam Development Bank (VDB). |
|
Ministry of Industry and Trade (MOIT) |
It implements the Programme on the Development of Supporting Industries 2016-2025; instructs SMEs on how to join business clusters and value chains; promotes seminars to help SMEs to participate in the distribution system; co-ordinates with existing medium-sized and large retailers in the domestic market. This Ministry also operates the Industrial Promotion Centres and the Trade Promotion Centres located in each of the 63 provinces and is responsible for national export promotion efforts through the Viet Nam Trade Promotion Agency (VIETRADE). |
|
Ministry of Science and Technology (MOST) |
It is responsible for funding the National Innovative Start-up Ecosystem to 2025 Scheme, among others. It provides instructions on the establishment of incubators; assists SMEs in strengthening their technological capacity; supports linkages of SMEs with research institutes and universities; provides science and technology information for SMEs; provides grants and preferential loans for R&D, innovation and technology transfer through the National Technology Innovation Fund (NATIF). |
|
National Agency for Technology Entrepreneurship and Commercialisation Development (NATEC) |
Under the MOST, the Agency advises and assists the Minister on developing the technology market and on supporting the establishment and development of science and technology (S&T) enterprises. It shares responsibilities for the implementation of the National Innovative Start-up Ecosystem, creating a national start-up portal to link policymaking agencies, ministries, localities, start-up incubators, investors and start-up businesses within this ecosystem. |
|
Ministry of Information and Communications (MIC) |
It introduces SMEs to e-commerce and facilitates their access to online platforms. |
|
Ministry of Education and Training (MOET) |
It implements the “Supporting Student Entrepreneurship 2017-2020 with a Vision towards 2025” plan to equip students in educational and training establishments with knowledge and skills on entrepreneurship. |
|
Ministry of Labour, Invalids and Social Affairs (MOLISA) |
It is responsible for the Technical and Vocational Education and Training (TVET) system. It implements a strategic TVET plan to integrate entrepreneurship education at vocational colleges and schools, including teacher training programmes, entrepreneurship training for students, and development of training materials and knowledge resources. |
|
Ministry of Justice |
It provides legal information and advice for SMEs, as per Decree No. 55/2019/ND-CP dated 24 June 2019. |
|
State Bank of Viet Nam (SBV) |
It organises the implementation of government policies to increase the volume of SME lending. |
|
Viet Nam Development Bank (VDB) |
Established in 2006, it implements the government’s investment and export credit policies. |
|
Viet Nam Youth Federation Supporting Centre for Youth Start-ups (SYS) |
It implements the National Youth Start-up Programme 2016-2021 to foster start-up activities among young people in collaboration with the Viet Nam Chamber of Commerce and Industry (VCCI). |
|
Central Institute of Economic Management (CIEM) |
It is the think-tank of the MPI. It undertakes analysis on enterprise and SME development and drafts laws, including the SME Support Law and the Enterprise Law. |
|
People’s Provincial Councils |
They introduce policies and distribute resources to assist SMEs in provinces and supervise compliance with the SME Support Law at the provincial level. |
|
People’s Provincial Committees |
They formulate, implement and evaluate plans for assistance to SMEs in the provinces. Priority is given, in line with national guidelines, to supporting innovative start-ups, promoting household businesses to transform into legally registered enterprises, and encouraging SMEs to join clusters and value chains. |
Sources: Law on the Support of Small and Medium-Sized Enterprises, Law No. 04/2017/QH14 of 12 June, National Assembly, Ha Noi, and Decree No. 39/2018/ND-CP dated March 11, 2018 on guidelines for the Law on support to small and medium enterprises”.
The large number of ministries and agencies involved in SME and entrepreneurship policy has both positive and negative consequences. When policy directives are issued by the Prime Minister, there is often the requirement for all relevant ministries to develop their own plans and programmes to implement the directives. With respect to SME policy, this means that each ministry has the responsibility to make provisions for SMEs, which is positive. On the downside, policy co-ordination is challenging; this role, by the law, falls within the responsibility of the AED, which however does not have enough resources to undertake it in an appropriate way.
Implementation of SME and entrepreneurship policy
The government monitors the implementation of the SME Support Law through annual reports
The AED closely monitors the implementation of the SME Support Law. The last implementation report was released in March 2020 and mentioned how the government had until then issued a total of 5 decrees, one directive and 7 circulars to implement the SME Support Law. Moreover, as of March 2020, 50 out of the 63 Vietnamese provinces operated SME support programmes. The implementation report of the SME Support Law presents information by policy area. The most relevant of these programmes are further described and assessed in chapter 5 of the report.
Taxation and accounting rules: As mentioned in chapter 3, the Ministry of Finance is still hammering out the last details of a preferential corporate income tax (CIT) regime for SMEs. On the other hand, the simplification of accounting procedures for micro-enterprises and the application of online tax registration, collection and returns have already been enforced. Some provinces have also offered free accounting software programmes to newly established companies, while the province of Ha Noi offers one year of free-tax consulting.
Household business formalisation: Most provinces have organised sessions to provide information and advice to household businesses on how to convert into formally registered enterprises. Some provinces have also set targets for the number of converting household businesses at the local level, but initial numbers have been disappointing. Obstacles to formalisation include the extra burden of tax payment and accounting rules with which household businesses owners are not familiar.
Access to finance: The State Bank of Viet Nam (SBV), the SME Development Fund (SMEDF) and commercial banks have all taken initiatives to ease access to finance for SMEs. In June 2019, for example, the SBV established the Borrowers Connecting Portal to ease the intermediation between borrowers and lenders and to improve the transparency of credit products. Commercial banks have also introduced new procedures that are meant to facilitate loan applications by SMEs. For example, the QR code – a secure and fast online transaction method – had reached 5.32 million transactions worth VND 7.7 billion by the end of October 2019, experiencing an average growth of 64.3% in volume over the first two quarters of 2019. In addition, the SBV and the Ministry of Finance have issued three circulars to guide, monitor and evaluate the operations of Credit Guarantee Funds (CGF).
SME innovation: The MOST operates many programmes to support SME innovation. For example, the National Innovation Fund has supported 27 projects through VND 268 billion and, as of March 2020, was considering to invest VND 686 billion in another 52 projects, while the Programme to Develop Intellectual Property has helped 120 SMEs to manage IP and 51 SMEs to commercialise inventions. The MOST has also organised 70 training courses for over 3 500 SMEs as well as many events to connect entrepreneurs, such as Tech-mart, Tech-fest, Tech-demo, etc.
Innovative start-ups: The MPI has recently established the National Innovation Centre to promote the national start-up ecosystem, has organised many events to attract foreign experts and investors into Vietnamese start-ups, and has drafted official guidelines for the establishment of SME Development Funds. By March 2020, five private funds had been established with a total commitment of VND 5.32 billion. The Ministry of Information and Communications (MIC) has also engaged in the promotion of the national start-up ecosystem through the Viet Nam Tech Enterprise Development Fund and the creation of the “Make in Viet Nam” brand. The MOST has provided 244 training courses for 23 000 participants in the innovative start-up ecosystem, while the MOET has partnered with the Youth Union to organise a number of events such as the Start-up Funding Camp and the Start-up Hunt. The former has attracted more than 10 000 students, while the latter has granted VND 670 million to the top three winning ideas.
Human resources: The MPI has co-ordinated with educational institutions and incubators to provide start-up training for youth, students, household businesses and innovative start-ups. In 2019, VND 35 billion were invested in start-up and business administration training courses. The SME Online Training Portal was also established in August 2018. Ha Noi and Thanh Hoa are the most active provinces in funding start-up training programmes.
Market expansion: In 2018, the Ministry of Industry and Trade (MOIT) spent VND 90 billion in SME-related activities, including the expansion of traditional craft trade via training, technology upgrading and national and international marketing. The MOIT also co-ordinates with the Ministry of Foreign Affairs (MOFA) to promote trade and investment treaties and to train and guide exporting SMEs to defend against international lawsuits.
Industrial clusters and supply chains: The MPI has collaborated with USAID, the US international co-operation agency, in a programme called LinkSME which aims to strengthen the capacity of local SMEs to tap into supply chains and production networks through the enhancement of intermediary organisations (e.g. SME and trade associations).
Information and legal advice: The MPI is upgrading its National Portal for Supporting SMEs and is establishing a national network of consultants, based on sector expertise. Furthermore, the Ministry of Finance has provided guidelines on the use of state funding to support SME consulting and the Ministry of Justice has proposed a new Decree on legal consulting for SMEs.
Land and infrastructure: The Ministry of Natural Resources and Environment (MONRE) has supported provincial governments in the implementation of preferential land distribution and leasing plans for SMEs, especially those operating in industrial clusters and agricultural and fishery sectors.
Women’s entrepreneurship: Even though the SME Support Law indicates preferential treatment for women-owned SMEs, these companies have benefited from policy support only to a limited extent. The Women’s Union has provided support to about 300 000 women, who have established 845 new businesses, and has connected about 25 000 women to credit institutions for a total lending volume of VND 237 billion.
SME policy implementation needs to be strengthened
Although the SME Support Law provides a useful legal framework, its implementation could be further strengthened. Some of the problems reported in the AED implementation reports include low awareness of the law among SMEs; delays in executing certain programmes; low take-up of certain policy measures; limited resource allocation for support policies in some localities; and inconsistent policy delivery across localities.14 It has also been reported that many SMEs find it difficult to make use of existing policies, mostly because relevant information is either scant or scattered across different organisations, application procedures are sometimes complex, and eligibility requirements are difficult to meet.
More broadly, the implementation of SME policies appears to be fragmented across a large number of programmes, decisions, decrees and circulars, making it difficult to discern the overall policy framework. In this regard, the elaboration of an integrated SME Development Plan could help clarify existing support policies as well as their objectives and programme elements. Since the conclusion of the SME Development Plan 2011-2015, which was backed by the ADB, there has been no follow-on document, partly because the government was working on the elaboration of the SME Support Law. Now that this law has been drafted and approved, the government could revert to the preparation of five-year SME Development Plans to provide entrepreneurs and other interested parties with a comprehensive overview of the national SME policy framework, which would include the timeline of the different programmes, the organisations responsible for implementation, and key performance indicators.
Co-ordination of SME and entrepreneurship policy
Inter-ministerial co-ordination in SME and entrepreneurship policy could be more effective
SME and entrepreneurship policies always cut across different areas, calling for strong institutional co-ordination to make policies effective. This is especially true in Viet Nam where many government ministries and agencies are involved in SME and entrepreneurship policies and where provincial governments play an important role in adapting national policies to local conditions and monitoring policy implementation. In Viet Nam, the task of inter-ministerial co-ordination of SME policies belongs to the SME Development Promotion Council, which has been in place since 2001 and whose role is to advise the Prime Minister on policies and mechanisms to encourage SME development.15 The Council is to meet twice a year and report to the Prime Minister on the implementation of SME and entrepreneurship policies. The representation of Viet Nam’s SME Development Promotion Council is broad in scope and not dissimilar from the membership of similar Councils in other countries.16 However, the Vietnamese Council has not worked effectively and has met only rarely. In addition, ministerial members have often delegated junior staff with no decision-making power to attend Council meetings on their behalf. Finally, the AED has not received the necessary resources to perform properly its role of Permanent Secretary to the Council. Due to these reasons, the Council has basically become defunct.
Ministerial or high-level committees and councils are a common practice in many countries, particularly those operating within the parameters of an SME Law. In the ASEAN region, Indonesia, Malaysia, Thailand, and the Philippines each have active high-level SME promotion councils. Of particular relevance to Viet Nam is the Micro, Small, and Medium Enterprise Development (MSMED) Council of the Philippines (Box 4.1). Created in 1991 under the Magna Carta for Micro, Small and Medium Enterprises, the Philippines’ MSMED Council has a specific mandate to co-ordinate and integrate various government and private-sector activities relating to SME development into a unified national policy framework, which is not currently the case in Viet Nam. The government of Viet Nam could consider revamping its SME Development Promotion Council, expanding its mandate to play a stronger cross-ministerial co-ordination role, and providing adequate resources to the AED to play its role of Secretariat.
Box 4.1. The Micro, Small and Medium Enterprise Development (MSMED) Council in the Philippines
The MSMED Council, as per the Magna Carta for Micro, Small and Medium Enterprises (Republic Act No. 9501) is responsible for the promotion, growth, and development of MSMEs in the Philippines through the co-ordination of policy and programmatic efforts. It is attached to the Department of Trade and Industry (DTI). The specific functions of the Council as laid out in the Act and expanded in further amendments of the Act include the following:
Help establish the needed environment and opportunities conducive to the growth and development of the MSME sector.
Recommend to the President and the Congress on all policy matters affecting MSMEs;
Co-ordinate and integrate various government and private sector activities relating to MSME development.
Review existing policies of government agencies that would affect the growth and development of MSMEs and recommend changes to the President and Congress. Include the results of this analysis in an annual report to be submitted to the Congress.
Formulate a six-year MSMED Plan in consultation with the government entities and private sector to be integrated into the Medium-Term Philippine Development Plan and co-ordinate meetings to ensure implementation of the MSMED Plan.
Act as the co-ordinating and supervising body for all the agencies involved in the establishment and operation of the Negosyo Centres, including monitoring and assessing their progress and reporting annually to Congress.
Publish a Compliance Guide (in simple language and in local dialects) helping MSMEs to comply with new government regulations and co-operate with industry associations to develop and distribute these guides.
Conduct research to support women’s entrepreneurship, and formulate policy directions.
In co-ordination with the Department of Education and technical education development authorities, develop training programmes in entrepreneurship that will promote entrepreneurial culture and competences, and integrate these programmes in the curricula of educational and training institutions at all levels.
Membership of the MSMED Council consists of:
The Secretary of Trade and Industry as Chair;
The Secretary of Agriculture;
The Secretary of the Interior and Local Government;
Three representatives from the MSME sector to represent the administrative divisions of Luzon, Visayas and Mindanao with at least one representative from the micro-enterprise sector;
One representative designated by the Philippine Commission on Women;
One representative designated by the National Youth Commission; and
The Chairman of the Small Business Corporation.
The Bureau of Small and Medium Enterprise Development of the DTI is designated to act as the Council Secretariat. The Bureau co-ordinates the implementation of SME policies and programmes by government departments and agencies and is responsible for preparing briefing documents for the Council, such as annual and mid-term development plans, the annual activity report, periodic reports and position papers or background materials for discussion by the Council. It is staffed by around 35 people and funded through an annual budget governed by the General Appropriations Act.
The MSMED Council is a key and active body in the Philippines. Apart from its policy advisory, planning, and co-ordination functions, it is called upon routinely by the government for important policy actions. For example, in 2015, the Council was given direct responsibility for overseeing the integration of youth entrepreneurship promotion into the national policies and programmes in support of MSME development (in compliance with the 2015 “Youth Entrepreneurship Act”).
Source: Department of Trade and Industry website: https://www.dti.gov.ph/15-main-content/dummy-article/595-msmed-council/
At a more operational level, the task of co-ordinating SME policies is often assigned to the ministry responsible for SMEs or its implementing agency. In Viet Nam, this role clearly belongs to the AED. To facilitate this co-ordination role, a common practice has been to form a working group of SME focal points from each ministry and agency involved in SME policies, which would typically be the same institutions represented in the ministerial council. The purpose of the working group would be to support the work of the ministerial council, including by following up on the implementation of its decisions. In the case of Viet Nam, the AED would be the natural chair of this working group.
There are well-established policy co-ordination mechanisms between the national and local levels
In Viet Nam, the national government devolves a significant amount of policy implementation work to the provincial level. Each of the 63 Provincial People’s Committees adopt an administrative structure that mirrors the national government. For example, each province has a Department of Planning and Investment (DPI), which acts as a specialised agency of the People’s Committee, but also works under the direction of the national MPI.17 The MPI co-ordinates the delivery of national SME support programmes at the provincial level through the DPIs, while the DPIs are responsible for co-ordinating SME policies at the provincial level within the People’s Committees. Some of the People’s Committees have developed their own SME Development Plans, which clearly reflect the needs of their region.
Provinces without SME Development Plans often lack the tools and methodologies to design and implement SME policies, lacking both the human resource capacity and know-how. For example, in some provinces, the responsibility for SME support measures falls with the business registration division of the DPI, which is mostly an administrative unit with little knowledge of SME support programmes. In such cases, the AED may assign national officers to help the DPI design SME programmes. Budgets are another issue. Only 13 of the 63 People’s Committees have their own budgets for the implementation of an SME Development Plan, while the others have to request budget support from the central government. The result is an inconsistent application of SME support policies across the country.
Going forward, the AED should strengthen its policy leadership with the DPIs that have weaker capacity by offering stronger guidance. This could take the form of capacity-building sessions, including sharing the experiences of provinces which have successfully implemented SME programmes.
Stakeholder consultation is well developed
The 2015 Law on Promulgation of Legislative Documents requires that the government engage in an open and transparent consultation with relevant stakeholder groups during the stage of policy formulation.18 Thus, when laws and regulations pertain to or have an impact on SMEs, feedback from SME representative associations – such as the Viet Nam SME Association (VINASME) and the Viet Nam Chamber of Commerce and Industry (VCCI) – must be sought and taken into consideration. Thus, on a periodic basis, the AED consults with these organisations on draft legal documents and invites SMEs to register in the AED SME Feedback Database so they can be contacted for inputs.19
In addition to public consultations on specific laws or regulations, there are other formal and informal policy dialogue fora between the public and private sector (e.g. Viet Nam Business Forum, the Viet Nam Private Sector Forum, etc.) similar to those that can be found in other countries.
Monitoring and evaluation of SME and entrepreneurship policy
There is adequate monitoring capacity, but a lack of formal impact evaluations
While monitoring and evaluation mechanisms are formally in place, these efforts focus mostly on monitoring budget expenditures and the take-up of certain policy measures, but much less on formal impact evaluation (OECD/ERIA, 2018[3]). Until 2018 the MPI used to publish annual White Papers on SMEs which would include a detailed overview of SME trends as well as results from the implementation of SME support programmes. Since the introduction of the SME Support Law, this publication has been discontinued and has been replaced by a report on the implementation of the SME Support Law, which is annually prepared by the AED with inputs from the different line ministries. The report, which is delivered to the Prime Minister, presents information on the state of implementation of the different policies included in the SME Support Law (see section of this chapter on policy implementation).
The Vietnamese government appears to be adequate on monitoring progress on programme implementation, but it is less advanced in the conduct of formal impact evaluations that assess how much a programme intervention has made a difference for recipient firms. Rigorous impact evaluations are complex exercises which require good data collection and data analysis skills and demand relevant budget resources. Nonetheless, they are very useful to show real impacts to policy makers, adjust programme elements that are not working well, and show value for money to taxpayers or donors. As a result, the government of Viet Nam should consider undertaking more policy evaluation studies, at least for the top 3-5 programmes that receive most government resources in terms of budget.
Conclusions and policy recommendations
SME and entrepreneurship policy has a recent history in Viet Nam, dating back to 2001 when a national law introduced a legal SME definition and established the SME Development Agency, which later became the Agency for Enterprise Development (AED). Nowadays, the SME Support Law, which has been in place since 2018, provides the main legal policy framework for SME development in Viet Nam, although other laws, such as the Enterprise Law or the Investment Law, also affect the activities of domestic SMEs. The SME Support Law concerns all SMEs, although certain additional provisions target more specifically three target groups: innovative start-ups, SMEs that participate in value chains and clusters, and household businesses that convert into formally registered enterprises. When looking at the overall SME and entrepreneurship policy framework, four main issues seem to emerge: lack of programmes specifically targeted at SME digitalisation; lack of co-ordination among different youth entrepreneurship programmes; limited success of the national policy to convert household businesses into formally registered enterprises; and lack of an SME Test to assess the impact of new legislation and regulations on SME activity.
The MPI is the main ministry responsible for SME policy in Viet Nam, with the AED acting as its operational arm. However, many other ministries are involved, which is good news because it mainstreams SME development across many technical ministries, but it also poses a challenge in terms of policy co-ordination and policy implementation. In particular, policy implementation is fragmented across a large number of legislative decisions. The preparation of an SME Development Plan, a practice which was in place until 2015, could help clarify the overall support framework for SMEs and entrepreneurship.
The foundations for inter-ministerial policy co-ordination are in place, but they are not functioning well. The SME Development and Promotion Council should be re-activated, while the AED could be strengthened to enable better co-ordination of SME policies at the operational level. Policy co-ordination between the national and local level is strong, since many policy responsibilities are devolved to provincial governments in Viet Nam. However, some provinces lack the human and financial resources to effectively implement national policies; policy leadership and capacity-building by the AED to these provinces could help improve this situation.
Finally, monitoring and progress reporting on the implementation of SME policies has been done properly in the past, but there is a lack of formal impact evaluations.
Policy recommendations on the governance of SME and entrepreneurship policy
Develop a comprehensive set of policy measures to support the digital transformation of SMEs that could either form part of a new programme or be integrated into existing programmes (e.g. the National Programme on Development of Supporting Industries, the National Programme on Technology Innovation, etc.).
Ensure that the needs of SMEs are addressed in the National Industry 4.0 Strategy which is being prepared by the Central Institute of Economic Management, including, for example, through the design of targeted programmes.
Strengthen co-ordination among existing youth entrepreneurship programmes to harness synergies and build an integrated approach to the development of youth entrepreneurship.
Adopt the SME Test as part of the current regulatory impact assessment, applying it to laws which are relevant to SMEs, such as the Enterprise Law, the Investment Law and the Science and Technology Law.
Draft a new SME Development Plan which incorporates all relevant policy initiatives of state ministries and agencies, including those not specifically covered by the SME Support Law.
Revamp the SME Development Promotion Council and expand its mandate to play a stronger inter-ministerial co-ordination role. In this context, provide adequate resources to the Agency for Enterprise Development to play its role of Secretariat to the Council.
Strengthen SME policy planning capacities in provinces that have not yet developed a local SME Development Plan by leveraging on the expertise of the Agency for Enterprise Development.
Undertake formal impact evaluation research, at least for the largest government SME programmes, to better assess the impact of these interventions on the expected beneficiaries
References
[1] ADB (2017), Viet Nam: Second Small and Medium-Sized Enterprises Development Program - Validation Report, https://www.adb.org/sites/default/files/evaluation-document/390316/files/pvr-544.pdf/.
[2] CIEM/MRI (2016), Research Report on Enhancement of Vietnamese Supporting Industries.
[3] OECD/ERIA (2018), SME Policy Index: ASEAN 2018: Boosting Competitiveness and Inclusive Growth, OECD Publishing.
[4] Vo, T. and V. Nguyen (2016), Regulatory Coherence : the Case of Viet Nam, https://www.eria.org/RPR_FY2015_No.4_Chapter_8.pdf.
[5] WEF (2018), The Global Competitiveness Report, World Economic Forum.
Notes
← 1. Decree No. 90/2001/ND-CP. The employment and turnover thresholds in the legal SME definition were updated through Decree 39/2018/ND-CP concerning the Detailed Guidance on the Implementation of the SME Support Law. The name of the Agency for SME Development was eventually changed into the Agency for Enterprise Development (AED) at the Ministry of Planning and Investment (MPI).
← 2. Notably, Decree 56/2009 dated 30 June 2009 and Resolution No. 22/NQ-CP dated 5 May 2010.
← 3. Decision No. 1231/QD-TTg of 9 December 2012.
← 4. The SME Assistance Fund was effectively created in 2013 through Decision No. 601/QD-TTg.
← 5. Decision No. 844/QD-TTg of 18 May 2016, on Approval of “Assistance Policies on National Innovative Start-up Ecosystem to 2025” (https://vanbanphapluat.co/decision-844-qd-ttg-approval-assistance-policies-national-innovative-startup-ecosystem-2025).
← 6. Decision 1362/QD-TTg dated 11 October 2019, proposed by the Ministry of Planning and Investment (MPI).
← 7. The implementation of the SME Support Law is guided by a series of decrees, resolutions and circulars (e.g. Decree No. 39/2018/ND-CP on guidelines for the SME Support Law; Ministry of Justice’s Decree No. 55/2019/ND-CP on legal support for SMEs; Ministry of Planning and Investment’s Circular No. 06/2019/TT/BKHDT on guidelines for organisation and operation of a network of consultants).
← 8. Key legal references are, in this case, the Scheme for Supporting Student Start-ups to 2025 by Prime Minister Decision No. 1665/QD-TTG, dated 30 October 2017, and the National Youth Start-up Programme 2016-2021, launched in October 2016.
← 9. However, the SME Support Law called for amendments to the 2014 Investment Law: 1) to include in the list of “preferential investment industries and trades,” SMEs in distribution chains, and technical establishments, incubators, and co-working spaces for SMEs and start-ups (Clause 1 of Article 16 of the Investment Law), and 2) to apply detailed regulations on forms of investment support to high-tech enterprises, science and technology (S&T) enterprises, S&T organisations, enterprises investing in agriculture and rural areas, and enterprises investing in education (Clause 1 of Article 19 of the Investment Law).
← 10. Viet Nam News, “Logistic firms urged to get technological”, 9 April 2018, https://vietnamnews.vn/economy/425961/logistic-firms-urged-to-get-technological.html/
← 11. Directive No. 16/CT-TTg dated 4 May 2017.
← 12. The 2019 Draft Law Amending the Enterprise Law includes household businesses as a legal type of business entity. The draft law adds a new chapter with five articles that remove all restrictions on household enterprises, refrains from using administrative measures to force them to become registered enterprises under the Enterprise Law, and outlines the responsibilities of household business owners to carry out the business activities and fulfil tax and other financial obligations (see: “Household business regulations brought into law”, Viet Nam Law & Legal Forum Magazine, 18 October 2019, http://vietnamlawmagazine.vn/household-business-regulations-brought-into-law-16879.html).
← 13. The duties of the AED, as initially stipulated in Decision No. 504/QD-BKH dated 24 April 2008 of the MPI, included: formulation of legislative measures for the support of SMEs; supporting the MPI Minister on SME promotion policy; legislation on business registration; and acting as the permanent secretariat of the SME Development Promotion Council. However, its roles and function have been revised a number of times through different ministerial decisions.
← 14. Based on information from the AED’s interim implementation report that the OECD received in March 2020.
← 15. The configuration of the Council is stipulated in Decree No.90/2001/CP-ND and its amendments, i.e. Decree No.56/2009/ND-CP of 30 June 2009; Prime Minister Decision No.1918/QD-TTg dated 10 October 2010 on function and duties of the SME Development Promotion Council; and Decision No. 975/QD-BKHDT dated 7 July 2011 of the MPI on operating rules of the Council for encouraging the development of SMEs.
← 16. The composition of the SME Development Council of Viet Nam is as follows: Minister of Planning and Investment (Chair), AED (standing secretary), Minister of Industry and Trade, Ministry of Justice, Ministry of Finance, Ministry of Education and Training, Minister of Agriculture and Rural Development, Minister of Justice, Minister of Science and Technology, Minster of Education and Training, Minister of Natural Resources and Environment, Minister of Labour, Invalids and Social Affairs, Minister of Construction, Minister of Transport, State Bank of Viet Nam, People’s Committees from the five main provinces, Viet Nam Chamber of Commerce and Industry, Viet Nam Association of Small and Medium Enterprises, Viet Nam Cooperative Union, Viet Nam Union of Science and Technology Associations, Viet Nam Young Entrepreneurs Association, selected experts at the request of relevant ministries.
← 17. The functions of the provincial DPIs are to advise and assist the provincial People’s Committee on: socio-economic development plans; implementation of socio-economic management mechanisms and policies in the province; domestic and foreign investment in localities; management of official development assistance and non-governmental aid; procurement; business registration within the locality; general and unified management of business issues, the collective economy, and the private economy.
← 18. According to the 2015 Law on Promulgation of Legislative Documents, opinions may be sought from stakeholders by direct questioning, circulating the draft for comment, holding meetings, and using the mass media. The report on policy impact assessment introduced in a draft law must be posted on the portal of the National Assembly, the government, or the agency that proposes the draft. In addition to collecting opinions from those directly affected by the proposed policies, it is compulsory to collect opinions from the Ministry of Finance, the Ministry of Home Affairs, the Ministry of Foreign Affairs and the Ministry of Justice.
← 19. The Law on the Promulgation of Legislative Documents makes the use of ICT mandatory in public consultations.