Vietnamese enterprises continue to face difficulties

This is part of a new report by Vietnam Chamber of Commerce and Industry (VCCI), recently submitted to the Prime Minister, on the operation of Vietnamese enterprises in recent times. The report shows that Vietnamese enterprises still face a lot of difficulties in the future.  

According to Vu Tien Loc, VCCI President, in 2011 and especially the first quarter of 2012, the index of Vietnamese enterprises’ production and business activities has tended to worsen, particularly the indices of profit, sales, inventory, machinery productivity and number of employees.

The percentage of enterprises that halted production or dissolved in 2011 and in the first quarter of 2012 reaches 8.4 per cent (4.3 per cent and 4.1 per cent, respectively). Most of these enterprises suspended or dissolved due to business losses. Some enterprises deliberately ceased or dissolved due to the requirements of the restructuring process.  

It should be noted that while the percentage of non-state enterprises in the country that halted or dissolved their business accounts for 9.2 per cent, the FDI sector accounts for only about 2.6 per cent.

The FDI sector is tied more closely to the global value chain, has a stable market, is able to access cheap foreign capital, and has good business management, thus they are better able to withstand difficulty.

As reflected, Vietnamese enterprises are now facing a difficult situation. The biggest difficulty is the increasing cost (mainly due to rising cost of raw materials), narrowed market (due to the decline in purchasing power), and large inventories, especially in certain sectors like real estate, construction and building materials, processing, manufacturing, trade and transport warehousing.  

The VCCI report shows that in this context, the business community wants government policies to focus on decreasing input costs for enterprises, help solve market output problems, and continue to promote administrative reform and build business confidence.

Regarding the business outlook in 2012, the report shows that 68.5 per cent of enterprises plan to continue and expand their businesses; 31.5 per cent will narrow their business scale, and some may suspend or dissolve. In the first quarter of 2012, over 18,700 enterprises were newly established.

Loc assessed that, despite the difficult economy and lower confidence, most enterprises will continue their business, and some will expand their business scale.  

According to VCCI, in the coming time, enterprises that have weak competitiveness will withdraw from the market; this is also a requirement of restructuring reform.

Vietnam’s resources are not abundant, and all measures to support enterprises have to stick to the restructuring orientation and improving the competitiveness of the economy, so they should not be used wastefully.

According to Loc, the support policy must focus on oriented objects identified in Resolution 11 of the government.

Especially, it should investigate, clearly identify and promptly support enterprises that have potentially competitive and efficient projects (of all economic sectors and all sizes) but are facing temporary difficulties.  

According to VCCI, as regards fiscal policy and capital markets, it is necessary to accelerate progress towards capital allocation and disbursement for public investment projects, ensure capital for projects, create jobs for construction businesses and resolve output problems for the construction materials industry, thus contributing to solving the inventory issue for enterprises.   What’s more, it’s necessary to reduce by 30 to 50 per cent the income tax that medium and small enterprises have to pay in 2012 from manufacturing operations, and speed up the business tariff reduction schedule to 20 per cent.

 Measures to promote capital market development should be implemented to create favourable conditions for enterprises to mobilise social resources through the issuance of bonds and shares, and through investments funds to meet the needs of the non-state sector and to avoid excessive dependence on bank loans, like at present (80 per cent).  

However, it should limit the issuance of government debt (in the forms of bonds and bills) to reduce the block on business sector and household debt.

Currently, the issuance of bonds and bills provides a safe output for commercial banks, but exacerbates the shortage of capital and does not help with interest rate reduction corresponding to the decreased rate of inflation.

Regarding monetary and credit policies, VCCI believes that the route to cut interest rates in a positive way should be continued to reduce capital cost for enterprises; commercial banks should step up measures to handle bad debt in the direction of reviewing and classifying debts, restructure repayment periods, and create conditions to continue lending capital for enterprises with projects that have great socio-economic impact and effective business plans.

Particularly, it’s necessary to continue mechanisms in lending foreign currency to exporters to lower capital cost in order to maintain their operations and retain export markets.  Small and medium enterprises should be assisted to access soft loans.

To do that, it’s essential to have overall measures, not just those related to interest rates but also to procedures for lending, guaranteeing credit, creating capital sources and ensuring capital loans get to appropriate subjects.

Initially, VCCI proposed that it should be focused on the need to quickly establish a fund to support small and medium enterprises under Decree 56/2009/ND – CP to create a capital source mandating commercial banks to lend to SMEs; implementing the model of mortgage loans for micro-enterprises (having less than 10 employees) having feasible business plans and in compliance with the cooperation of associations; reviewing and re-evaluating situations to expand and improve the efficiency of the SME credit guarantee system of the Vietnam development bank and credit guarantee funds in localities.

Currently, finding a market is a major difficulty for Vietnamese enterprises. To solve this problem, VCCI believes that there should be measures to support enterprises to develop their domestic market, continue the campaign “Vietnamese give priority to use Vietnam goods”, develop the internal market through business association links, and form industrial and regional links, especially in rural areas.

In particular, it’s necessary to accelerate the negotiation and conclusion of bilateral and multilateral trade agreements with other countries and regions to open markets, arrange to increase funds and improve the efficiency of business promotion programs in Vietnam and other countries, and focus on new potential markets.