The number of companies shutting up shop rose last year while fewer new ones were incorporated, reflecting the poor business environment and the government's failure to support business.
According to a recent report by the Vietnam Chamber of Commerce and Industry (VCCI), the number of businesses that shut down or suspended operations increased by 6.29 percent last year to over 54,200.
Most of them were in the finance, banking, and real estate.
The number of newly established firms declined by 9.9 percent to 69,900. Their total registered capital was estimated at VND467.3 trillion (US$22.3 billion), also down 9.9 percent from 2011.
Vietnam now has just 300,000 firms, compared to nearly 700,000 during the past decade.
Most of firms operating in Vietnam now are mainly microenterprises, which have less than 10 employees, and small ones with 10-50 workers.
In 2011 some 39 percent of medium-sized companies reduced their staff size and became small firms while 5 percent of small firms became microenterprises.
The average number of staff in a Vietnamese firm decreased to 34 in 2011 from 74 in 2002.
Pham Thi Thu Hang, general secretary of the VCCI, said Vietnam lacks medium-sized and large enterprises that take part in the global supply chains.
Only 2.1 percent of firms are medium-sized, the report said.
The VCCI blamed the situation on the poor business environment and the government's ineffective support measures, which benefit only large firms.
According to the Doing Business 2013 report by the World Bank, Vietnam ranks 99th out of 185 economies for ease of doing business.
The VCCI said the country's business environment has not improved much over the past decade and remains below average.
Administrative procedures, despite being reformed for many years, still remain tortuous, hindering businesses, Vu Quoc Tuan, chairman of the Vietnam Handicraft Village Association, said.
The government has proposed amendments to the tax law to cut corporate income tax and also reduced interest rates to help businesses.
But companies said the measures have not really worked since their biggest difficulty now is to liquidate inventories, not high tax or interest rates. Some 73 percent of firms polled by the VCCI said large inventories were their biggest concern.
The Ministry of Finance last week announced plans to cut corporate income tax to 22 percent on January 1 next year from the current 25 percent. It plans to bring it down further to 20 percent in 2016-20.
However, the 22 percent rate would apply earlier to small and medium-sized enterprises from July as they are most vulnerable in the depressed economy, Deputy Minister of Finance Vu Thi Mai said.
The ministry has also announced a 30-50 percent cut in value added tax for developers of affordable housing from July. Mai said they play an important role in helping low-income buyers and bringing greater liquidity to the property market.
Nguyen Nhan Phuong, chairman of the Association of Small and Medium-Sized Enterprises of Bac Ninh Province, said the tax reduction would not benefit small and medium-sized firms that are already in deep trouble. It benefits only firms with sound operation that are making profits, he said.
"Most of the weak companies, which should have received support from the government, will not benefit because they have no profits to pay taxes," he explained.
Small and medium-sized firms now find it hard to sell their products, and the government should help them study and update them on foreign markets, he said.
Many companies, whose products can be competitive in foreign markets, have not been able to enter them, he added.
Meanwhile, the State Bank of Vietnam has cut lowered the maximum deposit rate to 7.5 percent from 8 percent, the first cut this year following six in 2012, raising expectations of cuts in lending rates.
But economist Le Tham Duong said interest rate cuts no longer excite expectations for the economy.
"Why will firms borrow when demand is weak and inventories remain high?" he asked.
Tran Thi Hong, director of electrical home appliances maker Phuong Hong, said interest rates, despite being cut, remain too high especially for small firms.
Her company's bank loans carry over 12 percent interest, but all are short-term, since she does not dare make long-term credit decisions now. "We will borrow only when the rates go below 9 percent," she said.
The VCCI suggested that the government should support firms by minimizing the import of unnecessary products, thus boosting demand for domestic products.
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