Vietnam has too few enterprises

By Bao Van, Thanh Nien News

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After nearly three decades of economic renovation, Vietnam has yet to develop a single big-name industrial firm capable of competing on the global marketplace. PHOTO: NGOC THANG
During a meeting with Prime Minister Nguyen Tan Dung on April 28, local business delegates complained that Vietnam's businesses aren't big enough to participate in the global production chain.
After nearly three decades of economic renovation, Vietnam has yet to develop a single big-name industrial firm capable of competing on the global marketplace, Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI), told the meeting.
Vietnam also lacks a sufficient number of medium-sized businesses capable of accessing advanced technology and partnering with transnational companies, he stressed.
Large and medium-sized firms account for 2 percent, each, of Vietnam's 500,000 operational enterprises. Micro firms, which employ less than 10 employees, account for 66-67 percent of all businesses.
Given their small size and relative weakness, Vietnamese firms face huge challenges on a global scale. The country is expected to join the ASEAN Economic Community in 2015 and sign a Free Trade Agreement with the EU and the Trans-Pacific Partnership in the near future, he said.
Deputy Minister of Planning and Investment Dang Huy Dong said the average registered capital of each firm fell to VND5.1 billion ($242,857) in 2013 from VND6.63 billion in 2011.
The number of businesses closing their doors rose 11.9 percent in 2012, and 12.5 percent in 2011. Last year, 60,737 enterprises went out of business, he said.
The draft amended Enterprise Law which is currently being reviewed by relevant agencies will offer more favorable conditions for businesses. The law will allow firms to amend their business registrations and expand into new fields.
Prime Minister Dung said the number of enterprises in Vietnam is too small compared to neighboring countries. Despite recent improvements, he noted, Vietnamese firms are struggling to compete, even on the domestic market.
He stressed the importance of improving the business environment in order to facilitate firms’ operation in the future.
Interest rate reduction
VCCI Chairman Loc said interest rates have sharply fallen, but firms still can't easily access loans due to strict lending requirements. He proposed banks simplify lending procedures and regulations, strengthen credit guarantees via the Vietnam Development Bank, and expand unsecured lending based on sound business proposals.
Echoing Loc, To Hoai Nam, general secretary of the Vietnam Association of Small and Medium-Sized Enterprises (SMEs), admitted that raising capital is one of big challenges for local firms.
“Banks are very cautious about lending to SMEs. Lending procedures are getting stricter and stricter, hindering firms, especially newly-established ones in accessing loans. Meanwhile, we continue to lack loan guarantee policies and credit funds for SMEs,” Nam said.
The average interest rates on loans fell between 9-11 percent in 2013, from 10-12 percent in 2012, and 18-21 percent in 2011. However, rates on loans that firms took out years ago remain high, he said.
Chairwoman of Nghe An Province's SMEs Association, Pham Thi Hong Thai, said lending interest rates, despite decreasing, remain high compared to those in other countries. “If the rates do not continue being cut, local enterprises will fail in competing with foreign ones on the domestic market alone.”
State Bank Governor Nguyen Van Binh said that credit borrowed by SMEs accounts for some 60 percent of the economy’s outstanding loans. Thus, obstacles in SME’s sector will directly affect decisions made by credit institutes.
Banks are careful about providing loans to ensure credit quality and cannot accommodate any more bad debt, he said.
The governor said that if conditions are favorable, interest rates may be cut by an additional 1-2 percentage points this year. Banks have cut lending rates by 0.5-2 percent since early this year.
Binh said Vietnam’s foreign currency reserve has hit a record of more than $35 billion. Foreign exchange rates will be kept stable this year. Adjustments are not expected to go beyond 1 percent (in either direction) in 2014.
Tax procedure simplification
Nguyen Thi Cuc, chairwoman of the Vietnam Tax Consultant Association, said the prime minister, and central authorities like the General Tax Department and the Customs General Department have expressed a desire to assist firms in accessing tax incentives and paying taxes. However, that mandate has not been reflected on the grass-roots level, causing difficulties for enterprises.
In addition, tax policies remain ambiguous and have yielded a variety of interpretations between firms and tax agencies, she said.
Prime Minister Dung affirmed that the government has focused on administrative reform, though, some problems have continued to persist.
Investors often face difficulties in implementing procedures in establishing enterprises and registering new businesses, he said.
Regarding tax and customs procedures, the Prime Minister apologized to businesses and people for the system's many obstacles.
He stressed that the government will make greater efforts to maintain macroeconomic stability and facilitate greater competitiveness at all levels.
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