Laborers work at a garment factory south of Hanoi. Local companies are expected to face many difficulties this year, including limited capital and increased production costs.
Bankruptcies are set to rise this year as the economy remains sluggish, but a change for the better can be expected in the second half, Cao Sy Kiem, chairman of the Vietnam Association of Small- and Medium-Sized Enterprises, told Vietweek.
Vietweek: Over 48,000 firms went bankrupt in 2011. Will the situation get worse this year?
Cao Sy Kiem: The situation will be more difficult in 2012 given the high inflation, tightened monetary policy, slow development of the world economy and increasing prices of many products in the international market.
Existing problems in the Vietnamese economy have not been solved effectively and this is likely to affect businesses strongly this year. Their difficulties in 2012 continue to be limited capital and increased production costs due to rising prices of imported goods such as gasoline and raw materials.
Although we are trying to reduce interest rates, they still stand high, resulting in higher production costs and lower sales in the domestic market. These would exert added pressure on firms. Hence the number of firms going bankrupt may continue to rise this year.
However, there are some advantages for firms' development this year because inflation has slowed down. New policies are also a positive factor. This year, we maintain a tight monetary policy, but it will loosen a bit compared to last year. We are targeting a credit growth of 15-17 percent in 2012, higher than the 10 percent or so in 2011. Loans have been prioritized for some sectors that produce assets, helping increase incomes of local people and raising their purchasing power. If credit is given to the right firms in the right time, they can better get over their difficulties.
An anticipated lower corporate tax, tightened public investment, state budget spending curbs and reduced trade deficit are also positive factors.
In the long term, the good point is that we are no longer trying to expand and spread our investment too thin. Instead, we will focus on certain industries and sectors that we can perform best in. We will also strengthen the development of sectors that use skilled employees and high technology instead of labor-intensive and mineral-intensive ones. This will help us achieve stable development over the long term.
We will also continue to cut public investment, restructure state-owned enterprises and deal with shortcomings in terms of regulations, human resources quality, and infrastructure. If the issues are solved just from this year, they would help firms operate more effectively.
In general, many difficulties still exist in 2012, strongly affecting firms, especially small- and medium-sized ones. However, this year also sees some advantages, so the prospect for 2012 is better than 2011.
How has the situation changed since early this year for local enterprises?
The situation has not changed much. Some shortcomings are solved, so they don't see more difficulties. However, their business has not yet improved. Firms still face the risk of bankruptcy and cessation of production. We are hoping to see a change for the better in the second half of the year.
Last year, our exports, industrial production and GDP saw high growth. However, the number of firms going bankrupt or closing down was still high. How do you explain this?
Last year, we reaped high export growth, mainly of agricultural products and seafood. Despite changes in the world economy, exports of certain products would not be affected much because consumers still have to use them. This is one of our advantages. The export growth has helped offset difficulties in the domestic market.
I have not been too pessimistic when talking about the difficulties of firms. This is the actual situation, so the issue is how we deal with it. If the public debt crisis in the world is not solved, the situation will be even worse than my forecast.
In such difficult times, should firms restructure on their own?
In light of the development history of Vietnam and other countries, the firms should draw experiences and clearly acknowledge their shortcomings. Acknowledgement of problems can help firms gain fresh energy. So it can be seen as an opportunity for firms to correct their shortcomings, so that they develop better.
What is likely to happen this year?
Restructuring efforts among businesses are likely to rise. Firms that operate ineffectively due to their own weaknesses should be dissolved, while those that face temporary objective difficulties should get support from the state, facilitating their stable growth.
What should the government do to facilitate the strength and growth of enterprises?
The government should deal with obstacles in production and business caused by policy mechanisms and ensure transparent and suitable policies. Policies will be effective when they are suited to the development of enterprises. All resolutions on socioeconomic development should be strictly implemented.
While a reduction in interest rates can help ease difficulties for enterprises, does it not pose the risk of an inflation hike again?
We should carefully consider how to reduce interest rates. Too strong a reduction could cause serious consequences. Thus, this depends on the forecasting and management ability of authorities. If all monetary, fiscal, trade and investment policies are strictly implemented, inflation could be kept at 9-10 percent this year.
And can firms grow with this level of inflation?
Yes. If inflation is maintained at this level, I think firms can develop well.
There is an opinion that we should reduce the corporate tax to 20 percent from the current 25 percent in a move to ease difficulties for enterprises.
The reduction has to be reasonable. We should not cut too much, too quickly. However, it should be implemented transparently. A big cut, however, might not encourage their efforts and could cause losses for the economy.