Last updated: Wednesday, February 22, 2017
Opportunity for Vietnam Business CommunityPosted: Friday, February 03, 2017
The Government’s efforts to build the start-up ecosystem have shaped a new space for start-ups. Even with Resolution 35/2016/NQ-CP on business support and development to 2020, also called the resolution on start-up in the broad sense, the solution system is encouraging entrepreneurs to restructure, change and reach global standards to avoid being left behind in the new flow of business and investment transformation of the world.
Vietnam Business Forum interviewed Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), on this issue.
2016 was the first year that the number of business start-ups exceeded 100,000. What do you think about this figure?
This shows that business confidence is growing. According to statistics from the Ministry of Planning and Investment, Vietnam had a new record of 110,100 new companies in 2016, an increase of 16.2 per cent from 2015.
A total of VND891,094 billion was registered by these new companies, averaging VND8.09 billion each, up 48.1 per cent from 2015. As many as 26,689 enterprises resumed operations, up 43.1 per cent from a year ago.
These positive signals demonstrate the effectiveness of the Government’s measures supporting and encouraging business development and creating momentum for the development of the business community.
Not only start-up businesses, a survey into over 10,000 companies by VCCI showed that the confidence of the business community in economy prospects was strengthened. 49 per cent of respondents planned to expand their business operations in the next two years. This was the highest level in five years. 44.5 per cent planned to maintain current business scales while less than 7 per cent expected to scale down, close or dissolve. The FDI sector also had a better sentiment about the Vietnamese business environment in the past year. 11 per cent of FDI companies said they have expanded investment operations and 62 per cent have recruited new workers. According to the latest PCI-FDI survey, recruitments grew the most in five years. Optimism about production and business expansion plans in the next two years increased rapidly. Nearly a half of respondents in the PCI-FDI survey intended to scale up operations - the highest since 2010.
With these positive signals, the target of having 1 million businesses by 2020 is within reach.
The new Government has taken action to improve business development. What do you think about improvements to the business environment in the past time?
2016 was the first year of the new government. The business community recognised the Government’s clear direction and commitments to the development of the economy and business environment.
A variety of measures have been implemented by the Government, such as proposing to the National Assembly the amendment of various investment and business-related laws such as Law on Support to Small and Medium Enterprise, Law on amendment of business investment-related laws, focusing on the conditional business sectors. The Government has especially ensured that the amended provisions of the Law on Investment of 2014 and the Law on Enterprises of 2014 are implemented seriously, that thousands of business conditions stated in current circulars are abolished, and that these conditions are thoroughly reviewed for replacement by 50 new decrees. An enormous amount of work had been done in a very limited amount of time to meet the July 1, 2016 deadline for the abolition of business conditions in the circulars without compromising their quality. In March 2016, the Government issued Resolution 19 of 2016, the third Resolution 19 on improving national competitiveness.
In May 2016, the Government continued to issue Resolution 35 on enterprise development with a goal and a vision for entire term of office. All of these resolutions have specific aims for much needed changes in management areas to make Vietnam comparable with other countries in the regions, as well as very detailed implementation roadmaps.
The Government and its subordinated bodies have spent a lot of time and given priority to institutional development, law amendment and enforcement in the past time. The Government has attentively listened to and held dialogue with businesses in recent months. A very large-scale conference with businesses nationwide right after the start of the new Government term was attended by the Prime Minister, Deputy Prime Ministers and ministers. This action stimulated a series of authority - business dialogues in localities. The government also built an exclusive communication channel to get feedback from businesses.
Although much improvement in administrative procedure reform and business environment, business start-ups still face a lot of difficulties. Could you please tell us more detail about these issues?
Promoting start-ups and business establishment is a major policy of the Government and this policy has brought in positive results. However, start-up companies in Vietnam still confront numerous difficulties in production and business activities. A survey into nearly 3,700 newly established enterprises conducted by VCCI showed that 36 per cent make a loss while 18 per cent operate at a breakeven. Meanwhile, 46 per cent make a profit. However, they are quite optimistic about the future when 38 per cent of new enterprises will surely increase business scopes in the next two years; 17 per cent may increase their scales; 39 per cent plan to keep current businesses; and just 6 per cent are likely going to the wall.
Start-up companies reported three groups of difficulties in business: Difficulty in finding customers (44 per cent), seeking finance (41 per cent), and seeking assistance from local authorities (36 per cent). In addition, up to 27 per cent confront difficulty in dealing with legal and administrative cases (such as business registration and tax.) Seeking personnel, suitable suppliers or business premises is also significant hardship for start-ups.
For the time being, bank loans with a maturity of 12 months bear an interest rate of 8 per cent per annum, similar to that applied to regular customers of local banks. Nevertheless, 90 per cent of them hardly access bank loans if they do not have security assets.
Regarding governmental supports, the business sentiment suggested that business supports from local authorities do not have much change. The highest ratio (66 per cent) of respondents said they have not seen any change as they expected (neither better nor worse). The market changes every day and these changes directly influence performances of enterprises. If business support policies and programmes from the government do not have immediate and effective impacts, it will be much harder for enterprises to develop their businesses and generate impetuses for economic growth.
At the Prime Minister’s meeting with the business community, you proposed that the Government select the next five years as the national years of business start-up and spare efforts for business development. What is needed to be done for development?
A resolution on national action plan for governmental term-long business development is extremely essential to ensure the achievement of two crucial requirements: Strengthening confidence, reviving the spirit, and developing business.
According to that policy, we must do two things right now. Firstly, it is vital to have drastic administrative and policy solutions to reduce risks and costs, especially informal costs for enterprises.
We must try to minimise administrative risks and costs, lower interest rates together with settling bad debts a substantive way, foster reform and transparency of incomes and expenditures relating to labour.
Besides, we need to consider cutting taxes and fees, removing presumptive tax to replace it with corporate income tax and personal income tax, and exempting excise for micro and small businesses.
Secondly, it is important to perfect the market economy institutions with new innovations and new motivations on the one hand, and surmount difficulties, create a favourable business environment and foster business development on the other.
In addition to institutional perfection by means of intensified direction and monitoring of the enforcement of the Law on Enterprise and the Law on Investment, Vietnam needs to launch action plans to facilitate business start-up, encourage business households to transform into enterprises, and transfer informal economic activity to formal economic activity at a larger scale.
Furthermore, the country also needs policies to boost business connectivity, with a priority placed on the connection between domestic enterprises and FDI enterprises rather than only focus on attracting FDI as now.
Vietnam also needs to establish the National Council for SME Development, ensure the principle that State management agencies in charge of trade and investment promotion will not function as organisers of promotion activities, and speed up the transfer of public services from State management agencies to social organisations and the market.
If we lack a systematic and professional business support policy system, entrepreneurs’ resources will be partially diverted to non-business affairs. At present, the Government is committed to creating a safe, transparent environment for enterprises and abolishing the give-and-take mechanism. I thus believe that the creativity of Vietnamese entrepreneurs will glow because they were creative enough to overcome risks and uncertainties in the past regime and there is no reason why they cannot surmount more predictable market challenges.
In 2017, Vietnam will host Asia-Pacific Economic Cooperation (APEC 2017). Would you tell us more about this event, as well as its impacts on the Vietnamese business community?
APEC 2017, themed “Creating New Dynamism, Fostering A Shared Future”, is the focus of Vietnam's foreign policy to 2020 which illustrates Vietnam's desire for positive contributions to APEC and to the growth and prosperity of Asia-Pacific.
Thirteen out of 21 APEC members are strategic partners and comprehensive strategic partners of Vietnam. 13 out of 15 free trade agreements (FTAs) are signed with APEC members. APEC member economies account for 78 per cent of FDI capital, over 70 per cent of trade value and 70 per cent tourist arrivals in Vietnam.
The hosting of APEC 2017 is a step that concretises Vietnam’s extensive international integration policy and deepens Vietnam’s comprehensive relations with its partners while enlisting supports, cooperation and resources from APEC to create new momentum for enterprises to cooperate in investment and development. Hosting APEC 2017 is an opportunity for Vietnam to promote its cultural identity and spread the image of a changing, dynamic and potential nation.
In the context of unpredictable and complicated global economic developments, growing protectionism and anti-globalisation ideologies in many places, all APEC member economies want Vietnam to play its role in gathering and asserting the leading role of APEC in global economy through demonstration of APEC economies, particularly during APEC 2017 this year.
To do this, businesses will act as implementers and beneficiaries at the same time from initiative frameworks aimed to create the most favourable environment for them to operate in APEC economies, including Vietnam. These are very practical benefits for them.