Vietnam Business Forum 2011: Heavy Pressures

The Vietnamese business and investment climate has deteriorated quickly. Macroeconomic indicators are marked down to the group of most worrying matters by companies attending the VBF 2011. This is the first time in many years Vietnam has slid into such a poor position.

 

Mr Alain Cany, Chairman of European Chamber of Commerce in Vietnam (EuroCham), who has worked for decades in Vietnam, said: Without drastic reform from the Government, the business environment in Vietnam will continue to deteriorate. This reflects the fact that macroeconomic instability is causing serious impacts on production and business operations of enterprises.

 

This was evidenced by the collapse of some 48,000 businesses in the first 10 months of 2011. Not only that, in the recent the Top 500 Vietnam Company List, 18 percent of largest Vietnamese companies in 2010 were crossed out of the list of 500 biggest companies in 2011 because of their falling revenues. According to the Secretariat of the VBF 2011, companies gave 2.23 points for macroeconomic management, respective drops of 0.32 points and 0.41 points from 2.55 points in 2010 and 2.64 points in 2009.

 

It is worthwhile to note that the above indicator used to be the most positive element in the business environment survey in 2009. At that time, Victoria Kwakwa, World Bank Country Director in Vietnam, highlighted that the very close link between the private sector and the Government’s policy response had created an important foundation for the Government to successfully carry out economic development decisions to live through crisis.

 

In the Business Climate Index Vietnam for the Fourth Quarter 2011 released by the EuroCham in early October 2011 showed that two thirds of respondents believed that the Vietnamese economy would continue to decline in the fourth quarter of 2011. Subsequently, 38 percent wanted to maintain their level of investment and only 36 percent were looking to increase their investments in Vietnam, a significant fall from 52 percent last quarter. Even, 22 percent of businesses were looking to reduce their overall investment in the country, up from 13 percent last quarter.

 

The fourth Eurocham “White Book on Trade and Investment Issues and Recommendations” released on December 1, 2011 also mentioned macroeconomic turbulences plus new regulatory burdens and restrictions to trade are eroding the confidence in the business environment in Vietnam.

 

Dr Tran Dinh Thien, Head of the Vietnam Institute of Economics (VIE), said: This is a very hard time for the Vietnamese economy. “The approach to action scenarios for Vietnam is to build up the confidence by capability and effectiveness of the Government’s administration. It is necessary to accept to pay a price for quicker easing of inflation, reestablishment of macroeconomic stability to restore confidence and formulate a new growth model by means of priority economic restructuring plans.”

 

Delivering a speech to the forum, Planning and Investment Minister Bui Quang Vinh frankly admitted that Vietnam’s economic difficulties in 2011 are mainly begotten by internal causes. He added that the Vietnamese economy is stilling facing many challenges like high inflation, difficult access to credit sources as a result of high interest rates and tightened monetary policy, stagnant property market, rising nonperforming loans at banks, slowing industrial production, and increasing inventories.

 

Notwithstanding such difficulties, nearly 69 percent of respondents of the Vietnam Business Environment Sentiment Report wanted to expand business operations in the next three years as they look to long-term prospects of Vietnamese economy. Only 2.31 percent planned to reduce business scopes, and only 1 percent planned for closure.

 

Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), said: The hottest point in 2011 is “extremely difficult access to capital” owing to tightened monetary policy and exorbitant interest rates that are unbearable to most enterprises. However, a majority of domestic and foreign businesses proposed the Government maintain prudent monetary policy, macroeconomic stability and inflation control.

 

Some business leaders frankly said the weak economy is partly resulted from the excessive granting of resources for State-owned enterprises and lax control over their investments. Public investment to GDP ratio in Vietnam is very high but the outcome fails to come up with expectations while the resource allocation mechanism is exposing a lot of shortcomings. This is also a core reason that leads to high inflation.

 

WB Director in Vietnam Victoria Kwakwa hailed Vietnam for its persistence with macroeconomic stability, economic restructuring and reform, particularly public investment and financial sector. “These important areas help maintain the competitiveness of Vietnam,” she said.

 

To sum up, this year’s VBF showed that the Vietnamese economy is facing plenty of challenges ahead. Vietnam needs to grasp opportunities and adopt drastic policies to create opportunities for Vietnamese enterprises to develop sustainably.