New Phase for Competitive Growth

Macro governance indexes used to be the most positive element in the business environment survey in 2009 released by the World Bank (WB). At that time, Madame Victoria Kwakwa, WB Country Director in Vietnam, highlighted the fact 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 decisions to develop the economy and get through the crisis. For the first time in many years, macro governance indexes were marked down to the group of most worrying matters of the Vietnamese business environment by companies attending the Vietnam Business Forum 2011.

 

In addition to “inherited” elements like intellectual property rights protection, counterfeit goods prevention and difficult access to credit and land, macroeconomic instability is causing serious impacts on production and business operations of enterprises. The collapse of some 50,000 companies of 2011 is an evidence of the difficulties facing the business community.

 

Recent surveys also showed eroded confidence. The European Chamber of Commerce in Vietnam (EuroCham) released the Business Climate Index Vietnam for the Fourth Quarter 2011, showing that two thirds of respondent companies believed that Vietnam’s economy would continue to decline in the fourth quarter of 2011. Consequently, according to Mr Alain Cany, Chairman of EuroCham, 38 percent wanted to maintain their current level of investment and only 36 percent were looking to increase their investment in Vietnam, a significant fall from 52 percent last quarter. 22 percent of businesses were even 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 in early December 2011 also mentioned macroeconomic turbulence plus new regulatory burdens and restrictions to trade were eroding confidence in the business environment in Vietnam.

 

Economic difficulties are forecast to continue in 2012, so the Government's policies and decision must create trust in its competency and governance. I think we need to accept to pay a price for quicker easing of inflation and restoration of macroeconomic stability to rebuild confidence and formulate a new growth model by means of priority economic restructuring plans.

 

The message of stability and confidence restoration is eagerly awaited by enterprises; this is a pledge for macroeconomic turbulence to be pushed back. In 2012, the Government sets the priority tasks of restoring macroeconomic stability, controlling inflation and reviving growth. In principle, these are common tasks of an economy that falls into decay. But, this year assumes special importance, not only because the economy faces serious difficulties, but this year is also defined as the turning point of restoring confidence, reversing the situation, creating a firm foundation for the macro economy, lowering inflation, and helping businesses exit the crisis. In the coming time, the Government will focus on economic restructuring with the three most important fields being investment restructuring, focused on public investment restructuring; corporate restructuring, focused on State-owned enterprise (SOE) restructuring; and financial market restructuring, focused on restructuring of the commercial banking system and other financial institutions.

The ‘health’ of enterprises actually has problems. For the first time the Ministry of Planning and Investment disclosed information about bankruptcies. The insolvency of nearly 50,000 enterprises (9 percent of the total) shows the gravity of the problem. When macroeconomic stability is restored, growth momentum will be maintained and the business community will have opportunities for development. Thus, the business community has never waited for the Government’s policies and decisions as much as now.

 

According to business associations, more than 50 percent of companies incurred losses in 2011. Investment is a headache for decision-makers. Fields which used to be highly profitable investments like banking, securities and real estate unexpectedly fell into hardship. With the credit squeeze policy in 2011, hardships worsened.

 

The vast majority of Vietnamese companies have small scale and weak financial capacity and their business operations depend heavily on loans. They fear that more fields will be added to the discouragement list by the Government and banks will close access to credit sources, leaving them in a dilemma. For that reason, companies need to know the long-term orientation of the Government to minimise risks and damage when they make investment decisions.

 

For many people, companies are essentially responsible for their own investment decisions. Previously, the Government had very specific preference investment policies on fields and locations for companies, but now such policies are no longer available. They must find the best investment decisions on their own.

 

Without direction, the country's resources may be invested without focus or strategy. A lot of investment decisions will aim at short-term but high-risk profits.

 

 

Unfortunately, companies typically are feeling the pressure in times of crisis and they let a lot of opportunities pass them by. The first thing they usually do in the time of difficulty is to cut costs. Cost reduction does bring an immediate effect, but this may still be a mistake. Therefore, cost optimisation is the best solution in tough times, rather than massive cost reduction. Normally, expenditures on innovation and creativity are the first target of cost reduction. In reality, an appropriate investment for research and development will add growth momentum for companies well after the crisis is over.

 

Many have become billionaires by taking up opportunities during crisis or restructuring their companies on the verge of bankruptcy. We are experiencing a year when the Government focuses on directing economic restructuring, with underscored fields being the banking sector, State-owned enterprises and public investment. Specific plans have been announced. It is easy to see that investors can buy assets at lower prices than two or three years ago. Bank shares and property projects are typical examples. Many companies have announced to sell their assets which are undervalued in the time of crisis.

 

Prolonged high inflation means high prices of foods and commodities. Consumers, especially low-income earners, are forced to tighten their belts and spend less to get through the price storm. When food prices increase, a vast majority of low-income earners will adjust their spending. They will buy cheaper alternative foods. This is the time for food companies to launch new products that consumers can afford. For example, Kinh Do Company started selling bread at VND8,000 - 10,000 a piece, and its sales soared dramatically. That is the way that Kinh Do finds opportunities in crisis.

 

Another example is Vinh Tuong Industry Joint Stock Company. In 2008 when the global economic crisis was raging and many domestic enterprises decided to contract their operations to preserve capital, Vinh Tuong expanded its operations to Singapore and Cambodia. After two years in Cambodia, decorative products and partition walls made by Vinh Tuong hold 75 percent of the market. In Singapore, despite competitive pressures from local competitors and large foreign corporations, the firm still claimed a 22 percent market share.

 

These vivid examples show the fact that investment opportunities always exist. There are always special chances in hard times, and special rewards will come to those who take up such opportunities.