2012 is projected to be a tumultuous year for the world economy in general and Vietnam's economy in particular. This drives businesses to the confrontation with numerous challenges. The regulations on the interest rate combined with complicated fluctuation of exchange rate make it more difficult for businesses to access capital. And even when the businesses succeed in getting the fund, they still fail to use them effectively.
In fact, there are many sources of capital for businesses in Vietnam. However, it is not easy to get stable and long-term fund at low interest rate. The businesses need to well demonstrate the financial capacity as well as the feasibility of their projects especially under the current economic situation more difficulties to obtain the capital investment. Despite the loosing of monetary policy and demand stimulus policies being implemented, this is still a big obstacle for many businesses. Businesses especially small and medium businesses have no operating capital to maintain normal business production activities and a series of construction contracts and supply contracts failed to get implemented. Consequently, this leads to unemployment, abandoned machinery, causing great waste and damage to the businesses themselves and the economy. To make the matter worst, numerous businesses are facing the risk of bankruptcy. The typical are the ones operating in shipbuilding sector in Hai Phong province.
In early 2012, footwear and textiles industry are in bleak situation. The number of orders in the European market fall down 30 percent over the previous years, leading to unstable investment capital granted to the businesses including many big ones.
The problem also lies in the fact that even when the fund is granted to the enterprises, they are still used ineffectively. According to a survey conducted by Vietnam Report, the index of return on equity (ROE) of Vietnam enterprises including large enterprises tend to be on the decline in the recent years. In fact, instead of focusing on improving efficiency and productivity of the capital, Vietnamese businesses attach greater importance to the fund increase and the expansion of enterprise scale. Most businesses, especially medium and small ones, have no long-term plan for the use and mobilization of fund. Mr Dang Thanh Tam, President of Saigon Invest Group stated that in order to make effective investment, it is essential to work out a long-term fund use strategy. He also said that Vietnam businesses depend too heavily on loans from banks (even up to 80 percent of the total investment capital coming from banks). This is not seen in developed countries as they only use bank loans under 50 percent and the rest is raised from other sources such as stocks, bonds or grants from international organizations. Consequently, this issue has affected the growth of enterprises in Vietnam. Foreign investors also proved reluctant to pour capital into the project or new business services.
According to Mr Alain Cany, Chairman of the European Business Association in Vietnam (EuroCham), Vietnam attracted FDI but has not used the fund effectively, failing to create high added value.
In addition, some businesses have used capital to implement projects with uncertain effectiveness, including investment in real estate and stock markets. Another large number of businesses make investment which is considered as “speculative” rather than long-term investment. In fact, there is currently more than 60 percent of businesses using short-term capital for investment in mid or long term, while the ones with equity/ operating fund account for only 15-10 percent (SOEs making up 10 percent); most businesses have non-sector investments. Especially, more than 90 percent of businesses are involved in real estate activities. Only 60 percent of capital is used for the main activities.
To overcome this situation, the Vietnam enterprises should seek to build or restructure the elements to create every opportunity to increase the added value to the capital. This will not only enhance the confidence of the investors but also reduces transaction costs and to quickly grasp new opportunities. In addition, small and medium enterprises that do not have long-term strategies are advised to go to the capital markets to raise investment in production and manage to use them in the most effective way.
According to another strategy recommended by several specialists, enterprises are advised to restructure their asset list for the realization of growth and profitability objectives as well as deletion of unimportant assets and hard-to-control cash flow. This will enable the enterprises to concentrate on production, avoid wasting time on ineffective investment.
To effectively make use of fund resources in economy restructuring and poverty alleviation, Vietnam needs to pay due attention to a certain area.
Thu Ha
Vietnamese
