Vietnam Economy Awaiting Revitalisation

 

According to the Business Registration Administration, as of December 31, 2011, a total of 79,014 enterprises were dissolved. Legally, Vietnam had 543,963 operating enterprises with an aggregate registered capital of VND6,000 trillion.

 

Although the number of enterprises registered for establishment surpassed 600,000, only 290,000 enterprises were actually operating as of December 31, 2011, according to the General Statistics Office (GSO).

According to the Vietnam Chamber of Commerce and Industry (VCCI), more than 31,000 enterprises registered for ending tax payment in the first nine months of 2011. In the first two months of 2012, in Ho Chi Minh City and Hanoi alone, more than 500 companies closed operations. Specifically, Hanoi had 169 dissolved, an increase of 4.3 times over the same period in 2011. In Ho Chi Minh City, bankrupt companies from January to February amounted to 327.

 

According to a report on Vietnamese business operations in 2011 and the first quarter of 2012 by VCCI, the Vietnamese economy showed positive signs in the first two months of 2011 as a result of the Government’s continued policies to stabilise macro economy, control inflation, and restructure the economy (banks, State-owned enterprises and investment). Export good 2 months increased the trade deficit declined. CPI up 2.38 percent compared to the end of 2011, foreign exchange and gold markets more stable and interest rates began to trend down. Exports continued to expand and trade gap narrowed significantly. Consumer price index (CPI) gained 2.38 percent in the first three months while forex and gold markets were stable. Interest rates started to fall down.

 

However, according to VCCI, Vietnamese companies will continue to face numerous difficulties in the first half of 2012 because of European debt crisis and global and domestic economic downturn. Inflationary and interest rate pressures intensified. Slowing sales and declining selling prices will continue to be major challenges for Vietnamese enterprises.

 

According to the Vietnam Business Insight Survey (VbiS) index, businesses are keeping a pessimistic stance on performances in the first quarter of 2012. VbiS aims to measure performance and capture concerns and feedback of a large sample of businesses on a regular basis, and so to reflect to a large extent the state of the economy and business environment as well as to provide a forecast of economic outlook for upcoming periods.

 

A half of VbiS indicators tend to rise but the degree is minor. At present, turnovers and prices tend to look up but profit margins tend to worsen. Businesses are heavily affected by raw material prices and heavily dependent on high-rate bank credits.

 

VCCI said seeking credits remains a hard job for banks in the first six months of 2012. Most business associations shared a standpoint that fundraising encountered some thorny obstacles, including mobilisation procedures and high interest rates. Many banks lack interest in SMEs. Although the central bank is restructuring the banking system, strictly controlling interest rates at commercial banks and lowering ceiling deposit rates at commercial banks, credit access remains a persistent concern because high interest rate is not only the obstacle.

 

Input prices, especially essentials for domestic production like fuel, electricity, coal and fertiliser, tend to rise up. Improper material zone planning (tea, sugarcane, aquatic products) are hampering operations of tea, sugar and seafood companies.

 

According to VCCI's survey, 25-35 percent of respondents planned to expand operations in 2012; 50 - 60 percent expected to uphold current scales; 15 percent thought of reducing the scope; and only 1 percent ended operations.

 

Businesses keep pessimistic outlook on their business operations in the first six months of 2012 but they believe in a brighter prospect for Vietnamese and global economies in the third quarter.

 

Mr Hoang Quang Phong, Secretary General of the Central Council for Vietnam SMEs Association, said: To support businesses in this tough time, the government should drastically focus on directing macroeconomic stability, effectively control inflation, and reduce lending rates down to a more reasonable rate of 15 percent or lower. It necessarily boosts market forecasting capacity to adjust policies in time. It also keeps close watch on energy pricing roadmaps to ensure no shocks in case of sudden changes.

 

In addition, the Government needs a specific schedule for bank restructuring and finds out solutions to develop the stock market to make it an effective fundraising channel for enterprises.

 

In particular, according to Mr Phong, the Government necessarily continues to review projects using State budgets, extend tax breaks for enterprises operating in prioritised fields.