Supporting Industry Seeking a New Approach

3:39:35 PM | 9/24/2014

Enterprises in the supporting industry are seen as an economic leverage for the coming time. The government has also realised the importance of this industry, so it has issued many policies to support the sector. However, for a long time, Vietnamese enterprises have remained stalled, due to lack of dynamism, competitiveness, management skills, and human resources.
The Hanoi Supporting Industry Business Association (HANSIBA), the Northern SMEs Promotion Centre and the Tien Phong Commercial Joint Stock Bank (TPBank) recently organised the workshop "Financial and infrastructure solutions to develop the supporting industry".
According to Deputy Minister of Planning and Investment Dang Huy Dong, in the context of the in-depth international integration, each country pays more attention to the exchange of economic information as well as opportunities to do business with each other. The stronger communication linkage could lead to an increase of the added value. Particularly in the supporting industry, the assembling stage is only the first stage to help create jobs for workers. But in the long run, to gain more value in the value chain, the enterprises in the industry are required to boost exports and increase the know-how volume in each product. To do this, the Ministry of Planning and Investment is currently developing a project to build clusters associated with the large-scale industry. All sectors will focus on the targeted products to create value and enhance competitiveness in each chain. Therefore, Deputy Minister Dang Huy Dong hopes that the relevant ministries and agencies, the banks and the businesses should pay more attention and come up with action plans for this policy.
The significant issue of the business community is how to raise the capital. Mr Dong said that after many discussions and works with the State Bank of Vietnam, the Ministry has suggested many solutions that help commercial banks to participate the financing solutions for the supporting industry. But the fact shows that there are too many businesses not eligible for loans. The main reason is that most of the businesses in the supporting industry are SMEs, whose management skills are weak and bookkeeping is not transparent. Therefore, because of the security, the banks can hardly inspect and approve the financial proposal of the SMEs. To fix this problem, Mr Dong said that the Ministry of Planning and Investment will submit a proposal for a cluster of associated industries that focuses on developing a number of key products of Vietnam with high competitiveness for large-scale production. Besides, the Ministry is also actively implementing the SMEs' support fund, with priority given to the development of the financial services for SMEs, particularly the targeted enterprises in the clusters. Accordingly, this fund will provide financing services in accordance with international norms, which are not considered as export subsidies. The supporting services include human resource training, business management, financial management, and training for the high technology applications. The programme will focus the resources on some sectors with high competitive advantage. Regarding access to financial sources, this fund will act as a bridge between the banks and the businesses through a transparent selection of the banks to choose the eligible businesses.
Further analysing the financial and banking sector, Dao Dung Anh, Deputy General Director of the Vietnam Development Bank (VDB), indicated that the leadership of the VDB has offered many preferential policies for the development of the supporting industry but the actual implementation faces with some problems. Specifically, although the credit loans are stipulated under Decision 12/2011 / QD-TTg on 24/02/2011, since this decision was issued, the VDB has not received any the credit proposals from the businesses in the supporting industry. Besides, according to the current regulations on the investment credit and the export credit as Decree 75/2011 / ND-CP dated 30/8/2011, the projects in the disadvantaged areas or in the disadvantaged industries and domains are qualified for the credit loans of the government. However, pursuant to Decree 75, enterprises in Hanoi are not subject to geographical preferences. At the same time, the projects in the supporting industry are not on the list of the supporting industries under the provisions of Decree 75. As such, there is no preferential investment credit for projects in the supporting industry. The incentives for the supporting industry are only for investment in infrastructure projects of industrial parks and high-tech zones in Group A and B.
However, Ms Anh also pointed out the advantage of the exclusive banking loans for the firms in the supporting industry. Specifically, the government has also directed preferences for the development of mechanical engineering at the lending rates of 3 percent per year while other sectors are 10 percent per year. Enterprises in the textile industry also receive priorities with business loans at the interest rates of 3-5 percent per year and the entire loan is split evenly. These are clear preferential terms that encourage businesses to make loans and the results are positive to help the enterprises of this industry develop. In addition, Dung affirmed that the current capital loans are abundant and available, and the banks are only interested in the companies with feasible projects with promising markets as well as transparent and effective business operation. If the businesses prove their good performance, they can easily access the loans without difficulties.
Supporting this view, Dinh Viet Cuong from Tien Phong Bank said his bank always gives priority to the enterprise and the bank has provided many incentive packages for businesses. In its recent credit package of VND1,000 billion, Tien Phong Bank has offered credit packages for the enterprises who submit the supply contracts with FDI enterprises or products that were provided for FDI enterprises. Such enterprises will be lent at the 90 percent of the contract value. The preferential interest rate will be 8-9 percent per year and the fees will be decreased by 4 percent.
According to Le Hong Thang, Director of the Hanoi Department of Industry and Trade, there are currently 2,000 enterprises in the supporting industry that are classified into 8 main groups: manufacturing and assembling, automotive and motorcycles, electrics, electronic, and telecommunications. The revenue of the enterprises in this sector accounts for approximately 25 percent of the industry revenue of Hanoi. However, in terms of the national scope, Truong Thanh Hoai, Deputy Director of the Department of Heavy Industry, Ministry of Industry and Trade, the figure is not as positive as expected. The Samsung group is known as the largest foreign investor in Vietnam, but the list of component battery chargers, cables, and USB that Samsung has demand for cannot be produced by domestic enterprises. Some facts show that except the enterprises in the motorbike industry that provide 85-90 percent of total market share besides; others in other supporting industries have very limited supplies. The leadership of the Samsung Group said that each year they need about 400 million of the battery chargers. So if calculated, each charger helps us earn US$0.50 interest so that leads the total profit of US$200 million per year. It is a great opportunity but this still seems to be beyond the ability of Vietnamese enterprises.
Regarding the development of the supporting industry in the future, Mr Dong said the MPI is implementing action plans in accordance with Decision 601 / QD-TTg on the establishment of the SME Development Fund. Specifically, this fund will give priority to the development of financial services providers and support for the training of human resources, business management, financial management, the development of the science and technology, branding, and skills training for SMEs. Through the connection with the ministries, the Fund will focus its resources on a number of sectors with competitive advantages. The businesses who get involved in the value chain of the supporting industry will get preferential credit packages from this fund through the commercial banks, including the VDB, that will be selected transparently.
Anh Phuong