Vietnamese enterprises: The evidence of inefficiency

While the 2020 White Book on Vietnamese businesses offers only data which can be used for reference, this report points out that the majority of Vietnamese enterprises are very small, and their business efficiency seems to be also extremely low.

One of the reasons for the low business efficiency tolerated by many Vietnamese enterprises relates to a lack of modern machinery as seen in this picture - PHOTO: THANH HOA

According to this report released by the General Statistics Office of Vietnam, the number of micro and small-sized enterprises accounted for a whopping 93% of the total number of enterprises in Vietnam.

However, their capital represented only around 22% of the capital of the corporate sector in the counry.

This rate remained almost unchanged during 2011 and 2018. In other words, micro and small-sized enterprises could have found it difficult in seeking loans. Meanwhile, the capital rate of medium- and large-scale enterprises in 2017 and 2018 inched upward, slightly higher than that in 2011-2015.

The average number of state-owned enterprises during 2016 and 2018 made up a mere 0.4% of the total number of businesses, but their total capital made up 27.2% of the total.

The number of non-state enterprises accounted for a staggering 96% during the 2011-2018 period, and their rate of capitalization rose from 50% to 55% of the total capital.

Also, foreign direct investment (FDI) enterprises maintained a stable rate of business number and capital during the same eight-year period.

Remarkably, the number of micro and small-sized enterprises represented as high as 93% of the total number of businesses.

Their total gross profits, however, were negative during 2011-2018. Subsequently, the situation gives rise to the following issues.

- Micro and small-sized enterprises are usually fraught with difficulties and on the verge of dissolution, or bankruptcy even when there is no pandemic. As the novel coronavirus pandemic spread, these enterprises have got into insurmountable difficulties, teetering on ‘the brink of life and death.’ The rescheduling of their payments of corporate income taxes seems to be insignificant.

- These enterprises of this category also find themselves hard to have access to bank loans as their profits from production and business operations are modest, or even negative. The collateral issue also makes matters worse.

- One issue related to statistics during the business survey is statistics agencies may have looked into reports which are made before or after tax agencies reach finalize tax claims. It is customary for taxmen not to consider as “valid” some types of expenses once they issue their final statements. Therefore, most enterprises initially announce negative gross profits in their reports. However, the figure would turn positive after tax claims are finalized. Therefore, enterprises are requested to pay for their corporate income taxes incurring after such settlements. This may be the simple reason why household businesses do not want to transform themselves into enterprises although the latter sound more ‘”impressive.”

As far as the types of enterprises are concerned, non-state enterprises accounted for 96% of the total number of businesses. Yet the ratio of gross profits to capital was the lowest, up an average of only 0.4 percentage point during the 2016-2018 period versus the 2011-2015 period. In contrast, FDI enterprises posted the highest rate of return, and this rate tended to be higher because of their better management, easier access to bank loans, availability of more incentives, and less impact caused by petty corruption than their local peers.

The Vietnamese economy as a whole posted the average return on capital during 2016-2018 at 2.5% per annum. In 2018, the ratio was 2.3%, way below deposit interest rates which ranged from 6% to 8%.

The ratio was even lower than the average consumer price index which stood at 2.54%. This means if production is maintain, it may eat into capital, land and natural resources.

Notably, the debt-to-equity ratio of state-owned enterprises averaged at 3:1 in 2011-2015, and this ratio rose to 3.6:1 in 2015-2018. Meanwhile, the return on capital in this caterogy of businesses stood at 2.2%.

It can thus be seen that the corporate sector was a major contributor to the country’s gross domestic product at an average of 44% during 2015-2018.

However, if the situation persists, it will become an ominous sign for the economy.

Otherwise, the pre-tax profit reports of the corporate sector may be inaccurate.

The paradox is that nominal profits do not seem to be the main purpose of business owners. SGT

Vietnam records lowest GDP growth rate in 30 years

Vietnam records lowest GDP growth rate in 30 years

Vietnam’s gross domestic product (GDP) increased 1.81 percent during the first six months of 2020, the lowest first-half growth pace since 2011, according to the General Statistics Office (GSO).

 
Vietnam's digital economy speeds up during pandemic

Vietnam's digital economy speeds up during pandemic

The pandemic has created big changes in society as people shop, gather and learn online, and use smartphones and TVs for entertainment more regularly.

 
 

Other News

.
E-wallet firms battle for slice of cashless payment pie
E-wallet firms battle for slice of cashless payment pie
BUSINESSicon  04/08/2020 

E-wallets firms are battling for a piece of the cashless payment market amid rapid growth in the context of the COVID-19 pandemic.

Corporate income tax reduction comes into effect
Corporate income tax reduction comes into effect
BUSINESSicon  04/08/2020 

Resolution 116/2020/QH14 granting a reduction of 30 per cent on corporate income tax (CIT) for eligible enterprises officially came into effect on Monday.

Big rearers win big
Big rearers win big
BUSINESSicon  04/08/2020 

Many animal husbandry enterprises are leveraging the pork supply shortage to sell at high prices, earning huge profits

VN businesses slow in preparing to enjoy preferential tariffs in EVFTA
VN businesses slow in preparing to enjoy preferential tariffs in EVFTA
BUSINESSicon  04/08/2020 

 Experts have raised concerns that Vietnamese businesses are slow in preparing conditions to enjoy preferential tariffs in the Viet Nam-EU Free Trade Agreement (EVFTA).

Probe into Tenma Vietnam’s alleged bribery underway: police official
Probe into Tenma Vietnam’s alleged bribery underway: police official
BUSINESSicon  04/08/2020 

The investigation into the Japanese-invested Tenma Vietnam company’s allegation of bribing civil servants and tax and customs officers of northern Bac Ninh province is still ongoing, according to a police official.

VN textile, electronics hardest hit in pandemic: official
VN textile, electronics hardest hit in pandemic: official
BUSINESSicon  04/08/2020 

Textile and electronics have been the two export-oriented sectors mostly impacted by the COVID-19 pandemic, an official has said.

Businesses in HCM City's central business districts are idle as demand is weak
Businesses in HCM City's central business districts are idle as demand is weak
BUSINESSicon  05/08/2020 

Many streetfront buildings in large cities that house shops that were busy in the past are idle because business activities have declined due to Covid-19.

Vietnam prepares to receive investors from Japan, the US, EU
Vietnam prepares to receive investors from Japan, the US, EU
BUSINESSicon  04/08/2020 

Japanese businesses have begun relocating factories to Vietnam, and it is expected that American and European businesses will also come soon.

VN Civil Aviation Authority's plans for new Quang Tri Airport face opposition
VN Civil Aviation Authority's plans for new Quang Tri Airport face opposition
BUSINESSicon  04/08/2020 

The Civil Aviation Authority of Vietnam (CAAV) plans to build Quang Tri Airport in Quang Tri province, but experts disagree with the idea.

Vietnam factory activity dips in July as Covid-19 impacts grow
Vietnam factory activity dips in July as Covid-19 impacts grow
BUSINESSicon  03/08/2020 

Despite a drop in output in July, firms remained confident in the 12-month outlook for production.

Enticing legal changes lure in foreign investors
Enticing legal changes lure in foreign investors
BUSINESSicon  04/08/2020 

Foreign investors are making new investments moves into Vietnam on the back of supporting policies and new rules. However, as some legal concerns remain, the development of the next steps still requires some preparation. 

Summary of new points of amended Law on Investment 2020
Summary of new points of amended Law on Investment 2020
BUSINESSicon  03/08/2020 

After more than six years in effect, the Law on Investment has been officially amended with a number of new articles to improve the country’s appeal to higher-quality foreign investment flows.

Outlining the preferential mechanisms for new PPP projects
Outlining the preferential mechanisms for new PPP projects
BUSINESSicon  04/08/2020 

Public-private investment projects play a significant role in developing infrastructure and have the potential to accelerate large-scale construction works across the country.

Vietnam economic outlook remains positive despite Covid-19 resurgence: HSBC
Vietnam economic outlook remains positive despite Covid-19 resurgence: HSBC
BUSINESSicon  03/08/2020 

HSBC economists forecast GDP expansion of 3% in 2020 for Vietnam, the only ASEAN country they expect to have positive growth this year.

Vietnamese startups bag millions of US dollars despite COVID-19 pandemic
Vietnamese startups bag millions of US dollars despite COVID-19 pandemic
BUSINESSicon  03/08/2020 

A slew of Vietnamese startups managed to secure millions of US dollars even in the midst of the rapidly escalating COVID-19 pandemic.

Capital inflows to Southeast Asian startups up 91 percent despite outbreak
Capital inflows to Southeast Asian startups up 91 percent despite outbreak
BUSINESSicon  03/08/2020 

Southeast Asian startups, especially e-commerce and fintech companies, have witnessed a significant increase in investment between April and June.

Sky-high livestock prices may breach competition law
Sky-high livestock prices may breach competition law
BUSINESSicon  03/08/2020 

Although many livestock companies could face an inspection to ensure they follow through on commitments to cut their prices, the market outlook still looks dreary in spite of the government’s call to stabilise the selling cost of live pigs.

Aligning with trade remedy principles
Aligning with trade remedy principles
BUSINESSicon  03/08/2020 

The EU-Vietnam Free Agreement (EVFTA) is a giant leap for Vietnam in international integration.

Electricity of Vietnam suggests not to extend deadline for wind farm FiT
Electricity of Vietnam suggests not to extend deadline for wind farm FiT
BUSINESSicon  03/08/2020 

In order to ensure transparency and stability in the selling price of wind power, EVN opposes the Ministry of Industry and Trade's proposal to extend the deadline on the current feed-in tariff (FiT) scheme for wind power projects

Ministry seeks to further open petroleum retail market
Ministry seeks to further open petroleum retail market
BUSINESSicon  03/08/2020 

The Ministry of Industry and Trade has called for allowing all foreign investors to further participate in the petroleum retail market.

 
 
 
Leave your comment on an article

OR QUICK LOGIN