VietNamNet Bridge – The annual Business Report 2010 shows a downward trend in the capital use capacity of enterprises in all business fields.

In 2010, the theme of restructuring the national economy was the hottest topic on all business forums.  Business restructuring was also named as a top priority of enterprises in 2011-2020. That explains why when making the annual Business Report 2010, the Vietnam Chamber of Commerce and Industry (VCCI) has chosen business restructuring as the key theme for analysis.

“Dormant enterprises” does not mean bankrupted enterprises

The most noteworthy thing of the report is that in the last five consecutive years, the number of operational businesses has been equal to half the number of registered enterprises.

Dr Pham Thi Thu Hang, Director of the Vietnam Business Development Institute, said that in the difficult year of 2010, Vietnam still had 80,000 new enterprises register their business, which helped raise the total number of enterprises nationwide to 540,000, far exceeding the target of 500,000 enterprises set previously by the government.

After the 2008-2009 crisis, by December 31, 2009, Vietnam had had 455,207 enterprises under nominal, but the number of operational enterprises by that time was only 248,757.

When commenting on the figures, Hang said that the figure of 248,757 enterprises is the number of enterprises used in official statistics. However, this does not mean that the other enterprises are all bankrupt. “Please don’t panic because of the figures. It is very likely that the uncounted enterprises have resumed their operation by now,” Hang said.

The proportion of 50:50 was also seen in the last four years (the number of operational enterprises is just equal to 50 percent of the number of registered enterprises). In 2007, for example, 370,676 enterprises registered their business, but only 155,771 enterprises were reported as operational. Similarly, in 2006, only 131,318 enterprises were operating, while 246,451 registered their business. The figures for 2005 were 112,950 and 199,788, respectively.

Degrading capital use capacity warned

Vietnam has 12 state-owned conglomerates operating in 11 economic fields, which can be divided into four groups with different turnover accumulation levels. The groups that have the highest turnover accumulation level are oil and gas, telecommunications, followed by insurance, post and electricity, water, and gas production.

The groups which have a medium level in turnover accumulation are waterway transport and chemical production. The groups with the lowest levels in turnover accumulation are the costume production, rubber, plastics production and construction.

The financial capability of enterprises can be reflected in the interest coverage indicator (i.e if the pre-tax profit can pay the loans interests). The report shows that the enterprises in the water transport have the lowest indicator. Therefore, the enterprises have been listed as the ones that face challenges in their capability to pay interest for their loans and face difficulties in seeking commercial loans.

Meanwhile, the indicators are high for telecommunication, insurance and electricity production sectors, which also means that the enterprises find it easier to access loans.

The capital use capacity is an important ruler which measures the financial capability of enterprises. The annual Business Report 2010 shows a downward trend in the capital use capacity of enterprises in all business fields. Especially, telecom and electricity companies have the lowest capital use capacity.

Regarding capability of generating profit, there is a noteworthy thing that though foreign invested enterprises are considered as having very high capability, the number of enterprises reporting loss is very big. This has been attributed to the fact that many enterprises are operating in the processing industry and they need to import materials in large quantities to run domestic production. Besides, the so called “price transfer” has also been cited as one of the reasons behind the loss reporting.

The report said that all enterprises have overcome difficulties in the post-crisis period. 55 percent of businesses said they tried their best, while only 86 percent of them feel satisfactory with their efforts.

Pham Huyen