VietNamNet Bridge – The open legal framework has helped small and medium enterprises (SMEs) increase rapidly in the last five years. However, only 2/3 of SMEs have been operating well, while the other 1/3 has been running at random.

According to the HCM City Taxation Agency, 1663 enterprises got dissolved. However, no agency was reported about the real operation of enterprises. 70-80 percent of newly established businesses got dissolved. A lot of them were discovered as not only having ineffective operation, but also committing tax frauds and trading invoices.

The problem is that it is very difficult to dissolve the enterprises, because they still have not had tax finalized. Meanwhile, the General Department of Taxation does not have enough officers to do the tax finalization for dissolved businesses.

Nguyen Hoang Minh, Deputy Director of the HCM City Planning and Investment Department, said that the businesses have died but they have not been buried.

Pham Dinh Huong from the HCM City Planning and Investment Department also said that a lot of programs have been set up to support SMEs. However, in fact, these have not helped much.

The only advantage of the open legal framework on business establishment is the rapid increase of the number of businesses. Meanwhile, it remains unclear about the quality of businesses.

Too many businesses have been set up, which have then asked for the support from the government. “Banks are asked to lend to SMEs, but only few of them can pay bank debts. In order to support SMEs, the state accepts to free them from their debts,” an official said.

Regarding the quality of businesses, an official from the Ministry of Science and Technology, said that Vietnam has only appraised SMEs in terms of quantity, while no survey has made to find out the quality.

At present, only 23-30 percent of the SMEs in the manufacturing sector have equipment and machines for production, while the other ones operate in the service sector, which come out and then die very rapidly. It is clear that the businesses in the service sector are not as stable as the ones in the manufacturing sector.

Pham Thi Thu Hang, Head of the Business Development Institute under the Vietnam Chamber of Commerce and Industry VCCI, said that it is quite normal that businesses are established and then disappear from the market. However, Hang said that if the percentage of dead businesses decrease, this means that the policies to support enterprises show their efficiency.

Supporting businesses – easier said than done

The draft plan on supporting SMEs in 2011-2015 has been opened by MPI for opinion collection, which has suggested eight groups of measures. However, commenting about the plan, analysts say they still cannot see the solutions to the biggest problems, such as the lack of capital and the difficulties in financial sources capability and in land access.

Regarding the loans access, Minh said that businesses in HCM City do not dare to borrow capital, because of the overly high lending interest rates. Therefore, even if accessing bank loans, businesses would not be able to make the profits big enough to pay bank debts.

Meanwhile, Tu Thi Bich Loc, Director of My Anh Company, a garment and embroidery enterprise in Hanoi, complained that in 2011, the land leasing fee increased by 17 times. Previously, My Anh only had to pay 20 million dong, but it now has to pay 500 million dong a year for the land leasing fee.

The sums of money business owners have to pay for workers’ social insurance are also high, equal to 28 percent of salaries. 75 percent of the total revenue of My Anh is paid for salaries. If counting on the sums of money paid for social insurance, the company has no more money for re-investment.

That explains why businesses have to “dodge the laws”: they do not have to pay social insurance based on the actual salaries, but on the minimum wages.

Pham Huyen