The Vietnam Business Forum titled “Overcome challenges of the global economy”, an activity on the threshold of the Consultative Group Meeting of donors to Vietnam in 2008 was held on 1st December in Hanoi. The forum drew the participation of 150 foreign businesses, 100 local businesses and many donors for Vietnam.
Concerns about weak business environmentAccording to a Report on Business Environment Sentiment Survey 2008, launched by the Vietnam Business Forum Secretariat, most of enterprises show their concerns about the current economic performance. After the great growth in 2007, Vietnam’s economy is now facing the biggest ever challenges since the introduction of Doi Moi (Renovation), including high inflation coupled with a mounting trade deficit; a volatile exchange rate and a sharp downturn in the equity market.
So, on contrary to the report in 2007 which showed the optimistic view about the future growth, the 2008 report shows enterprises’ recognition of challenges and difficulties in the business environment in the time to come (2009-2010). According to Sin Foong Wong, International Financial Corporation (IFC) country director, what we can see from the 2008 report is that enterprises are expecting a “so-so” business environment instead of a good one shown in the 2007 report.
“The evaluation in 2008 is much lower than the previous year (1.9/4 in 2008 and 2.7/4 in 2007- the marking level is from 4 (very good) to 1 (poor), which shows a lot of challenges that enterprises have to face in the last 12 months. As a result, there is significant increase in the number of enterprises which are pessimistic about 2008’s business performance. Namely, in 2007, only 5.3 percent of the surveyed enterprises rated the business environment at “poor” level, then the figure is 30 percent in 2008)”, said Sin Foong Wong.
“Infrastructure” remains the biggest barrier to the development of Vietnam’s enterprises in 2008. The lack and unstable electricity, stagnant seaports and poor land-way transport condition are all putting bad impacts on business operation. This results in business cost increase, then lowering business competitiveness. “Among the current unstable situation when the State budget is narrowed down, it is encouraged to mobilise the capital and management experience from private sector in infrastructure investment. The Government is encouraged to provide specific supporting activities in investment such as the issuance of legal framework, clear specification between the roles of enterprises and administrative bodies, improvement of the projects’ capital recovery capacity and competition acceleration.
In addition, “Intellectual Property Rights - IPR” is undervalued by enterprises, especially since the joining to WTO in early 2007 and the enforcement of the Law on Intellectual Properties in early 2006. This means that there is shortcoming in the compliance with IP-related laws and regulations of Vietnam.
It is noteworthy that under the 2008 report, “The court and law enforcement system” has become a hot issue which needs consideration and adjustment. This re-affirmed the results shown in WB’s 2009 Doing Business report that Vietnam is still included in the list of countries with weak and under-effective court system. “Cumbersome administrative procedures and the time-taking contract implementation are main reasons for the delayed contract implementation in Vietnam…”, said Sin Foong Wong.
Particularly, factors which used to be advantages for doing business in Vietnam such as the competitive labour price and big chance for export are now not as attractive as expected. Only 20 percent of the enterprises recognise the cheap labour force and export change as reasons for their business expansion.
Expectation about business environment in the future Under the report, although the business environment in 2008 is not as good as in previous years, businesses are optimistic about it in the coming years. This is demonstrated by the higher rating in 2009, and the period of 2010-2011 has been rated as high as 2007. Due to the unfavourable economic condition, the number of surveyed enterprises which have no plan for business expansion in the next three years has doubled to 22 percent compared to 10 percent in 2007. Nevertheless, enterprises represented at the forum were confident that Viet Nam would overcome the challenge and stabilise the economy and the business environment would be improved in the time to come, this is demonstrated by the majority rate (78 percent) of enterprises which plan to expand their operation in the next three years.
About 40 percent to 50 percent of both domestic and foreign invested surveyed enterprises selected the three following factors as main reasons for their business expansion decision in the next few years: “Favourable economic potential; Market opening and reform upon Vietnam’s adherence to WTO and domestic market growth”. Compared to the results discovered in the survey conducted two years ago, there is no change in the trend and reasons for business expansion of enterprises.
Reporter Quynh Chi of Vietnam Business Forum would like to introduce ideas of international experts about the issues:
“Investment projects are unlikely resulted from credit tightening,” Mr Michael J.Pease, Amcham’s Chairman
The investment capital in form of debts and shares to Vietnam has plummeted in the last few months. The pessimistic emotion has dimmed the potential of completion of series of announced projects. However, at the macro-economic viewpoint, it is very important for the FDI to be disbursed in Vietnam. The disbursement often depends on the lenders’ willingness to support a project.
Unfortunately, the credit environment has changed. Companies who want to invest in Vietnam must show the lenders that their projects are the best in Asia as lenders are now very fastidious. We all know about obstacles that doing business in Vietnam has to face as many of them have been mentioned over and over. In many cases, the obstacle is so serious that projects do or did fail to obtain loans from banks. This is one of reasons for the big gap between the registered FDI and the disbursed FDI which may be multiplied unless attention is paid to dealing with theses obstacles. The Government should work more closely with investors who are facing a challenging environment in getting credit to help them overcome difficulties and make their projects more attractive than those in neighbour countries.
“Facing with unemployment,” Mr Vo Quoc Thang, Chairman of the Hochiminh Association of Young Entrepreneurs
Most of Vietnam’s businesses are in small and medium sized one, then they faced series of difficulties in seeking for operational capital sources during the current interest rate storm. Many of them had to suspend or narrow their operation. The interest rate reduction is modest despite some adjustment of the Government to stabilise the financial market. At present, businesses are bursting into employment cutting. If supportive policies are not provided timely by the Government, businesses shall fail to stand in the market while the society shall face widely spreading unemployment.
“Exporting enterprises need full access to credit lines,” Mr Alain Cany, Eurocham’s Chairman
When the export, the foreign investment and the oversea-national exchange is likely to go down, the key issue now is the government needs to take action to control the trade deficit, current account deficit to maintain and build the trust of investors and avoid a crisis of “foreseen deficits” in early 2008.
To maintain the trade deficit at an acceptable level, necessary support should be provided to Vietnam’s enterprises to keep their competitiveness among the fall down in the global demand for consumer goods. Exporters must have the right to fully access credit lines at reasonable cost and we encourage the State Bank to draw up a suitable programme to maintain this access.
“Setting up a small and medium sized enterprises (SMEs) supporting fund,” Ms Pham Thi Loan, Chairwoman of Hanoi Network For Entrepreneur Women
It is very dangerous to cut down public investment only in term of quantity and value without any consideration taken into the consequences, especially when Vietnam’s economy mainly relies on the public investment which accounts for more than 40 percent and when the investment by private sector has yet replaced the investment by the State, then consideration should be taken in the recent reduction in public investment from 30 percent to 23 percent of the total State spending as it may affect the demand stimulation to the economic development. The Government should intensify investment in infrastructure works such as electricity, transport and especially in rural area; farmers; national defense; maritime and bordering island economy; push up socialisation activities as well as equitisation in health care and education to reduce State spending, accelerate the equitisation of State-owned enterprises to raise State budget income.
Besides, the National Assembly is holding the policy of tax reduction for enterprises. However, this policy is only useful for enterprises gaining profits affect, then what should be done for those suffering loss? The Government should provide supporting regimes for enterprises who are suffered from losses and face the risk of bankruptcy such as allowing debt slacken, providing loans at an interest rate of zero percent to facilitate the enterprises’ operation until they get out of loss. We suggest that the Government should arrange an Investment and Interest Rate Supporting Fund to support enterprises in their investment in focal projects subjected to domestic investment preferential treatment and suitable with the post-inner force policy; commercial banks also should take part in this policy, the list of projects given investment preferential treatment should be adjusted and the form of investment preferential treatment should be expanded; additionally, the Government should set up a credit guaranty fund for some SMEs.
“Intensifying training for leaders at provincial level,” Mr Giles Cooper, Auscham’s representative
The enforcement of WTO commitments requires not only the enforcement of laws and regulations but also the on-schedule issuance of guiding documents. The delay in issuing circulars as well as the lack of guidelines during the implementation and enforcement shall create instability to the business environment and increase risks, which shall then lead to the failure in achieving planned targets and create unnecessary cost in doing business with Vietnam.
According to Auscham, the most important factor to ensure Vietnam’s compliance with WTO commitments is the competence and standard of those responsible for the enforcement which is qualified enough for a full and all-sided enforcement. This plays a specially important role at the provincial level where leaders and officers are not as well-trained as at the central level. Auscham hope that the Government shall provide support to this sector.
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