Econ
Reforms are insufficient for small-scale companies in Vietnam
Previous reforms are only related to less cumbersome business registration instead of a comprehensive support to the private sector, especially the small and medium enterprises (SMEs).
The current reforms do not seem comprehensive enough, as small-scale companies are more likely to be affected by the slow progress of reforming the “business environment”, according to Viet Dragon Securities Company (VDSC).
In 2018, there have been significant changes in the number of business registrations as the number of shutdowns and suspended companies rose significantly while that of newly-established ones grew at a slower pace.
The number of newly registered companies was 121,248 and total capital VND1,234.4 trillion (US$52.84 billion) in the first 11 months of 2018, up 4.5% year-on-year in quantity and 9.1% year-on-year in value. That was lower than the growth of 14.1% year-on-year and 41.9% year-on-year in the same period of last year.
The wholesale and retail sale sector accounted for 35% of total new registrations, followed by construction, manufacturing and real estate. Overall, that has been the trend since 2014 because of better economic conditions and easing regulations.
In 2013-2016, Vietnam made starting a business easier by allowing companies to use self-printed value-added tax invoices and reducing the time required to get the company seal engraved and registered. Recently, the administration published the notice of incorporation online and reduced the cost of business registration.
However, such reforms seem not comprehensive enough for small-scale companies. Most have difficulty surviving three years. There has been a growing number of shutdowns and suspended operations, from 75,413 to 97,969 enterprises, up over 40% year-on-year in 2018 so far versus 2017.
In Vietnam, around 96% of enterprises are small and micro in terms of scale. Those companies’ profitability indicators are significantly smaller than medium- and large-scale companies. Although their own resources are limited, the access to credit is not easy due to the issue of collateral. According to a survey conducted by the General Department of Statistics (GSO), the micro group lost nearly US$1.5 billion in 2016 while the amount of taxes and fees paid was roughly US$2 billion.
According to VDSC, there are possibilities that the previous reforms are only related to more open business registration instead of a comprehensive support to the private sector, especially the SME group.
According to the World Bank’s Doing Business report, the sub-group of ‘starting a business’ scored the second highest number of 84.8 points, just below that of 'getting electricity'. The starting-a-business topic measures the number of procedures, time, cost and paid-in minimum capital required for a small- to medium-sized limited liability company to start up and formally operate in each economy’s largest business cities. As mentioned, such requirements scored high points in the report. However, the issues of getting credit, enforcing contracts or resolving insolvency have not seen clear improvement.
VDSC expected that better conditions for the private sector will be enhanced in the years to come. The 12th National Congress of the Communist Party of Vietnam in 2016 approved measures to deal with the issue, however the draft of reducing the tax burden on SMEs is still being processed.
In 2018, there have been significant changes in the number of business registrations as the number of shutdowns and suspended companies rose significantly while that of newly-established ones grew at a slower pace.
The number of newly registered companies was 121,248 and total capital VND1,234.4 trillion (US$52.84 billion) in the first 11 months of 2018, up 4.5% year-on-year in quantity and 9.1% year-on-year in value. That was lower than the growth of 14.1% year-on-year and 41.9% year-on-year in the same period of last year.
The wholesale and retail sale sector accounted for 35% of total new registrations, followed by construction, manufacturing and real estate. Overall, that has been the trend since 2014 because of better economic conditions and easing regulations.
In 2013-2016, Vietnam made starting a business easier by allowing companies to use self-printed value-added tax invoices and reducing the time required to get the company seal engraved and registered. Recently, the administration published the notice of incorporation online and reduced the cost of business registration.
However, such reforms seem not comprehensive enough for small-scale companies. Most have difficulty surviving three years. There has been a growing number of shutdowns and suspended operations, from 75,413 to 97,969 enterprises, up over 40% year-on-year in 2018 so far versus 2017.
In Vietnam, around 96% of enterprises are small and micro in terms of scale. Those companies’ profitability indicators are significantly smaller than medium- and large-scale companies. Although their own resources are limited, the access to credit is not easy due to the issue of collateral. According to a survey conducted by the General Department of Statistics (GSO), the micro group lost nearly US$1.5 billion in 2016 while the amount of taxes and fees paid was roughly US$2 billion.
According to VDSC, there are possibilities that the previous reforms are only related to more open business registration instead of a comprehensive support to the private sector, especially the SME group.
According to the World Bank’s Doing Business report, the sub-group of ‘starting a business’ scored the second highest number of 84.8 points, just below that of 'getting electricity'. The starting-a-business topic measures the number of procedures, time, cost and paid-in minimum capital required for a small- to medium-sized limited liability company to start up and formally operate in each economy’s largest business cities. As mentioned, such requirements scored high points in the report. However, the issues of getting credit, enforcing contracts or resolving insolvency have not seen clear improvement.
VDSC expected that better conditions for the private sector will be enhanced in the years to come. The 12th National Congress of the Communist Party of Vietnam in 2016 approved measures to deal with the issue, however the draft of reducing the tax burden on SMEs is still being processed.
