Business recovery slow under face of challenges

Saigon Investment
(SGI) - More than 13,000 new enterprises with a registered capital of around VND 106,000 bln were established in October in Vietnam, according to the Ministry of Planning and Investment (MPI). 

Illustrative photo.

Illustrative photo.

This was an increase of 13.6% in the number of enterprises registered and a 24.1% increase in the number of employees, since September. In the entire country  there were more than 125,000 newly registered enterprises and around 835,000 newly registered employees in the last ten months of 2022. This was an increase of 34.3% in the number of enterprises, an increase of 18% in the number of employees, and an increase of 5.7% in registered capital compared to the same period last year.

According to the General Statistics Office under the Ministry of Planning and Investment, in the last nine months of 2022, GDP increased by 8.83%, and more so in the third quarter which saw an increase of 13.67%. These figures partly represent the strong recovery of the economy after a long period of stagnation under the Covid-19 pandemic. The current picture shows more optimism and strong positive signs of economic growth as per the set target.

However, as we take a closer look at the numbers, we see that firstly, the increase in the number of newly registered enterprises is not such a remarkable achievement because it comes as a result of two main factors. First, after a long period of stagnation caused by the Covid-19 pandemic, businesses are making slow but steady recovery so as to strengthen their hold on the markets once again. Second, the Covid-19 pandemic prevention and control strategy has changed, and blockades and restrictions have been removed, which has reactivated the business investment environment.

Secondly, the nine-month GDP growth figure of 2022 is said to be the highest in more than a decade, compared with the same period in 2021 when the economy was almost at a standstill during the Covid-19 pandemic. When compared with the growth rate before the outbreak of the Covid-19 pandemic, in 2019 and earlier, the economic growth rate seen in 2022 is really not as astounding as it seems. The total GDP of the whole country has basically remained unchanged.

This does not overshadow the tremendous efforts of the Government and ministries in managing the economy in very difficult times. However, the fact remains that the economy still has many worrisome problems to cope with and we need to be cautious in making future moves. More efforts are required, especially because of the current world economic situation and geopolitical uncertainty.

Currently, operating enterprises are facing many difficulties and challenges in both input and output functioning. In the absence of more working capital, production costs are increasing. Lack of capital has also been caused by bad debts, resulting in debts due to low operating efficiency of enterprises, with the average profit rate being far lower than the interest rate on bank loans.

Moreover, exchange rate risks are affecting businesses in two ways. First, the cost of importing raw materials has increased by double, both in US dollars and because of the Vietnamese dong and US dollar exchange rate. Second, enterprises borrowing in foreign currency in the current high exchange rate of Vietnamese dong and the US dollar, has led to debts repayments in Vietnamese dong increase much more.

Although export of goods in recent months is continuing to increase steadily, in general, the speed of input has slowed substantially compared to the first months of the year. This is most clearly reflected in the number of industrial groups, such as textiles, garments, leather, and footwear, which are facing a severe lack of orders and are currently operating at very low capacity. In export value for growth, it is the Foreign Direct Investment (FDI) enterprises that account for nearly 70% of export value, while domestic enterprises have almost negligible growth value. This factor is worth noting when taking into account the growth of enterprises in Vietnam.

Saigon Investment

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