Many barriers impeding growth of businesses

(SGI) - The report on the 500 largest Vietnamese Private Enterprises (VPE500) was published last week, which included a lot of valuable information on the current state of businesses in the country. 
Illustrative photo.
Illustrative photo.

Although the VPE500 group is quite large, it is still not as strong as expected due to many obstacles that are currently impeding the growth of these businesses.

Lack of motivation

Despite its significant role, the private sector in Vietnam has not been as powerful a force as expected. Although some large private enterprises have grown substantially, such as the seven Vietnamese corporations in the group of 200 enterprises with over USD 1 bln in Asia. According to Forbes these are Masan, The Gioi Di Dong, Sabeco, Vietjet, Vinamilk, Techcombank, and Vingroup. However, the numbers are not that much and most of these Vietnamese brands are still in a lower value than brands in many of the Southeast Asian countries.

However, the volatility of the VPE500 group between years is quite large. Only around 50% of VPE500 companies have existed continuously for last five consecutive years, and the rate of loss between years is about 20%. This is quite high compared to some countries, which shows the rapid volatility of the market in Vietnam as well as the nature of unsustainability of large enterprises in our country.

This is explained by private enterprises who state that it is difficult to grow in Vietnam. The number of private enterprises from small scale to medium scale, from medium to large scale is still quite small, and the speed of scale transformation is quite slow, with many enterprises taking ten to twenty years to even grow to a medium scale.

The VPE500 report shows that in the process of development, small- and medium-sized private enterprises continuously face many obstacles. The main obstacle is that the business environment is still not favorable and there is still a lot of discrimination between Domestic Private Enterprises and Foreign Direct Investment (FDI) enterprises as well as State-Owned Enterprises (SOEs). Private enterprises have difficulties in accessing land, capital, markets, customers and also face disadvantages in taxation and customs.

Risks of policy and legal changes make business investment often short-term and small with no long-term operational strategy. The obstacle lies in the fact that most domestic private enterprises have a small scale and weak management with low technology knowledge, and a lack of resources for production and business investment.

Too many barriers

According to Ms. Nguyen Thi Thu Hien of the Ho Guom Garment Company, most private enterprises are not growing because the business environment has too many limitations and obstacles, or the policies introduced cannot be applied to push enterprises up.

These obstacles, according to Ms. Hien, are in hassles in different types of documents and paperwork. Each locality has a different and cumbersome request procedure and there is no complete and unified procedure from investment preparation to project operation which is open and transparent. The time to complete the land procedures is lengthy and cumbersome and in the implementation process there are overlaps in objectives, management contents and several sub-procedures requested by implementing agencies. The site clearance is one of the difficult stages for all enterprises. Even if one single household does not agree to vacate then this will affect the whole project which will face endless delays.

The enterprise invests capital but fails to complete the procedures for applying for a land use right certificate, in which the local government usually does not get involved and lets businesses resolve such issues by themselves. Ms. Hien emphasized that what looks like a glorious venture initially is actually laden with several pitfalls and the factors that hinder businesses today are issues related to land law, taxes, administrative procedures, and business loans.

Dr. Can Van Luc, a member of the National Financial and Monetary Policy Advisory Council, said that the most important thing for businesses is to have a fair business environment. It is especially necessary to pay more attention to household businesses, the Small and Medium Enterprise (SME) sector, and to have incentive policies for households to become bigger enterprises to benefit from three-year tax exemption.

Commenting on the VPE500 group, Mr. Le Dang Doanh, former director of the Central Institute for Economic Management, suggested that we have to analyze clearly how these enterprises grew initially and whether it is the land revenue that feeds them. If it is not possible to investigate all 500 enterprises, it is necessary to investigate a large number of these enterprises. At the same time, it is necessary to study how businesses invest in technology. If enterprises do not invest in technology and digital transformation, 20% of enterprises will be removed from the 500 list in only a few years from now.

Ms. Pham Chi Lan, an economic expert, acknowledged that the business environment does not discriminate when looking at legal documents, but in reality, the discrimination is still there, especially in the allocation of resources and some other advantages. This VPE500 report has not specified many facts. This is due to historical factors as large resources are in the hands of SOEs. FDI enterprises always have easier access to land resources than domestic enterprises and large enterprises and crony businesses are easier to access than SMEs, micro-enterprises, and household businesses.

According to Ms. Lan, the research team should consult the Provincial Competitiveness Index report. In this report, 69% of enterprises say that if they want to have information, they must have a solid relationship somewhere in the administration. In addition, the lobbying ability of large enterprises affects policies as well which needs to be studied. It is not recommended to have a separate policy for large enterprises, but only a general preferential policy for the private sector. Ms. Lan shared that countries give incentives to SMEs, and they focus their policies on supporting development industries and enterprises participating in the implementation of large projects and programs entitled to that policy.

The current reforms are rather remarkable, but the VPE500 report also shows that the improvement of the business environment is focusing more on the aspect of market entry rather than helping businesses grow quickly and develop in size and in quality. Therefore, the Government should pay special attention to the business environment for operating enterprises, create a level playing field and enhance competition, especially with policies to help businesses improve competitiveness and achieve growth.

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