A recent nationwide survey into Vietnamese enterprises by the Vietnam Chamber of Commerce and Industry (VCCI) showed that business performance in 2014 will be better than last year.

According to the Vietnam Business Forum (VIB Forum), the weekly magazine of the VCCI, this is really a good sign as it shows the confidence of the business community in the Government’s macroeconomic stability policies, economic policies and business support measures.

Silver lining

Enterprises participating in the survey said positive changes are better access to market information, better technology, better transportation infrastructure like roads and airports, better utility infrastructure like electricity and water, better wastewater treatment, higher international market demand, better skilled labour supply, better attitude, responsibility and competence of public officials, better legislative quality, better policies and enforcement, and more practical administrative procedures.

The composite movement index of overall actual production and business situation in 2013 is minus 8 points, much higher than that in 2012 (-21 points). Remarkably, retail soared from minus 4 points to positive 10 points. Labour productivity improvement reached 14 points. Order placing index also progressed, similar to positively progressive changes in PMI Index released by HSBC Bank. This is really a fruit of enterprises’ efforts in the current difficult period.

Another bright aspect is the borrowing demand starts to rise. Up to 65.2 percent of respondents planned to increase borrowing from banks, higher than 57.3 percent in the last survey in 2012. In 2013, 32.7 percent of enterprises borrowed at an interest rate of 12 percent or higher per annum, compared with 74.9 percent the previous year. Thus, lower interest rates have boosted lending. Moreover, raising funds from long-term channels like capital investment and equity offering to strategic shareholders is chosen by more companies.

Still caught at bottom

The movement index also indicated that enterprises have not escaped the bottom area. Doan Thi Quyen, an official at the Enterprise Development Institute under the VCCI, said domestic demand declined in 2013, with the shrinkage even worse than the forecast late last year. Although the interest rate was slashed by 2-3 percent, it remains unaffordable for corporate borrowers. Given high bad debt ratio, they have to satisfy certain conditions from banks to get loans.

“Interest rates have been reduced. But 34.8 percent of respondents said they could not borrow because of high rates. As market demand shrank, their sales failed to pay interests,” she added.

Weakening demand forced enterprises to reduce prices and increase discounts, which resulted in lower average profit per unit. Layoffs increased as production stagnated.

In this context, the Government launched a number of measures to support businesses but these policies have been not brought to full play because companies in need were not benefited. Up to 42 percent of surveyed enterprises assessed that solutions to inventory, marketing support and real estate market support have low or very low effectiveness.

However, compared to the negative index at the end of 2012, the 2013 business movement index indicates a significant improvement. Many companies strongly believe that business conditions will be better in 2014. About 51 percent of respondents plan to keep business scales unchanged, 42 percent expect to expand production and only 7 percent plan to scale down operations.

In this context, to support the business community, the VCCI proposed that the Government focus on implementing business support policies, with a focus given to reducing inventories, market access, and bad debt settlement, especially in bad debt in the real estate sector. In addition, the Government needs to speed up capital allocation and disbursement for planned public investment projects; create jobs for construction enterprises and resolve investment issues for construction sector; review and restructure State budget expenditures and debt amount in basic construction investment.

At the same time, the Government also needs to take drastic actions on State-owned enterprise restructuring and banking system restructuring. It needs to widen the scope of concessional credits, sourced from the Vietnam Development Bank, the Business Development Funds and commercial banks, for small and medium-sized enterprises. This approach requires overall measures, not only on interest rates, but also procedures and mechanisms.-VNA