New businesses in Vietnam hit record high in 2016 but few turn a profit

By VnExpress   February 9, 2017 | 01:57 pm GMT+7
New businesses in Vietnam hit record high in 2016 but few turn a profit
Containers of Dinh Vu port are seen from a seaplane of Hai Au Aviation during its first flight from Hanoi to Ha Long, September 8, 2014. Photo by Reuters

Regulatory requirements remain so expensive and time-consuming that they are hurting local businesses.

Nearly two-thirds of local businesses either incurred losses or broke even last year, said Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI), blaming the country’s slow improvements to its business environment.

The new era of global free trade has required Vietnam to bolster its competitiveness at a faster pace by creating more favorable business conditions that help local companies, the Vietnam News Agency quoted the VCCI chairman as saying.

Some regulatory requirements, mostly involved in administrative procedures, are expensive and time-consuming. As a direct consequence, such regulations can limit revenue growth and profitability by, for example, increasing capital ratio requirements and operating costs, Loc continued.

“About 60 percent of Vietnamese businesses made losses or just broke even last year because of these blockages,” Loc said.

In addition, Vietnam’s 600,000 small and medium-sized companies make a great contribution to the country’s economic growth and employ 52 percent of the workforce, but they still lack access to credit, according to the VCCI.

Only 30 percent of SMEs have managed to gain finance from commercial banks, latest data from the VCCI shows.

Statistics also show that banks limit credit access for these businesses to only 3 percent of their total outstanding loans. 

However, there is still a bright spot as the VCCI said that last year the number of new businesses in Vietnam hit a record high of 110,000, increasing by 43 percent from 2013. It was the first time the total number of new businesses exceeded the threshold of 100,000.

The Vietnamese government plans to further relax business regulations so that by 2020 the Southeast Asian country will have one million businesses, equivalent to an average of 100,000 new companies being born each year.

According to the government’s latest decision on key tasks and measures to improve the business environment and national competitiveness, Vietnam is targeting to reach the average level of the ASEAN 4 countries in terms of its business environment. It also plans to break into the top 70 countries in the world in terms of the ease of business startups, to be ranked among the top 80 countries in terms of protection of minority investors, and among the top 30 countries listed by the World Bank for transparency and access to credit.

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