Private businesses are shrinking, while FDI companies are reporting record losses.
According to the PCI survey results, the percentage of foreign-invested enterprises reporting profits has fallen to 54,3% – the lowest level in many years. Meanwhile, 37,9% of enterprises reported losses, also a new record high.
Nearly 40% of FDI enterprises reported record losses.
At the announcement of the Provincial Competitiveness Index (PCI) on March 22.3nd, according to the 2017 report, foreign direct investment (FDI) continued to recover, albeit slowly but surely, after the decline in 2012-2013. FDI enterprises have intensified many production and business activities over the past year.
Specifically, the average revenue of FDI enterprises reached $2,43 million, three times higher than in previous years. However, this increase was accompanied by a significant rise in business costs, reaching $2,02 million. Thus, profitability was affected.
According to VCCI, is the decline in profitability of FDI enterprises a temporary or a longer-term trend? Specifically, the percentage of businesses reporting profits has fallen to 54,3% – the lowest level in many years. Meanwhile, 37,9% of businesses reported losses – also a new record high.
In fact, FDI enterprises tend to become smaller, both in terms of workforce size and equity capital. Notably, the percentage of enterprises with fewer than 5 employees increased from 5,9% to 7,4% during the 2016-2017 period. The percentage of enterprises with 5 to 9 employees was 10,9%. Thus, a very clear and continuous upward trend can be seen for these two groups of enterprises.
VCCI noted that "under the new government's term, the general perception among FDI businesses is that the practice of paying unofficial fees has tended to decrease significantly."
Specifically, in 2017, businesses reported that government officials used the monitoring of compliance with local laws and regulations to demand unofficial fees from businesses; this figure has since decreased to only 45%.
Nevertheless, there is still plenty of room for improvement. The practice of paying informal fees in areas such as auditing, inspection, and public procurement bidding remains widespread and shows signs of being deeply ingrained as part of the business culture.
If this situation continues, it will hinder the attraction of new foreign investment, especially from OECD countries.
Vietnamese private businesses are getting smaller.
According to VCCI, in recent years, the contribution of the formal private sector has never exceeded 11%.
According to this year's PCI survey data, only 11% of Vietnamese private enterprises export directly or indirectly through international buyers, and only 14% sell to FDI enterprises in Vietnam.
According to the 2017 PCI survey report, the private sector saw an increase in the proportion of labor employed, while reforms led to labor cuts and increased focus on capital-intensive sectors within the state-owned enterprise sector.
The private sector currently accounts for nearly 65% of jobs in the industrial and service sectors. This is highly significant because the foreign-invested sector, despite its rapid growth, can hardly absorb the more than 1 million people entering the workforce each year. However, the private sector's role in job creation is primarily through the establishment of new businesses.
According to PCI, over 50% of businesses have fewer than 10 employees, and 85% have fewer than 50 employees.
According to Mr. Vu Tien Loc, the Vietnamese economy has a high degree of openness (almost twice its GDP). However, the private sector still focuses primarily on the domestic market, and exports remain heavily dependent on FDI, accounting for up to 70%.
Only 11% of domestic private enterprises export products and services, and 6% supply goods and services to FDI enterprises. The technology transfer rate from FDI to domestic enterprises is the lowest in ASEAN.
According to Mr. Loc, in Vietnam, although the number of newly established businesses is increasing, the private business sector is shrinking in both scale and labor force. The "Missing the Middle" syndrome, characterized by a lack of medium-sized enterprises, has not been resolved.
"After 30 years of reform, we still haven't produced a generation of world-class industrialists. Vietnam has lower corporate governance quality compared to international standards and even compared to the FDI companies operating in Vietnam," Mr. Loc said.
(Source: Internet)www.expertis.vn
