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Viet Nam's economy: time for acceleration

Update: February, 22/2015 - 12:52
An event organised by Kangaroo Group. -- Photo kangaroovn.vn

HA NOI (VNS) -- New free trade agreements are opening up promising avenues for the Vietnamese business community to expand their operation but also present numerous challenges, forcing domestic enterprises to take a new approach, Nhan dan (People) newspaper reported.

The Vietnamese economy experienced a year full of difficulties and pressures in 2014 but thanks to the efforts of the Government to pursue a consistent economic regulation policy, figures have revealed a brighter picture regarding the performance of the Vietnamese economy.

The positive outlook is further underlined by a recent survey by company data firm Vietnam Report suggesting that only 7.1 percent of enterprises are pessimistic about their revenues in 2015, compared with 9.1 percent seen in 2013 and 21.9 percent in 2012. So what are the grounds for such confidence? First and foremost, the optimism comes from their performance in 2014.

One of the most impressive sets of data is the revenue of Vietnam's ten largest firms in 2014 which reached nearly VND2,354 trillion (US$110.6 billion), up 14.8 percent from a year earlier. The rise in revenue was coupled with higher return on assets and return on equity. This economic optimism is further strengthened by the largest and best-performing enterprises.

Enterprises' confidence in their accelerated growth reflects great opportunities and likely leads to a boom for the Vietnamese economy in 2015. In the other direction, an economy with promisingly higher growth will also be the cornerstone for enterprises to fare better in an increasingly competitive market.

The year of 2015 is anticipated with optimistic forecasts, particularly open opportunities from international integration.

Former Deputy Prime Minister Vu Khoan emphasised that this special moment for the Vietnamese economy, when various trade pacts will come into effect this year, will be a moment that has never been seen before. The commencement of the ASEAN Economic Community will create a common market with enormous potential. Enterprises are waiting for the expected opportunities of a larger market and sharp reduction in input costs, product prices and intermediary costs when all markets in the regions are unified. The new appeal of investment destinations in the region has been expected to create a new hub to attract the world's investment flows.

And beyond the region, the Trans-Pacific Partnership with negotiations expected to finalise in 2015, will generate large flows of commodities and money between continents. Therefore the year of 2015 is expected to create an unlimited area for development and boundless opportunities for the Vietnamese business community.

Kangaroo Group President Nguyen Thanh Phuong has been preparing for opportunities in 2015 for the past several years.

He said when trade barriers are removed, the reduced time for cargo traffic only is a win for enterprises, especially those exporting to ASEAN countries.

Phuong added he has seen the future in 2016 when domestic enterprises make a breakthrough in the ASEAN market with products labelled Made in Vietnam. However, it should be noted that opportunities only open up for enterprises demonstrating their dominance and influence on the market.

There is a clear trend that if the whole market was to be viewed as a cake, it would be currently divided into large portions rather than cut into small pieces. The positive side is that enterprises of a large enough scale can join the global production and distribution chain in a more convenient way. But this uneven division has presented a considerable challenge for the entire business community.

A survey by the Vietnam Chamber of Commerce and Industry shows that among Vietnamese enterprises currently in operation, large and medium-sized companies only account for 2 percent respectively, while the remaining 96 percent are small and extra-small businesses.

The number of extra-small enterprises, defined as having less than ten employees, accounts for up to two thirds of total enterprises. If household businesses are included, the percentage of extra-small enterprises can amount to 99.9 percent.

With such a small scale, there are very few Vietnamese enterprises capable of taking part in global production networks. Therefore it is not easy to connect with larger enterprises to share bigger portions of the cake. Moreover, there is not a whole lot of change to the fact that enterprises are becoming smaller and smaller.

According to the World Bank's update on Vietnam's recent economic developments, domestic private firms have yet to overcome challenges facing them over the past several years.

"Domestic private firms are clearly being impacted by the constrained access to finance, subdued domestic consumer demand and an uneven playing field", Nhan Dan quoted the World Bank as saying.

The above-mentioned shortcomings make it difficult for domestic enterprises to move up the value chain, creating two groups of enterprises with separate operations, namely domestic enterprises and foreign direct investment (FDI) enterprises.

From a comprehensive view, there are increasingly less opportunities to acquire market share when one of the economy's greatest challenges is the decreasing size of enterprises. Looking at it in another way, the lack of enterprises capable of taking part in the global value chain has led to the domestic supply chain becoming broken and fragmented. The risk here is that potential investors will not come to Vietnam when there are not enterprises strong enough to support their operations. This weakness will worsen when labour costs – the main factor that attracts foreign investment into Vietnam – are rising.

Nevertheless, instead of taking on a pessimistic outlook for domestic enterprises, many analysts say that this is the golden moment for enterprises to shift from the position of dealing with difficulties to adapting to changes.

Former Deputy Prime Minister Vu Khoan made the comment that macroeconomic stability plus numerous laws on business activity, investment environment and market mechanisms coming into effect will force enterprises to be more proactive in their integration plan rather than simply managing to work around difficulties such as what happened more than a year ago.

There have been numerous institutional changes in recently adopted laws with a greater emphasis on the role of market forces. However, the gap between laws and their implementation remains a formidable barrier to an improved business climate in Vietnam. 2015 will be quite a challenging year for not only enterprises but also the Government in its effort to build a healthy and resilient economy, standing firm against difficulties and ready to integrate with the world.--VNA


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