Tuesday, October 25 2016


Trade liberalisation poses problems for local firms

Update: June, 20/2015 - 08:30
Viet Nam's policies in the past gave many preferential treatments to FDI enterprises, while the Vietnamese private sector received fewer incentives. — Photo daibieunhandan
HCM CITY (VNS) — Vietnamese small- and medium-sized enterprises (SMEs) face increasingly tough challenges because of their weak competitiveness and the government's ineffective support policies, according to economist Nguyen Tri Hieu.

SMEs in the near future would encounter fierce competition from foreign-invested businesses, Hieu was quoted as saying in the Nguoi Lao Dong newspaper.

Viet Nam's policies in the past gave many preferential treatments to FDI enterprises, while the Vietnamese private sector received fewer incentives.

"Although FDI capital is important for socio-economic development, domestic enterprises still need support from the State," Hieu said.

FDI enterprises are given priority in tax, land and administrative procedures.

"Viet Nam needs to create more favourable policies and simplify administrative procedures for local enterprises to create a fair environment," Hieu said.

Mai Lan Joint-Stock Company's KissMe tissue and toilet paper brand, for example, has been making the product for 30 years.

Pham Nhu Bach, chairman and director of Mai Lan Co, said the KissMe brand was no longer sold at supermarkets because of severe competition from FDI enterprises.

The paper brand is now distributed in smaller shops and through sales agents.

"For three to four years, we have just produced a moderate amount in order to pay our workers, because the outlet for the brand has become too narrow," Bach said.

Under Viet Nam's World Trade Organisation (WTO) and Free Trade Agreement (FTA) commitments, the paper sector will be protected for a few years. But the tax on the products would decrease to zero per cent after that time.

Bach said domestic enterprises would then be unable to compete with foreign rivals.

Along with big FDI enterprises, SMEs like Mai Lan Co are now confronted with China and domestic enterprises that do not compete fairly.

Vu Tien Loc, chairman of the Viet Nam Chamber of Commerce and Industry, said nearly 70 per cent of Vietnamese private enterprises did not make profits, although the sector had contributed nearly 50 per cent of GDP.

The private sector must be a key driver for the country's economic growth, but the country lacks a sufficient number of medium-sized enterprises that can join the global value chain or directly engage with the international market, according to Loc.

High interest rates

Domestic businesses that want to increase competitiveness must have a large amount of capital to renovate their technologies, Vietnamese economists have said.

Truong Chi Thien, director of Vinh Thanh Dat Co, said his company wanted to expand instant-egg exports but interest rates on bank loans were too high.

Though the poultry egg sector has great potential, he said interest rates of 10 per cent per year were fixed for the first year of a loan and then fluctuated according to the market.

"When we set up a business plan, we have to calculate input costs, and we do not dare take a risk with the interest rate," he said.

Other countries such as Thailand, Indonesia and Malaysia offer interest rates of only 1 per cent per year for a medium- and long-term loans for local businesses.

Economists have also said that new FTAs would create highly skilled workers who would move to FDI firms for higher salaries and better working environment. — VNS

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