Thursday, August 24 2017

VietNamNews

Local, foreign firms: divided they stand

Update: July, 03/2017 - 09:00
According to a survey by the Việt Nam Chamber of Commerce and Industry last year, only 14 per cent of private Vietnamese businesses had foreign-owned businesses as clients. — Photo laodong.com.vn

According to a survey by the Việt Nam Chamber of Commerce and Industry last year, only 14 per cent of private Vietnamese businesses had foreign-owned businesses as clients.

As for foreign businesses, only 26.6 per cent of them bought materials or equipment in Việt Nam, and that too mostly from other foreign enterprises operating in the country.

The survey also found that foreign firms in technology-intensive sectors depended more on materials and equipment imported from their own countries than those that in low-tech industries.

Analysts said the links between foreign and domestic businesses remain too weak for the former’s technology and labour productivity to percolate into the latter.

In other words, Việt Nam has not taken full advantage of the possible benefits that accrue from having foreign businesses, which account for over 50 per cent of the country’s manufactured goods and 70 per cent of exports.

Why?

According to VCCI representatives, there are very few joint ventures between Vietnamese and foreign companies, meaning local enterprises do not have much opportunity to take advantage of foreigners’ strengths like capital, technology and management skills.

Eighty per cent of foreign companies operating in Việt Nam are fully owned by foreigners.

A Ministry of Planning and Investment official rued the failure to grab this opportunity, saying there is a vast difference between the development levels of Vietnamese and foreign enterprises.

The biggest drawbacks of domestic enterprises are their poor marketing skills, lack of information about foreign companies’ needs and quality management standards.

The establishment of industrial parks exclusively for foreign companies in many localities has made it easier for foreign investors to produce and export, but also put paid to the chances of their having a positive effect on domestic firms because of the limited contact between them.

Analysts said breakthrough measures, mainly in the form of tech consulting, setting up of technology development funds and tax breaks, are necessary to narrow the gap in technology levels between Vietnamese and foreign firms. Only these could make Vietnamese businesses to further invest in technology, they said.

The Government also needs to have robust policies to develop domestic firms in the supporting industries so that they could tie up with foreign ones.

Deputy Prime Minister Vương Đình Huệ recently said that in attracting FDI the Government gives top priority to companies with investment strategies dovetailing with Việt Nam’s restructuring process, modern technology and production chains, outstanding management capability and a readiness to collaborate with Vietnamese companies.

It also plans to roll out more policies to connect the domestic private sector and the FDI sector.

Higher tax on plastic bags

The Ministry of Finance has proposed increasing the environmental tax on plastic bags to VNĐ40,000-200,000 (US$1.76-8.81) per kilogramme from the current VNĐ30,000-50,000.

According to the ministry, the current rate, which averages VNĐ200-400 per bag, is among the lowest in the world.

Most other countries levy a higher tax or even prohibit production, trading and use of plastic bags. The UK and Iceland collect a 15-cent tax on each plastic bag used (equivalent to VNĐ4,500 per bag) while the tax in Hong Kong is five cents per bag. The manufacture, sale and use of plastic bags less than 0.025mm thick is banned in China.

The ministry said the low tax in Việt Nam does not deter the manufacture, trading and use of nylon bags, which are believed to be one of the main factors affecting the environment.

An upward adjustment of the tax is mentioned in the draft amendments to the Law on Environmental Protection which has been submitted to the Government and National Assembly.

But market observers fear that even if the tax hike is approved it would take several years to reduce the manufacture and use of plastic bags.

There are no effective Government policies to reduce the manufacture, distribution and use of these bags.

In 2012, when the Environment Protection Law was passed with a tax on plastic bags, many distribution companies, especially supermarkets such as Saigon Co.op, Big C, and Lotte, switched to environment-friendly bags.

In recent months many cities including HCM City have launched campaigns to encourage people to use environment-friendly bags.

But none of these efforts have paid off and people’s habit of using plastic bags has not changed though bio-degradable bags only cost 5-10 per cent more.

It is this reluctance to switch to eco-friendly bags that dissuades their production.

According to the Việt Nam Plastics Association, around 30 enterprises produce them out of a total of 400 producing bags.

Analysts said a hike in the tax on plastic bags to VNĐ200,000 per kilogramme would change this and force production of environment-friendly bags.

The bio-degradable bags are exempt from tax.

Experts hailed the policy of imposing the higher environmental protection tax on nylon bags, saying it is in line with the national strategy on management of solid wastes by 2025.

Its target is to improve management of solid waste to improve the environment, ensuring public health and sustainable development.

Foreign funds sell shares in big companies

The stock market has recently seen a pullout from big Vietnamese companies by foreign funds though the VN-Index is up 14.4 per cent for the year and at a nine-year high.

Mekong Enterprise Fund II Ltd for instance sold more than one million shares of Thế Giới Di Động (MWG) in April and three million shares in mid-June out of the eight million shares it was holding (5.2 per cent stake).

In February CTD Electric Bee Ltd had sold one million MWG shares and has registered to sell another 1.25 million.

LGM Investment Ltd sold 400,000 shares of Phú Nhuận Jewelry Joint Stock Company (PNJ), paring its stake from 5.39 per cent to 4.98 per cent.

Malaysian-owned Aims Asset Management Shn BHd sold nearly 3.7 million PNJ shares, reducing its holding to just 1.52 per cent.

Dragon Capital Fund sold 940,000 shares of Sài Gòn  Securities Corporation (SSI) in June to reduce its ownership to 4.9 per cent.

DC, a unit of Dragon Capital, sold 1.5 million out of its 2.75 million shares of SSI shares.

VinaCapital Fund sold 29.4 million shares of Quốc Cường Gia Lai Joint Stock Company (QCG).

HSBC has revealed plans to sell its stake in Techcombank at a price of not less than VNĐ23,445 per share after 12 years of holding it.

Other foreign funds like AFC Vietnam Fund and America LLC, Vietnam Enterprise Investments Limited and PXP Vietnam Emerging Equity Fund Limited have also sold shares of many major companies.

Analysts adduce two main factors for this sell-off.

They say the market is now at its peak and so the funds want to take profits.

The other reason is that many of the companies in which they have been holding stakes for many years have reached the maturity stage in their life cycle and will plateau, and the only way from here is down, they say.

The profit taking will also free up money for them to invest in new businesses, they point out.

Interestingly, some foreign funds have shifted to sectors that are quite different from what they have been focusing on until now.

Of course, this comes with its attendant risks. But no pain, no gain, right? — VNS

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