Lack of funds hinders SMEs’ growth

March 03, 2018 - 09:00

Micro, small and medium-sized enterprises account for nearly 97 per cent of the total number of businesses in HCM City, with more than 90 per cent of newly established ones every year belong to this category.

A steel company at the Tân Tạo industrial park in HCM City. Due to their lack of resources, small and medium-sized enterprises cannot upgrade technology or invest in research and development. — VNA/VNS Photo
Viet Nam News

HCM CITY – Micro, small and medium-sized enterprises (SMEs) account for nearly 97 per cent of the total number of businesses in HCM City, with more than 90 per cent of newly-established ones every year belonging to this category.

But despite being the backbone of the city and country’s economy, SMEs facing many challenges in accessing funding to upgrade technology to boost productivity and competitiveness.

According to a survey by the HCM City Business Association, of the number of original brand manufacturers (OBM) – enterprises that design their own products, buy components produced by others and sell products under their own brands – operating in city’s six key industries of mechanical engineering, food processing, chemical-plastics-rubber, electronics-information, textile-garment and footwear, only 48 per cent are SMEs.

Moreover, SMEs that operate as OBM in mechanical engineering, chemical-plastics-rubber and electronics-information use limited or out-of-date technologies.

Đỗ Phước Tống, chairman of the HCM City Association of Mechanical Electrical Enterprises, told Sài Gòn Giải Phóng (Liberated Sài Gòn) newspaper that most mechanical enterprises are SMEs or household businesses.

Since they lack new technologies and research and development capacity, SMEs, usually working as sub-contractors for big companies or second- and third-class suppliers, mainly handle raw materials and assemble products with very low value addition, he said.

Besides, Vietnamese consumers’ preference for “foreign brands” is also a big challenge for SMEs.

Tống said there are Vietnamese products that match the quality of foreign-made items, but they are not accepted in local markets until they are exported to overseas markets like Japan, South Korea, Taiwan and Thailand and imported back to Việt Nam.
Export-import enterprises claimed it is because Vietnamese export products are “better” than local ones though local manufacturers said they are of the same quality.

Whatever the reason is, the fact remains that enterprises have to bear the logistics costs of sending their products overseas to sell them at home.

SMEs are unlikely to grow rapidly in the near future due to shortcomings in Government policies, one of which is the tax regime, according to experts.

To attract foreign investment, the Government waives tax on import of machinery, equipment and tools by foreign direct investment (FDI) companies for use in manufacture. But local enterprises have to pay 10 per cent import tariff on the same stuff.

The cumbersome procedures involved in getting loans also make it harder for SMEs to operate. Most lenders demand mortgage of assets which is a big problem for SMEs.

Nguyễn Đình Tuệ, director of the Centre for Supporting Small and Medium sized Enterprises, said because of financial constraints, SMEs cannot upgrade their technologies or improve productivity to compete on price.

To support SMEs, the Government needs do create a healthy business environment and reduce issues like red tape and harassment. Besides, to help them access credit, the Government should share their risks to reduce their mortgage burden, Tuệ said.

Director of the city’s Department of Trade and Industry, Phạm Thành Kiên, said his department is considering a lending rate cut in preferential loans for enterprises to below 7 per cent.

Banks – SMEs link-up

The Trade and Industry Department recently said it would continue to work with the State Bank of Việt Nam in HCM City to implement the bank-enterprise link-up programme in the city with a focus on five sectors and industries.

They are agriculture and rural development, exports, SMEs, supporting industries,and enterprises that adopt new technology.

Under the programme, credit institutions in the city can sign up to lend to enterprises at a preferential interest rate of 6.5 per cent for short-term loans and 8–9 per cent for medium- and long-term loans.

Moreover this year, banks will consider further cut interest rates for enterprises that borrow a second or a third time through the programme.

The link-up programme, initiated by the SBV, began in 2012. Last year, banks provided loans worth more than VNĐ300 trillion (US$13 billion) to 15,778 enterprises participating in the programme. — VNS