Government needs to support businesses to proactively adapt to future fluctuations

September 27, 2022 - 08:33

Nguyễn Bích Lâm, former General Director of General Statistics Office, talks to Vietnam News Agency about the implications of price fluctuations of strategic commodities on businesses and economic growth.


Nguyễn Bích Lâm, former General Director of General Statistics Office. VNA/VNS Photo

Nguyễn Bích Lâm, former General Director of General Statistics Office, talks to Vietnam News Agency about the implications of price fluctuations of strategic commodities on businesses and economic growth.

How do the consequences of price instability of strategic commodities affect Vietnamese businesses?

Since the COVID-19 pandemic, the world and domestic economies have had to cope with and experience many unpredictable events with a greater frequency, making production and business activities of enterprises more difficult.

The pandemic and geopolitical instability cause supply chain disruptions, impacting businesses in many ways such as customer access, cash flow, hiring, supply chain disruptions, and additional costs. Investment projects are delayed or cancelled. Production of many enterprises was interrupted, even stopped, leading to reduced revenue, risks of debt recovery and insolvency.

Along with that, the inadequacies caused by the pandemic have not been overcome, the Russia - Ukraine crisis has aggravated the events, bringing the world economy to a three-dimensional crisis: energy, food and finance.

The energy crisis, specifically petroleum and gas which are strategic commodities that play an important role in production and consumption for the world economy and for all countries, caused stagnation or even closure of many businesses.

Enterprises are the most important economic actors, determining the development and prosperity of the country. The impact of the fourth pandemic wave and the consequences of the world economy have greatly affected the domestic business sector and FDI enterprises.

According to a survey of business trends and the synthesis of opinions of business associations and industries, Vietnamese enterprises are currently facing five groups of difficulties. These are the price of gasoline, raw materials and input materials, logistics costs increased; labour shortage; capital difficulties; shortage of components and legal barriers.

The increase in the price index of raw materials and materials used for production and the price index of transportation services cause an increase in production costs. Therefore, the producer price index of the economy will increase in the last months of the year. When the price of input materials increases by 1 per cent, the producer price index will increase by 2.06 per cent. This makes it difficult for enterprises in their efforts to consume and ensure the competitiveness of domestically produced products, reducing the GDP growth rate of the economy.

For the Vietnamese economy, petroleum is a strategic commodity and an input cost of most production and business activities. Some industries have a very high proportion of petroleum costs in total costs such as: fishing 76.73 per cent; transportation 63.36 per cent; coal mining 45.18 per cent; forest products 25.59 per cent; production and distribution of electricity 6.55 per cent.

Gasoline also accounts for 1.5 per cent of the final consumption of households. When gasoline prices increase by 10 per cent, inflation increases by 0.36 percentage points and GDP decreases by 0.5 per cent.

When the price of strategic items increases, the price of raw materials will increase, creating a new price level in the economy. This means increased production costs; reduced investment efficiency, slowed down the recovery process and slowed down economic growth.

Currently, the money market's operation has not been "in tune" with the commodity market, so businesses have to borrow from each other. What are the current difficulties in terms of capital?

According to the business trend survey, up to 31.8 per cent of enterprises in the processing and manufacturing sector face financial difficulties; 48 per cent of businesses owe each other and pay debts on time; 21.4 per cent of enterprises borrow capital with high interest rates; 4 per cent of businesses do not have access to loans.

Out of more than 850 thousand businesses, 98 per cent are small and medium enterprises, with the only capital coming from the banking system. From August 2022, a number of banks increased lending interest rates, businesses had to pay an additional 1.7 per cent when taking out loans, and many businesses were delayed in payment. This situation partly reflects the difficulty for businesses to access capital.

Currently, the financial pressure on the business sector in the post-COVID-19 period is huge, requiring the Government's intervention to open up capital for businesses.

Besides capital difficulties, what inadequacies does the legal environment currently cause for businesses?

The government has made three strategic breakthroughs: perfecting the development institution synchronously; human resource development; building a synchronous and modern infrastructure system in both economic and social terms. However, the legal system still has many shortcomings, the business investment environment is still not really open, and the space for reform is still very large.

Many localities and businesses reflect the overlapping and conflicting situation of many legal regulations. The most typical example is the overlap and conflict between statutes, between general and specialised laws, and between one guiding document and another.

Specifically, when carrying out procedures, businesses have to perform many duplicate administrative procedures, take a long time to travel, and submit many similar documents to different State agencies. Transaction costs are very expensive. During the implementation process, enterprises must receive many inspection teams from different agencies with the same content.

Not only are projects always facing delays and incurring costs, but the biggest risk for businesses is the risk of breaking the law. In many cases, businesses do not know which regulations to follow, and when they do this, they violate the other regulations.

According to the survey of business trends and the synthesis of opinions of business associations and industries, 8.3 per cent of surveyed enterprises assessed that the State's policies and laws had an unfavourable impact on their operations; 18.2 per cent of construction enterprises said that the support of the state administrative system for enterprises is more difficult.

For state management agencies, there is an overlap and conflict between legal regulations that makes policy enforcement agencies confused and passive when dealing with businesses. The psychology of fear of risk and fear of wrong is very common in the state apparatus from the situation of overlapping and conflicting laws.

In general, these conflicts and overlaps have limited the positive effects in the implementation of the laws; creating barriers in the actual implementation process, incurring large costs and high risks for businesses and investors. This conflict has resulted in very different enforcement practices from place to place.

So what are the solutions to remove barriers and difficulties for businesses?

In the immediate future, the Government needs to affirm and implement the view of maximum support for business development; consider removing barriers and difficulties for businesses an important political task of all levels of government from central to local levels. Since then, businesses are eligible to proactively adapt, recover quickly and develop sustainably.

The Government also needs to urgently develop policies and prepare necessary resources to implement long-term solutions; support businesses to proactively adapt to future fluctuations. At the same time, promoting innovation, anticipating new business and market trends to be able to rise up and catch up with the development trend of the world is another important task.

In addition, the Government should accelerate the implementation of the socio-economic recovery and development programme, especially opening the 2 per cent credit interest rate support package. The State Bank should direct commercial banks to allocate newly added credits to appropriate areas so that enterprises can have enough capital for the production and circulation of goods in the economy.

Along with that, the Government really needs to have a breakthrough solution on credit for businesses because capital and finance are the premise and play a decisive role for businesses to operate and develop. Securing capital and finance for businesses from now until the end of the year and in the following years is very important.

The Government can also direct ministries, branches and localities to overcome supply disruptions, diversify partners and suppliers of raw materials, fuel, auxiliary materials and input components to fully meet production and business needs. At the same time, it can support business to diversify export markets, expand domestic markets, and so on.

Meanwhile, enterprises should proactively seize and take advantage of each opportunity, have plans to adapt to future fluctuations; keep abreast of new business trends; promote digital transformation and application of science and technology to improve productivity, quality, efficiency and enterprise competitiveness.

In addition, they should strengthen linkages and cooperation with enterprises, especially those willing to transfer advanced techniques, new knowledge and modern technologies in the world; focus on training to improve the quality of human resources and employee retention, restructure labour to adapt and catch up with new trends of the market. VNS