Numbers of new and closed enterprises keep rising: WB
Numbers of new and closed enterprises keep rising: WB
There is considerable churning in the domestically-owned private enterprise sector in Vietnam, with the registration of new, and closure of existing enterprises, both rising in recent years, according to the World Bank (WB).
The WB stated in its bi-annual economic report on Vietnam, called “Taking Stock,” that 107,000 firms closed or suspended business in 2018, compared with 73,000 business closures in 2017.
Another 24,000 businesses closed shop during the first five months of this year, an 18.3% increase over the same period last year.
At the same time, the number of newly-registered enterprises increased by 131,000 last year, compared with 127,000 in 2017, significantly exceeding the number of closures during both periods. These enterprises also eclipsed closures in the first five months of this year, with 54,000 new registrants.
Among businesses that closed, trading enterprises suffered the largest number, accounting for 40% of all businesses that were liquidated or whose operations were suspended in early 2019.
The WB cited a survey by the Vietnam Chamber of Commerce and Industry as showing that difficulties in finding suitable markets, low competitiveness among domestic firms and products, and limited access to financial and labor resources were among the main reasons behind enterprise liquidations or suspensions.
Despite these challenges, the number of newly registered firms has consistently exceeded the number of firms that have been liquidated, at least since 2013.
The WB also stated that the dynamic domestic private sector is still dominated by micro and small enterprises (MSEs). According to the 2017 Economic Census of the General Statistics Office, out of some 500,000 existing domestic firms, 98% are MSEs.
While these enterprises create the vast majority of jobs in the economy, many operate in relatively low productivity services, such as small retail and restaurants, and simple manufacturing.
Most are focused on the domestic markets and few of these businesses are engaged in export activities. They often lack the scale, access to finance and technology to make them efficient producers.
To support MSEs to expand rapidly, the most important policy imperative is to provide a level playing field for all firms. While Vietnam has made progress in improving its business environment, as evidenced in the improvement in the World Bank Doing Business Ranking, some deep-seated distortions remain.
The WB suggested the Government revisit the competition policy program to strengthen competition-supporting institutions and fully decentralize the decision-making process, to allow equal access of all enterprises to key production factors, such as land, credit, labor and technology.
In addition, the Government needs to implement reforms to strengthen structural changes in the economy that will boost private investment and create greater efficiency in State-owned enterprises (SOEs) and continue to reduce a disproportionately large role of the State in the economy.
The strong presence of SOEs results in inefficient prices and various other market distortions that suppress the domestic private sector, the WB warned, adding that rationalization of the role of the State requires the elimination of private sector distortions and an end to favorable treatment of SOEs.
The bank also noted that the State needs to relinquish the direct management of economic activities where no market failures exist, and concentrate more on its role in providing a level playing field for all economic sectors.
