Government assistance on way for private firms

Government assistance on way for private firms

It is expected that a series of obstacles facing enterprises and investors in Vietnam will be directly listened to by the government on December 23 when Prime Minister Nguyen Xuan Phuc along with other government leaders and ministers meet with the business community at a conference in Hanoi.

The Korea Chamber of Business in Vietnam (KorCham), representing nearly 7,000 South Korean enterprises, told VIR that it has prepared a long list of recommendations to send to the government, in the hope that obstructions faced by not only South Korean firms, but also many others from overseas, will be removed.

“For example, LG Display has built a large-scale project in the southern province of Ba Ria-Vung Tau, with a port and a factory,” said KorCham vice chairman Hong Sun. “However the firm has been required by authorised agencies to obtain a licence for using the sea route, a new procedure that cannot be seen in other nations. LG Display has been awaiting this license for a very long time.”

He added that many investors from South Korea have expressed their concern about vows made by Vietnam’s authorised agencies when they started to implement their projects in the country.

“So far, such promises have yet to be implemented by authorised agencies, and companies have pointed out inconsistencies in tax incentives. For example, a 50 per cent reduction in personal income tax (PIT) for workers at various economic zones, including Trang Due Industrial Park in the northern city of Haiphong, was suddenly scrapped by a decree enacted last year,” Sun said.

“This has made it hard for foreign firms that have raised investment based on the belief that such a PIT reduction would be continued. As a result, many South Korean investors now don’t want to pour money into economic zones in Vietnam.”

Suitable actions

At last week’s meeting with entrepreneurs in Hanoi, PM Phuc was told to enact sturdier measures to help businesses out of difficulties so that they can grow further. He, in turn, promised that the government will create a more favourable environment for the business community.

It is expected that at the December 23 meeting with the business community, PM Phuc will make stronger solutions to help enterprises, including those of KorCham, thus demonstrating the government’s consistent message of constructing a sturdy business community in Vietnam.

In fact, two weeks ago the prime minister issued a resolution following a government cabinet meeting, ordering all ministries and agencies to review legal documents related to enterprise performance, and remove as soon as possible all unnecessary documents and regulations. The reason is that in the first 11 months, production in a number of sectors remain in the quagmire, and the number of enterprises halting performance to dissolve themselves has increased.

At the Vietnam Private Sector Economic Forum organised in May in Hanoi, PM Phuc also impressed over 2,500 entrepreneurs by sending a strong message in developing the business community in Vietnam via a fair and transparent business climate.

“We will continue creating the best conditions, space, resources, and opportunities for the private sector to develop further, through legal protection, encouragement, and equality,” he stressed.

According to the prime minister, equality refers to the private sector being equally treated before the law and in competition and allocation of resources with other economic sectors.

Meanwhile, the assets of privately-owned enterprises (POEs) will be protected, with freedom in business given to them under the law. The POEs, especially those with social responsibility, will also be offered encouragement by the state, as well as opportunities in access to resources, technologies, and markets with lower costs.

So far, of about 5,000 business conditions, 540 have been amended, 770 have been removed, and 110 have been replaced by better versions.

“However, the business community awaits more sturdy actions, with more procedures to be cut down,” Sun of KorCham said.

Currently, the National Assembly (NA) and the government are revising laws on enterprises, investment, land, and intellectual property.

“They will continue being revised next year so that obstructions for enterprises and investors will be removed, and so they find it more favourable to both enter and exit the market with lower costs,” said NA Vice Chairman Phung Quoc Hien. “For example, the Law on Investment is being revised, in which the definition of business conditions must be clarified so that it can be distinguished from technical standards for business.”

Over the past few years, sub-licences and complicated business conditions, as well as their vague definitions, have made it difficult for localities to attract more investment.

Further support required

According to the General Statistics Office, last year saw 131,000 newly-established enterprises, with total registered capital of $64.26 billion, up 3.5 per cent in the number of enterprises, and 14.1 per cent in capital, against 2017. Also last year, operating enterprises also added $104.7 billion to their business, raising total capital into the economy to $168.6 billion. Besides that, over 34,000 enterprises resumed operation, up 28.6 per cent on-year.

In the first 11 months of 2019, Vietnam saw 126,700 newly-established enterprises, registered at $68.26 billion, up 4.5 per cent in the number of enterprises, and 27.5 per cent in capital on-year.

Operating businesses added $91.3 billion to their business, lifting the total capital into the economy to $159.6 billion. Moreover, 36,900 enterprises resumed operation, up 15.7 per cent on-year.

However, Nguyen Minh Cuong, principal country economist from the Asian Development Bank in Vietnam, told VIR that though the private sector is strongly growing and creating 40 per cent of GDP, it does not receive much support from the government, while facing numerous complicated procedures.

According to his calculation, besides limited access to bank loans, an enterprise has to file 14 payments a year, taking nearly 500 hours and amounting to 38.1 per cent of total profits. Payment of value-added tax is onerous, taking around 220 hours, or 44 per cent of the total time required to file taxes.

“If the government wants the private sector to really become a strong pillar of economic growth, it must offer the sector more incentives because currently they are facing vast difficulties,” Cuong stressed.

For example, he said, shortages in both technical skills and managerial competency hinder private Vietnamese firms to improve quality. ManpowerGroup’s recent survey showed that only 11 per cent of Vietnamese firms can meet skill requirements, and the “low cost, low skills” era of Vietnam’s development is over. The survey noted that the country should become a “high-skill economy” if it wants to catch up with Industry 4.0 generation of the global value chains.

Suggested proposals

Marko Walde, chief representative of the Delegation of German Industry and Commerce in Vietnam (AHK), told VIR that hundreds of German companies in the country are waiting for more actions from the government.

“We have seen the encouragement of the Vietnamese government by implementing a next-generation foreign direct investment strategy,” he said. “It will not only attract more German investment to Vietnam but also sustain the country’s rapid economic development, competitiveness, and inclusive prosperity.”

According to the AHK World Business Outlook Survey in 2019, German investors concede that inconsistent economic policy, as well as shortages in skilled labour, is a burden for growth in Vietnam. Also, a lack of integrated supply chains, qualified domestic suppliers, and effective policies to assist local firms to improve competitiveness has hindered the capabilities of businesses in the country.

Furthermore, developing a practice-oriented vocational education system will help build a new skilled generation with knowledge as well as practical and communicative skills, Walde explained.

Echoing these recommendations, Sun of KorCham told VIR that many South Korean firms are ready to invest billions of US dollars into Vietnam, but on the condition that “more favourable conditions are given” to them.

“For example, previously foreign investors were allowed to join bidding for the project to build the North-South expressway, but now only Vietnamese firms are allowed to do that,” he said. “We think that a fair investment and business climate means equal treatment for all investors,” he said.