Capacity in use of capital at state‐run groups decline – report

The Annual Business Report 2010 conducted by the Vietnam Chamber of Commerce and Industry (VCCI) showed a downward trend chart of state-owned enterprises in the capacity of capital use, from 2008 until now, and the number of active businesses was equal to only half of the number of established enterprises.

Dr Pham Thi Thu Hang, director of Institute for Vietnam Enterprise Development and head of the researcher team of this report, said although 2010 was the tough time with many challenges for the Vietnamese economy, the country still had more than 80,000 newly established companies, bringing the total of businesses to 540,000 nationwide, exceeding the government target of 500,000 enterprises by 2010.

After the 2008‐2009 financial crisis, by December 31, 2009, the total number of established enterprises had been estimated at some 455,207, but active businesses were only 248,757 businesses.

However, Dr Hang said: ʺThis could be a number of survived businesses announced in the official statistics of VCCI, but this does not mean that the number of those businesses that are not operating are bankrupted. For that reason, do not panic with this figure. Perhaps, those companies now also have re‐started their operations.ʺ

Looking back to four years earlier, this 50:50 ratio was quite common. Operational businesses were normally equal to half of registered enterprises. For example, in 2007, with 370 676 registered businesses, the number of active companies were only 155,771.

Similarly, in 2006, there were only 131,318 businesses operational out of a total 246,451 registered companies. This figure in 2005 was 112,950 active businesses, respectively, compared with 199,788 newly established businesses.

The most important part of this annual report is to assess the capacity of enterprises.

On the eight researched industries, the capacity of capital use in all the sectors has declined, while technological capabilities are generally poor.

Vietnam has 12 state‐owned economic groups operating in the 11 economic sectors divided into four groups with different accumulated revenue levels. The sectors with the highest revenue accumulation are oil and gas, coal and telecommunications sectors, followed by the sectors of insurance, postal and electricity, water, gas.

The sectors with the medium accumulated revenue level are water transport and chemical production. The lowest accumulated revenue level belongs to the sectors of clothing production, rubber products and plastics and construction.

The 2010 Annual Report showed a downward trend chart of all sectors in the capacity of capital use from 2008 until now. In particular, the capacity of capital use of industries of telecommunications, manufacturing and distribution of electricity is even weaker.

It was noteworthy that FDI enterprises were regarded the economic area that had the highest profitability, but the number of FDI businesses reporting losses became larger.

This paradox showed that the issue of FDI attraction focused too much on processing industry, to import more raw materials and at the same time, there was a phenomenon that FDI could make price transfers, warned by state authorities for several times.

The focus of the upcoming restructuring of enterprises is not to reduce production costs, but is improving product quality and labour productivity, market expansion, increasing the value of new products. The attention to technological innovation and transfer of technology and equipment must be paid in the future.

Dr Hang expressed, restructuring medium and large‐sized enterprises may lead to the formation of economic groups. However, in the future, the government of Vietnam should review and reassess pilot state economic groups, and to solve problems on separating the role of the State as the owner and the role of management. Also, the policy of officials in State economic groups should be reconsidered.

With private corporations, the government should have a separate policy to promote these groups further involved in global value chains. More specifically, that could be supported policies of the government on business and markets. – Vietbiz24

Tags: Annual Business Report 2010