Profit of private firms lower than state-owned firms

The profit gained by private businesses is still much lower than that of state owned and foreign invested enterprises (SOEs and FIEs). The ratio of profit on total assets of private businesses is 1.5 percent, while the figures are 5.4 and 10.6 percent, respectively, for SOEs and FIEs.

While private businesses take the lead in terms of investment efficiency, their ratio of profit on total assets is still lower than that of SOEs and FIEs, according to the report on private economic sector development released by the Taskforce on the implementation of Enterprise Law and the UNDP on October 13.

To date, 500,000 enterprises have been established in Vietnam. If comparing the investment capital and the GDP of private businesses, SOEs and FIEs, one can see that the private sector has the highest investment efficiency.

In 2001, the ICOR index (Incremental Capital Output Ratio) of the private sector was 2.63, while the figure was 7.42 for SOEs and 6.29 for FIEs. The ICOR of the private sector was still the lowest in 2007: private businesses only needed 3.74 dong to make one dong of profit. Meanwhile, SOEs needed 8.28 dong, and FIEs 4.99 dong.

Besides, the expenses private businesses have to pay to create jobs are also the lowest. In 2008, SOEs needed 436.5 million dong worth of stockholder equity to create a job, while private businesses only needed 224.1 million dong.

In 2009, the private economic sector provided jobs to 85 percent of labourers, while SOEs and FIEs 11.5 percent and 3.4 percent, respectively, of the total 47.7 million labourers.

The ratio of total turnover on total assets of the private sector is also higher than other economic sectors. In 2008, private businesses could create 1.8 billion dong in turnover from one billion dong. Meanwhile, with the same sum of money, SOEs created 0.8 billion dong, and FIEs 0.89 billion dong.

Nevertheless, the profit of private enterprises is still far below the profit of SOEs and FIEs.

According to Pham Chi Lan, a well known economist, the low profit makes it unable for private businesses to accumulate money for re-investment.

Le Duy Binh, Representative of the Taskforce on the implementation of the Enterprise Law, said that a lot of private businesses have reported loss. However, it might happen that they declared loss to avoid taxes.

He said that private businesses have to bear high expenses, therefore their profit is low. Private businesses, for example, have to pay high for leasing workshop premises, while SOEs and FIEs can lease land at lower fees.

Besides, private businesses usually find it difficult to access bank loans because they do not have assets to mortgage for loans. – VnExpress

Tags: Vietnam private firms, Vietnam SOEs