Dec 18, 2012

Vietnam - Newly born businesses can’t compensate for the losses left by dead businesses

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VietNamNet Bridge – While the Ministry of Planning and Investment (MPI) shows optimism when stating that there have been more newly set up businesses than dead enterprises, economists don’t.

A report by MPI showed that 62,794 enterprises have been set up so far this year; the number which is much higher than the number of dissolved businesses – 48,000. The newly set up businesses have registered the total investment capital of 403 trillion dong, a 10 percent decrease in quantity and 8.4 percent decrease in the registered capital if compared with the same period of the last year.

It is estimated that about 55,000 businesses would have to stop operation by the end of the year. As such, the number of businesses stopping operation is still lower than the newly born ones.

MPI’s Deputy Minister Dang Huy Dong has reassured the public that the bankruptcy is quite a normal thing in a market economy. It general, the number of dissolved businesses accounts for 11-15 percent of the number of established enterprises.

Especially, the higher number of newly born businesses than the number of dead ones should be seen as an encouraging result in the context of the global economic crisis.

Nguyen Hoa Cuong, Deputy Director of the Enterprise Development Agency under MPI, noted that most of the dissolved enterprises were the ones in the fields of construction, real estate and securities – the markets which were once “scorching hot” and then cooled down rapidly.

“The massive collapse of enterprises would not occur as we thought. Especially, small and medium enterprises would still live well because they have high capability of getting adapted to the new circumstances,” Cuong said.

Cuong has also found the changes in the investment structure with investors now injecting money in processing, manufacturing industries, culture, education and healthcare sectors instead of risky business fields such as financial investment.

However, Pham Chi Lan, a well-known economist, said she cannot be so optimistic.

Lan said that the actual situation of enterprises has been shown in the sums of tax enterprises to pay. Meanwhile, a report by the taxation agency showed that 40 percent of registered businesses do not pay tax any more. Meanwhile, many others have scaled down the production due to big difficulties, and they may die the next year.

Lan said that even if the figure released by MPI is true, the newly born businesses still cannot compensate for the losses and damages left by dead businesses.

When businesses die, thousands of workers would lose their jobs. Meanwhile, newly set up businesses still have been existing on paper, while they have not generated jobs and made a contribution to the national economy.

“Don’t think that the new businesses can offset the dead businesses. In many cases, businesses declared bankruptcy and then registered business under other names, because with the new names, it would be easier to get bank loans,” Lan said.

The economist went on to say that a lot of businesses, which have fallen into decay, have to sell themselves through merger and acquisition (M&A) deals. In many cases, they had to merge into other businesses simply because they had no other choice, not because they wanted to adjust the business strategies.

As such, Vietnam has lost its big resources into the hands of foreigners. Meanwhile, it took Vietnam a long time to form up the current network of businesses.

Lam Lam

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