Businesses facing tough challenges

Illustrative photo

According to many economic experts, huge difficulties will continue to place pressure on Vietnam's growth target in the coming months. And, all three main "engines" of the economy - namely, State-owned enterprises, FDI enterprises and private enterprises - are struggling with difficulties, especially the private sector.

Vietnam had 826 State-owned enterprises (SOEs) as of December 31, 2021, including 673 wholly State-owned enterprises and 153 enterprises with State interests. Their total assets are valued at more than VND3,700 trillion (US$154 billion), a 2% increase over 2020. Their owner equity was VND1,795,451 billion, up 3% over 2020. Their total revenue was VND2,128,254 billion, up 8% year on year.

Many difficulties are challenging SOEs

Their total liabilities were more than VND1,900 trillion (US$79 billion), as much as in 2020, of which short-term liabilities accounted for 53%.

According to the Ministry of Finance, SOEs which operate as holding firms have total assets of nearly VND3,400 trillion, accounting for 90% of the total assets of SOEs. Their consolidated revenue totaled more than VND1,500 trillion, up 9% compared to 2020.

Big revenue earners are mainly giant holding SOEs like Vietnam Electricity (VND440 trillion), Vietnam National Oil and Gas Group (VND380 trillion), Viettel Group (VND150 trillion); and Vietnam National Coal, Mineral Industries Holding Corporation Limited (VND114 trillion.

The pre-tax profit of holding SOEs amounted to VND186,371 billion in 2021, up 31% year on year, accounting for 91% of the total pre-tax profit of all SOEs. The most profitable SOEs are mainly giant ones like Vietnam National Oil and Gas Group (VND52 trillion), Viettel Group (VND37 trillion) and Vietnam Electricity (VND18 trillion).

In 2021, many companies started to recover and regain development. Some parent corporations reported revenue growth of at least 30% over 2020, including Vietnam National Chemical Group (up 156%), Economic Cooperation Corporation (87%), Technological Application and Production One Member Limited Liability Company (77%), and Vietnam Expressway Corporation (66%).

Some companies reported a sharp decline in pre-tax profit in 2021. Vietnam Paper Corporation posted a pre-tax profit of VND1 billion, or a 90% slump; Hanoi Transport Corporation a pre-tax profit of VND1.5 billion, down 90%; Housing and Urban Development Investment Corporation (HUD) a pre-tax profit of VND163 billion, down 52%, on a revenue decline of 42% over 2020.

A total operating loss of VND16,064 billion was reported by 90 out of 826 SOEs (or 11% of the total. A total accumulated loss of VND52,840 billion was incurred by 184 out of 826 SOEs (or 22% of the total). Vietnam National Chemical Group suffered an accumulated loss of more than VND3,000 billion. Vietnam Railways Corporation and Hanoi Tourism Corporation lost nearly VND2,000 billion and VND69 billion, respectively.

FDI firms report repeated losses

According to a report released by the Ministry of Finance on December 28, 2022, no optimistic growth was seen in the FDI business sector in 2021. Their total assets, owner equity and revenue saw double-digit growth against 2020. Especially, their profit after tax rose 29.6% year on year to VND83,585 billion in 2021.

The biggest contributor to the profit earned by the FDI sector was the processing and manufacturing industry, followed by real estate; warehousing, transportation; production and distribution of electricity, gas, hot water and air-conditioning.

However, liabilities of FDI enterprises rose 14.7% year on year to VND5,261 trillion in 2021. Some fields had high debt-to-equity ratios, such as media (4x), finance, banking and insurance (3.85x), production and distribution of electricity, gas, hot water and air conditioning (2.93x).

More than 14,200 FDI enterprises reported losses in 2021, accounting for 55% of total FDI firms and rising 11% over 2020. They lost more than VND168 trillion. 16,000 FDI firms incurred accumulated loss, accounting for 62% of total FDI firms, 8% more than the previous year. More than 4,400 FDI firms reported a decline in owner equity, up 15% against 2020.

According to the Ministry of Finance, although  their assets' size expanded, the liabilities' growth was higher than the  equity growth. The capital growth of FDI firms mainly came from external funding. Profitability indicators of some fields remained negative and did not pick up. The amount of tax paid by FDI firms was not commensurate with their total investment fund. More FDI companies reported bigger losses. Their exports were mainly manufactured and outsourced labor-intensive products with low value, low technology and low localization rate.

More support needed for private businesses

Despite difficulties caused by the COVID-19 pandemic in the past years, Vietnam's private business sector is still showing remarkable growth. Despite accounting for more than 97% of total enterprises and contributing 45% to GDP and 31% to budget revenue, private enterprises in Vietnam are still not treated equally with SOEs and FDI firms.

In many economic forums, experts pointed out that it is very tough for private companies to access preferential loans to have enough resources for stable and long-term development.

Recently, the Private Economic Development Research Commission (Commission IV) under the Advisory Council for Administrative Procedure Reform summarized and reported the biggest challenges faced by businesses in late 2022 and early 2023 to the Prime Minister.

Accordingly, based on reflections and feedback from businesses and trade associations since mid-October, Commission IV sent reports on major barriers and challenges that directly affected economic and business recovery and sustainability to the Prime Minister.

Currently, enterprises in most industries indicate that importing and exporting activities have been challenging in the second half of the fourth quarter of 2022 and the beginning of 2023.

Market opportunities and export orders dwindled seriously, especially in the textile, garment, leather and footwear, furniture, aluminum, iron and steel and cement industries. Many companies had to cut workers and reduce production scale in the last months of 2022.

Input costs for export production in Vietnam are high and tend to be higher. This will thus reduce corporate competitiveness in international markets. The USD/VND exchange rate increased sharply. Rising interest rates increased the production cost of many Vietnamese enterprises.

To support recovery efforts of enterprises, especially domestic private ones in the context of weak cash flows, Commission IV proposed the Government consider extending some business support policies applied to the pandemic period until the end of 2023 to achieve practical effects, including a 2% reduction of value-added tax and preferential land rentals as per Decree 96/2019/ND-CP of the Government.