The number of business closing or suspending operations shows no sign of abating.
In Nam Sach district, Hai Duong province, the Thu Hang Service and Trading JSC, specialising in petrol distribution and water bottle production since 2008, is going bankrupt after recording losses totalling in the tens of billions of VND over the last few years. It sold its petrol stations last year to finance debt repayments of VND12 billion ($550,000) and its bottling arm also racked up debts.
Nearby, water bottlers the Nam Viet JSC and the K&K Trading JSC are also heading towards the abyss. Both only operate for a few days a month, when they have orders. In 2010 Mr Vu Xuan Viet, Director of Nam Viet, and two friends invested VND1 billion ($50,000) in a bottled water production line with a capacity of 1,500 litres per hour. But without having researched the market carefully it was doomed to failure, and Mr Viet has been struggling on alone since his two partners withdrew. Meanwhile, K & K Trading is dealing with a sharp decline in orders and profits. It sells on average 3,000 bottles a month and earns a profit of VND7.5 million ($350). Its production base is in need of repair but there’s no money to do so.
According to Ms Duong Thi Hang Nga, Deputy Head of the Hai Duong Department of Food Safety, of 107 enterprises registered in the bottled water business in the province only 50 are still active and most are grappling with falling demand. Their difficulties, she explained, are that their local water source is unreliable and other types of bottled water are cheaper.
As the economic conditions have declined the province has seen hundreds of enterprises disband or temporarily suspend operations every year. According to the Business Registration Division of the province’s Department of Planning and Investment, a lack of research and tough competition in the bottled water market led to the dissolution of Nam Viet and K & K Trading. In the first six months of this year, 47 enterprises disbanded and 154 temporarily suspended operations in the province, against 259 and 355, respectively, for last year as a whole.
Hai Duong is far from alone. In Hanoi, figures from the city’s Department of Planning and Investment for the first six months of this year reveal that 1,436 enterprises with total registered capital of VND2.82 billion ($128,000) disbanded and 1,543 enterprises temporarily suspended their operations, out of a total of 79,000 active businesses. Mr Nguyen Tien Hoc, the Department’s Deputy Director, said that companies disbanded after earning no profit or failing to find opportunities for investment and business due to the difficult economy, while a few had no intention of continuing long term or didn’t meet their business registration regulations.
In Ho Chi Minh City, in the first seven months, 14,199 enterprises were dissolved or suspended operations, an increase of 11.5 per cent compared to the same period last year. In July alone the number was 4,000. Mr Pham Ngoc Hung, Deputy Chairman of the Ho Chi Minh City Union of Business Association (HUBA), said that these enterprises were mainly small or had adopted the wrong business strategy and focused on the wrong market segment. Others accrued bad debts due to poor investments and/or weak management. “They all struggled with low consumption and lacked the funds to invest in new equipment or production lines,” said Mr Hung. “Increasing consumption would help enterprises to overcome this tough period.”
Though the macro-economy is gradually becoming stable, the number of businesses facing difficulties is increasing. According to the General Statistics Office (GSO), in the first eight months of this year 44,500 enterprises dissolved or suspended operations, an increase of 12.9 per cent against the same period last year. Of these, 6,400 enterprises were dissolved while 7,600 businesses temporarily halted operations. The remaining 30,500 failed to meet their tax obligations or are yet to notify registration agencies of their closure. The total registered capital of those in difficulties and likely to cease operations stands at VND339,200 billion ($15.4 billion), which is equal to the total capital of newly-established enterprises in the same period. Meanwhile, 10,900 enterprises resumed operations during the eight months, but this is 2.6 per cent less than in the same period last year. “This represents a process of screening and eliminating businesses,” said a GSO representative. “Enterprises have been forced to withdraw because challenges in the economy will expose businesses that are unable to improve.”
Starting last year, a number of industries have been in a process of restructuring, with new businesses opening and others closing. Industries seeing high growth in both business registrations and suspension are Arts, Entertainment and Recreation (up 46.5 per cent and 26.2 per cent, respectively), Real Estate (up 21.5 per cent and 11.2 per cent), Information and Communications (up 7.9 per cent and 30.9 per cent), and Human Health and Social Work Activities (up 18.8 per cent and 30.9 per cent).
Some key industries are seeing falling numbers of new entries and rising closures, such as Wholesale and Retail Trade, Repair of Automobiles, Motorbikes and other Motor Vehicles (with new registrations down 18.4 per cent and closures up 15.8 per cent), Employment Services, Travel, Equipment Rentals, Supplies and Other Support Services (down 13.7 per cent and up 5.4 per cent), and Construction (down 12.1 per cent and up 12.9 per cent). In Mining and Quarrying the number of businesses closing was up 23.2 per cent against the same period last year, Professional, Scientific and Technical Activities 16.8 per cent, and Manufacturing 13.2 per cent.
In the first eight months there was a decline in the number of newly-established enterprises compared to the same period last year in Vietnam’s six economic regions, except in the central highlands, which saw an increase of 21.5 per cent, including 46.2 per cent in Lam Dong and 15.6 per cent in Gia Lai. Closures and suspensions were up in all regions in the first seven months. In the North Central and Central Coast Area, new entries were down 14.5 per cent and closures up 21.1 per cent, in the Northern Midlands and Mountainous Areas down 6.4 per cent and up 20.1 per cent, in the Southeast Area down 6.2 per cent and up 20.6 per cent, in the Mekong Delta down 27.4 per cent and up 8.9 per cent, and in the Red River Delta down 8.8 per cent and up 1.4 per cent.
The 2014 Business Tendency Survey conducted by the Ministry of Planning and Investment (MPI) in May showed that, of 7,675 respondents, 433 had dissolved and suspended operations, with 58.7 per cent facing output difficulties, 24.5 per cent facing high input prices, 21.3 per cent being unable to borrow, 16.6 per cent struggling with the unstable macro-economy, 15.5 per cent having excessive inventories, and 5.3 per cent experiencing difficulties in recruiting workers. Explaining why many enterprises were unable to borrow, Ms Nguyen Huyen Diu from the Monetary Policy Department under the State Bank of Vietnam, told local media that they experienced major difficulties in production output and were unable to absorb capital despite interest rates falling to 2005-2006 levels. “This suggests that aggregate demand in the economy is very weak,” she said. “Though the central bank has attempted to introduce solutions to reduce interest rates and increase credit to support enterprises, most had no plans to borrow.”
According to Mr Hung from HUBA, for demand in the economy to be greater requires three factors: recovery of the real estate industry stimulating money flows to other industries such as construction materials and interior design, free trade agreements (the Trans-Pacific Partnership or the Asia-Pacific Economic Cooperation) creating major export opportunities in new or existing markets, and policies on economic restructuring being introduced, from outsourcing to fuller participation in the global value chain.
Dak Nong was a rare highlight in the first eight months of the year. It reported newly-established enterprises increasing 82.4 per cent closures or suspensions falling 22.6 per cent compared to the same period last year. Provincial enterprises have previously received support from relevant agencies to resolve difficulties. According to Mr Le Van Mot, Deputy Director of the Dak Nong Investment, Trade and Tourism Promotion Centre, five small enterprises (with less than 50 employees) received loans of VND68 billion ($3.1 million) from commercial banks. Manufacturing enterprises were directed to produce products that had clear demand, through connecting processing enterprises, manufacturing enterprises, and farmers. “Dissolved businesses are mainly in fields such as construction and real estate, due to previous rapid growth,” he said. “We continue to cooperate with relevant agencies to support enterprises in output, material sources, capital, human resource management and other policies. The health of local enterprises will remain positive over the remaining months of this year.”
Ho Chi Minh City has also made efforts to support its enterprises, with loans of VND15,000 billion ($684.9 million) since the beginning of this year. Mr Hung from HUBA expects the city’s enterprises will recover quickly over the remaining months of 2014.
Analysis of the MPI survey assessed that Vietnamese enterprises have gradually been operating better, as the number of dissolved or suspended enterprises in 2013 and the first three months of 2014 was lower than that in 2012. Enterprises have a positive view of their recovery prospects and business growth in 2014, but the survey also showed that enterprises are cautious about expanding their production scale, to avoid risk.
- Hai Duong
- K&K Trading JSC
- Nam Viet JSC