Support policies for SMEs have too often failed to reach their targets or reap the expected results.
Common attitudes among experts and businesspeople towards small and medium-sized enterprises (SMEs) hint at the ineffectiveness of support policies for the sector. It’s been said that “they are afraid to grow” or “they just can’t grow”, which may appear to fly in the face of the fact that they contribute 31 per cent of State budget revenue, account for 35 per cent of investment capital, employ more than 5 million people, and contribute nearly 50 per cent to Vietnam’s GDP growth. The truth is, however, that SMEs have developed in quantity but not in quality.
Afraid to grow
In talking about the development of SMEs, Mr. To Hoai Nam, Deputy Chairman and General Secretary of the Vietnam Association of Small and Medium Enterprises (VINASME), was quick to confirm that its recent survey found that 99 per cent of SMEs don’t want to become “rich”. With small or medium-sized production scale or investment capital, they find coping with any market volatility to be quite easy and can meet any legal, tax, or insurance requirements. For Mr. Nam the idea that they “don’t want to grow” stems from shortcomings in existing support policies.
Mr. Vu Tien Loc, Chairman of the Vietnam Chamber of Commerce and Industry (VCCI), believes that the reason many SMEs are “afraid to grow” is because they would face many obstacles in doing so. “The stronger private enterprises are, the higher the cost of administrative procedures become,” he said. His thoughts are reflected in the results of a recent report from the World Bank in Vietnam, which showed that when an enterprise earns one dong in revenue it must part with 0.72 dong or at times even 1.02 dong for bribes and other forms of corruption. Along with that, taxes and other costs can account for 40.8 per cent of an enterprise’s profit.
The burden created by taxes, fees and, especially, “informal costs” affect the operations of all enterprises and is at least partially responsibility for them lagging behind their foreign counterparts. Having worked with Danish experts on researching development trends in Vietnam’s business sector for several years, Mr. Nguyen Dinh Cung, Head of the Central Institute for Economic Management (CIEM), found it easy to identify why Vietnamese SMEs can’t grow. “It’s not down to them, it’s because of Vietnam’s institutions and policies,” he emphasized. “In capital, land, markets, technology, and competitiveness, SMEs face many risks because business costs continually head upwards and have a significant effect on business sentiment.”
Any review of SME support policies over recent years makes it clear to see that too many policies exist only on paper or have not been implemented effectively.
Mr. Bui Anh Tuan, Deputy Director of the Business Registration Management Agency at the Ministry of Planning and Investment, said that both central and local authorities appreciate the need for SME support policies but solutions can’t be agreed upon. In many cases support policies are not consistent with the capacity of enterprises, with few attempting to access such support as a result. In other cases, though, enterprises that have accessed support don’t take full advantage of what’s on offer.
According to Mr. Nam, SME support policies have been introduced against the wishes of the business community, as most SMEs are established as a means of attempting to escape from poverty. He therefore believes a review is needed of support policies to ensure that they target development goals or maintain sustainability. Specific procedures are also necessary to identify beneficiaries, he added, so that incentives don’t find their way to larger enterprises.
For SMEs to successfully integrate in the future and for policies to be able to meet their needs and wishes, any programs must be built based on their actual needs and aspirations. “For this to happen it is necessary to strengthen the role and voice of business associations,” Mr. Nam said.
Mr. Nguyen Xuan Thanh, Director of the Fulbright Economics Teaching Program, said that the State is unable to use its own resources to support SMEs because funds are limited and the number of such enterprises is rising. “In order to support SMEs to develop and successfully integrate, each industry must offer individual suggestions to the State,” he said. “In many cases, however, the relevant association fails to represent most of its members because large corporations often hold key roles within the association.”
Deputy Minister of Planning and Investment Dang Huy Dong said that measures to support businesses need to focus on creating favorable conditions in mechanisms, policies, and finance. In particular, priority should be given to enterprises with the innovation and creativity to produce unique products with high added value that are competitive in domestic and foreign markets.
For his part, Mr. Loc from VCCI said that what SMEs need are a transparent business environment, the rule of law, lower business risks and trading costs, and the removal or at least easing of informal costs. Improvements in the business environment in recent times are very much appreciated but have not been sufficient. State agencies must work with SMEs to remove the difficulties and inconvenience they face. A new business environment would be the result, which promotes innovation and inspires enterprises. With institutional change, along with improvements to State agencies, Vietnam’s business environment would continue to progress and create the conditions necessary for development.
Under development goals for SMEs in the 2016-2020 period there are to be about 450,000 new SMEs established, bringing the total number to 750,000 by 2020. The proportion of investment by SMEs in the businesses sector is to be 50 per cent, the percentage of workers employed at SMEs is to be 50 per cent, and its GDP contribution is to be 40 per cent. Its State budget contributions are to represent 35 per cent of the total.
To achieve these goal focus will be given to a wide range of solutions, including improving the investment and business environments, supporting access to finance and credit, promoting innovation, assisting the application of science and technology, facilitating business links, promoting integration into value chains, backing market expansion efforts, engaging public procurement, and helping with access to land. Funding for such assistance in the 2016-2020 period is expected to be about VND3 trillion ($135 million). A law on SME support is to be submitted to the National Assembly in July.