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Wednesday,  Aug 23,2017,07:32 (GMT+7)

VCCI calls for realistic startup targets

Tu Hoang
Thursday,  May 18,2017,22:03 (GMT+7)
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VCCI calls for realistic startup targets

Tu Hoang

Many people are seen at the business registration agency of the HCMC Department of Planning and Investment. VCCI has warned against lofty goals of having new enterprises in the next three years

HANOI - The Vietnam Chamber of Commerce and Industry (VCCI) has warned against setting unrealistic targets as provinces have scrambled to announce their lofty goals of having new enterprises coming in being in the next three years.

The central Government has set a target of having one million active enterprises by 2020 but the number of enterprises which cities and provinces have registered has now reached a staggering 1.5 million.  

VCCI Chairman Vu Tien Loc said in a report prepared for a second meeting between Prime Minister Nguyen Xuan Phuc and the business community in Hanoi on May 17 that some provinces have set general goals of doubling the current numbers of businesses.

In 2016, the number of newly-registered enterprises hit a record high of 110,100, with total capital of VND891.1 trillion, up 16.2% and 48.1% respectively from 2015, according to VCCI. In the first four months of this year, 39,580 new businesses came into being, bringing the total number of registered enterprises by April 30, 2017 to a little more than one million.

With those firms suspended, disbanded and resuming operation in 2016 taken into account, the nation had an estimated 546,281 active enterprises on December 30, 2016.

However, a high level of insolvency is still cause for concern. In 2016, over 73,000 enterprises turned inactive or were dissolved, down 9.5% from 2015, of which around 12,500 completed dissolution procedures and the remainder stopped operating.

Loc said, “So far this year, the number of newly-established enterprises has increased but the companies that have suspended operations and been disbanded make up about half the number of newly established entities.”

These are signs of unsustainable business development, according to the VCCI report.

Labor use efficiency went down in 2007-2015 and capital use efficiency dipped as well. The percentage of loss-making businesses rose in 2011-2015 with an average of 40.9%. The return on equity fell from 6.6% in 2012 to 3.2% in 2015.

Business size has not improved much, with the average number of employees per enterprise staying at around 30, far below the criterion for small businesses with fewer than 50 employees.

For three consecutive years (2014, 2015 and 2016), domestic firms were outperformed by foreign-invested enterprises. It was domestic enterprises that caused the trade deficit, and contributed less to the nation’s total exports, only 28.4% in 2016.

Corporate governance at Vietnamese enterprises remains woefully poor. Worse still, they can turn out large volumes of goods but their quality is low.

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