Optimism about business prospects
In January, more than 4,800 enterprises went back to business, up 69.6% from a year earlier, marking the first month of the year with the largest number of enterprises resuming operations in recent years. According to the General Statistics Office’s survey on business trends of manufacturing enterprises, nearly 41% of respondents say the outlook will be brighter while only 17.7% expect the situation to be grimmer. Moreover, up to 91.1% of enterprises are confident that the number of orders in 2016 will improve compared with 2015 and 90.8% expect export orders to rise and remain stable.
This optimism can be attributed to the domestic economy’s solid recovery. According to a forecast by the Central Institute of Economic Management (CIEM), Vietnam’s economy could grow by 6.82% in 2016 thanks to favourable conditions both at home and abroad. Global economic conditions are creating favourable impacts on Vietnam such as falling crude oil prices, which have led to lower input costs. In particular, Vietnam has signed many new-generation trade agreements, which could push Vietnam’s exports up by more than 10% in 2016. In addition, many breakthroughs in terms of mindset, state apparatus and policy implementation capacity as a result of the recently concluded 12th Party Congress will open new business opportunities and strengthen market confidence.
According to Tran Tien, deputy director of Ha Ca, a Ho Chi Minh City-based company specialising in handicraft exports, the economic outlook in 2016 is fairly bright and Vietnam’s economy will be more stable. He expects that the signing of the Trans-Pacific Partnership (TPP) will help Vietnamese goods penetrate deeper into major markets.
Sharing the same view, Hoang Van Tu, director of Phu Ha Industry and Trade Company said for the garment sector, growth would continue in a stable manner in 2016 but would face more difficulties in the following years as enterprises have to satisfy the TPP’s strict requirements which could hurt small and medium-sized enterprises and help foreign or larger enterprises.
Pressure from intense competition
According to Director of the General Statistics Office Nguyen Bich Lam, orienting the economy towards export is the right path to take, especially as Vietnam is becoming deeply integrated into the world’s economy with many trade agreements already signed and taking effect. But with more than nine out of ten Vietnamese enterprises being small businesses with weak competitiveness and outdated technologies, Vietnam can hardly compete with other countries.
Phu Ha Director Hoang Van Tu said competition in the garment industry would be even stiffer because besides having to secure most of the materials by themselves, Vietnamese enterprises would have to cope with pressure from rising wages, and environmental protection costs, among others, which would reduce the amount of capital needed for production. In Ho Chi Minh City, competition in the garment industry is increasingly intense due to a shortage of workers, high costs and stricter requirements on working conditions and benefits for workers. Currently, many enterprises have relocated part of their manufacturing to neighbouring provinces to take advantage of cheaper labour and better incentives from local authorities. For years, Vietnam’s garment industry has been relying on materials imported from China or produced by foreign joint ventures, so as Vietnam joins the TPP, it seems highly advantageous in general but the garment industry in particular is not well-prepared for this trade pact. This is a disadvantage to small and medium-sized enterprises. If the government does not aggressively invest in the supporting industries for garment manufacturing, there is a high likelihood that Vietnam could only do contract work or grab a very small share of the pie.
The deputy director of Ha Ca, Tran Tien, said falling oil prices have put a strain on the government budget, which will increase pressure on enterprises as a result of likely rises in tax and costs. Together with additional costs from wage and insurance contribution rises, struggling enterprises can barely survive. Enterprises expect that in 2016, tax agencies will refund value-added tax on time so that they can speed up the capital cycle and earn more profits. Companies also expect tax and customs agencies to continue simplifying administrative procedures to facilitate their business activities and help them reduce export-import costs while imposing strict fines on those filing taxes in a dishonest way to make illegal profits. In addition, the government should support enterprises in regional and international integration through concrete measures such as low-interest loans and tax cuts, among others.