Business environment needs stability
Around 55,000 enterprises in Vietnam may file for bankruptcy by the end of this year but the situation was not overly serious, one official said.
Bui Anh Tuan, Deputy Director of the Ministry of Planning and Investment’s Business Registration Division, made the comment at a seminar on business development and investment in Hanoi on December 11.
“The situation in Vietnam is not really that pessimistic as the country recorded nearly 48, 473 bankrupted enterprises in the first eleven months of the year. This is the same as the rate of from 11%-15% annual bankrupted enterprises in Japan and the US,” Tuan said.
The country is estimated to have 65,000 new businesses this year, meaning the country will still have 10,000 more operational enterprises during the year, he assessed.
However, he admitted that due to the large number of enterprises filing for bankruptcy, it has resulted in a deficiency in state budget revenues this year.
Deputy Minister of Planning and Investment Dang Duy Dong said as of November 30, cities and provinces nationwide granted business licenses to 65,091 enterprises with a total registered capital of VND418.85 trillion (over USD20 million).
The figures showed a 10% decrease in the number of new enterprises and a fall of 8.4% in terms of registered capital compared to the same period last year.
Hanoi and HCM City topped the list for having the largest number of bankrupted enterprises during the eleven-month period.
According to Tuan, there was a gradual fall in the number of new enterprises quarterly. There has been a fall in the number of new firms operating in real estate, construction and finance but more firms in healthcare, culture and tourism.
Many experts said that the country should honestly look at its economic situation as many enterprises were facing mounting difficulties.
Dr Cao Si Kiem, from the Vietnam Association of Small and Medium Enterprises said it was necessary to carefully assess the quality of small and medium enterprises (SMEs) in Vietnam as there were different data produced by some agencies and the public statistics were more optimistic than the reality.
Kien said that among additional 10,000 new enterprises compared to bankrupted ones, several were set up with the help of bank loans after a formerly troubled firm filed for bankruptcy. This gave some indication in terms of the quality of the new enterprises.
The situation was touched by Vice Chairman of the Hanoi Young Business Association Dang Duc Dung at the recent Vietnam Business Forum (VBF) 2012.
Dung said that many owners of enterprises that had bad debts and were blacklisted for credit had established new firms to source bank loans.
Concerning the issue, economist Pham Chi Lan said the number of newly-established enterprises simply depicted the surface of the business situation as they had yet to prove particularly profitable.
Vu Xuan Tien, Director of VFAM consultancy company, however, blamed the current difficulties faced by enterprises on inadequate business policies.
Inadequacies included a regulation that required stable enterprises that have foreign shareholders to re-register for their operations, a ban on using apartments for offices, in addition to bureaucratic and cumbersome procedures to file for bankruptcy that foster corruption, he noted.
Dr Nguyen Dai La said that banks seemed to prioritise state-owned enterprises that had over half of total outstanding loans. Meanwhile, SMEs accounted for as much as 97% of total enterprises nationwide and they are finding it hard to get bank loans.
“If a part of funding set for saving state-owed enterprises is spent for SMEs, it could help tens of thousands of enterprises survive,” La emphasised.
Not all steelmakers in trouble
Despite so many steel firms going bust or cutting back on production, business is booming for some industry players who have reached profit targets sooner than expected.
Hoa Phat Group and Hoa Sen Group reported they had achieved their profit targets for the whole year already, said Pham Chi Cuong, chairman of the Vietnam Steel Association (VSA).
Its major product is construction steel, but Hoa Phat has not been greatly affected by the construction slowdown and still earned an accumulated profit of VND950 billion in the first ten months, meeting its target for the year. By the year’s end, the group’s profit may grow to VND1.1 trillion.
The reason for this is that Hoa Phat has a good distribution network for its construction steel products. In addition, the group produces and exports steel pipes, an item that has recorded 24% growth in exports this year, said Cuong.
The steel pipe is one of the three steel items that has achieved export growth. The other two are galvanized steel sheet (the major product of Hoa Sen Group) and cold-rolled steel, with a growth of 28%.
Hoa Phat has another advantage in that its products are input materials for other members in the group that need steel for real estate projects they are investing in.
Hoa Sen Group has also reached its target for 2012 with a profit of VND350 billion. It is the first steel company to set targets for next year, aiming at 10% growth in revenue and profit.
Given the difficult situation, Hoa Sen has boosted exports of galvanized steel sheet and increased production of this item. Moreover, the distribution system of Hoa Sen is quite developed, facilitating goods consumption, said Cuong.
Meanwhile, Pomina Steel Joint Stock Company, despite its huge distribution network and market share in the southern region, has recorded a loss of VND28.2 billion. The steel producer has also reduced its production capacity by tens of percent.
Among the product lines in the steel industry, some gain profits, some incur losses, some achieve growth and some suffer declines, but overall, the industry recorded growth of 3%, said Cuong.
Steel billet and construction steel producers are most severely affected by the economic downturn, said the VSA chairman.
“The total output of the industry so far has fallen by 13-14% against last year,” he said.
A large number of steelmakers across the nation have scaled down production, suspended expansion or gone bust.
In the north, Van Loi Steel Company has halted operation of two steel mills and one steel billet factory in Haiphong for over a year. Its furnace projects in Nghe An have also been put on hold indefinitely.
Moreover, Van Loi owes banks over VND1 trillion. If the firm goes bankrupt, creditors will suffer huge losses.
Dinh Vu Steel Company, a large steel billet producer, has been making losses for a number of years. The firm has transferred a 70% stake to Vinausteel and is now operating perfunctorily.
The steel companies with shareholders from State-owned enterprises share the same fate. For example, Cuu Long Vinashin has already stopped production while Song Hong Steel Company is seeking to sell its stakes under the form of restructuring.
Thai Nguyen Iron and Steel Company, a leading steelmaker in the northern region, after enjoying profits for a number of years incurred a loss of VND2.4 billion in the first nine months of 2012.
The loss it not huge but the company is burdened with a bank debt of over VND6 trillion and needs trillions of dong to finish the second phase of its expansion project.
Given the oversupply of construction steel, it is possible that Thai Nguyen Company will continue to run into losses in the next few years as financial costs eat into profits.
Big struggle ahead to get local SMEs back on their feet
Experts have a headache trying to find ways to support small- and medium-sized enterprises to overcome current economic difficulties.
Currently, more than 97 per cent of all enterprises in Vietnam are small- and medium-sized enterprises (SMEs) and they provide more than half the employment opportunities in the country.
However, by September 2012, over 51,000 enterprises were newly-established; 42,000 enterprises were dissolved and stopped operation, according to a recent report of Vietnam Chamber of Commerce and Industry (VCCI).
Meanwhile, a survey of Central Institute for Economic Management (CIEM) among 2,449 SMEs in the country’s 10 big cities and provinces in 2012 showed that nearly 39 per cent these enterprises were facing credit difficulties.
VCCI secretary general Pham Thi Thu Hang said that in recent years, the number of new businesses increased but the enterprise size was mainly small and very small, so it was very difficult to approach and expand markets.
Le Thi Hong Len, head of the Association of Chartered Certified Accountants (ACCA), Vietnam said the SME sector was a critical one to the future success of the Vietnam economy.
Currently, SMEs contribute approximately 25 per cent to Vietnam’s total export earnings, 40 per cent to GDP, 30 per cent to the state budget, and 35 per cent to the country’s total social investment.
In the next three years, the SMEs are expected to create between 3.5 million and 4 million news jobs, fulfilling more than 65 per cent of Vietnam’s new employment.
“Small businesses, because they can act quickly, will also lead the development of the Vietnam economy,” Len said. “But they face a number of challenges, including how to access finance.”
Rosana Mirkovic, head of SME Policy at ACCA, said: “Small businesses around the world all face the similar challenges – such as regulation, access to finance and access to cross border trade.
Supporting SME development ought to be an active agenda across government departments.”
For example, she added, those departments responsible for fiscal policy, justice or employment law may well have a bigger effect on SME growth and access to finance – through their decisions on tax policy on equity funding, setting up or developing better access to efficient credit information facilities right through to well-functioning property and contract law frameworks.
The MPI has proposed eight groups of measures to boost SME development in the 2011-2015 period. They include completing the legislative framework regulating SME operations, providing financial assistance and preferential credit loans, promoting the application of technology, developing human resources, updating market information, expanding markets, building business support agencies, and furthering business management skills.
Le Manh Hung, deputy head of the Business Development Department under the Ministry of Planning and Investment, said SME support funds should be created, with high technology developments prioritised, and SME innovation encouraged — all aiming to increase added-value, competitiveness, and protect the environment.
For SMEs to overcome this difficulty, VCCI’s Huong said the enterprises should review the whole system of production, distribution, product innovation, innovative technology applications to further participate in the global value chain, exploit the domestic market and enter niche markets.
At the same time, enterprises should closely involve in the cluster system, industrial zones, and collaborate with other business associations to improve product quality at reasonable prices.
HCM City exports to top US$30 billion
The Municipal Department of Industry and Trade estimates Ho Chi Minh City’s total 2012 export turnover at US$30.25 billion, a year-on-year increase of 7.36 percent.
Speaking at a recent city cabinet meeting, the Department’s Deputy Director Huynh Khanh Hiep said domestic firms accounted for US$21.45 billion of the export turnover, up 4.56 percent on the previous year, while foreign-invested enterprises posted the remaining US$8.8 billion, up 14.87 percent.
The five commodities exceeding US$1 billion in exports are textiles and garments, electric and electronic products, rice, footwear, and rubber products.
There have been significant increases in processed and manufactured goods and hi-tech product exports, and a steady decrease in the export of raw materials, said Hiep.
Value additions have been seen in the export of rice, coffee, rubber, and seafood products, he said.
This year also saw emerging products achieve high export growth rates like electronic and computer components.
The city’s goods have been shipped to 228 countries and territories this year, meaning successful expansions into four new markets since 2011.
HCM City currently has some 18,000 companies involved in international trade.
In 2013, the city targets a GDP (gross domestic product) growth rate exceeding 9.5 percent and a per capita income of US$4,000.
It also aims to record investments valued at VND248.5 trillion (US$11.9 billion) and comprising over 36 percent of the city’s GDP; to bring the city’s CPI (consumer price index) to below the national average; and to increase export revenues by 13.5 percent compared to 2012.
Businesses pessimistic about 2013 economic prospects
Many Vietnamese businesses have expressed pessimism about next year’s economy, anticipating numerous difficulties and challenges requiring greater efforts to overcome.
The Vietnam Report Joint Stock Company (Vietnam Report) recently conducted a survey of 192 businesses numbering among Vietnam’s top 1,000 largest corporate income tax payers (V1000), top 500 largest enterprises by revenue (VNR 500), and the 500 enterprises with the fastest growth (FAST 500).
The survey focused on business performance and opinions of 2013’s economic prospects.
Half of V100 business leaders said that their business operations were worse than in 2011. Only 19 percent said their business performance had improved in 2012.
It is worth noting that all representatives from the banking and financial sectors reported 2012’s results were much lower than a year earlier. 60 percent of iron, steel, and construction businesses shared the same disappointment.
Next year’s gloomy economic outlook means no end in sight to the difficulties confronting domestic businesses.
Up to 55 percent of businesses argued that the national economy will see little or no improvements in 2013.
The numbers of businesses (25 percent) suggesting next year’s business situation will be worse than last year is higher than those (20 percent) stating that next year could be better.
From the majority of surveyed business representatives believe the national economy is likely to bounce back after 2013.
2012’s economic woes forced more than 65 percent of employers to reduce unnecessary costs in an effort to maximize profits while 45.8 percent of enterprises expanded the scale of their business and 27 percent limited bank loans.
Businesses also highlighted challenges they perceive on 2013’s horizon, such as businesses environment instability, declining consumer demand, material price rises, and capital resource inaccessibility.
However, they also maintained faith in the Government’s commitment to keeping 2013’s rate of inflation at a single digit. Only 19 percent of business representatives stated next year may see double-digit inflation.
Many businesses said they hope to receive more support from banks next year. Up to 76 percent of businesses plan to borrow capital from banks to boost production in 2013. But half of businesses said the majority of their resources will come from equity capital.
The survey showed to the necessity of business restructuring to advance their development. More than 90 percent of business managers said Vietnamese businesses have restructured independently and the trend will continue in following years.
The Government needs to maintain a stable business environment, especially in terms of interest and inflation rates, to assist businesses with accessing capital.
Vietnam participates in Cambodia exhibition
The 7th Cambodia Import-Export & One Province One Product Exhibition 2012 opened in Phnom Penh on December 15, attracting 200 businesses from 20 countries including 37 from Vietnam.
Cambodian Commerce Minister Cham Prasith used the opening ceremony to emphasise the event’s aims to boost the country’s imports and exports, introduce quality domestic and foreign products to visitors, and encourasge trade exchange opportunities for Cambodian businesses and foreign partners.
The fair features 400 stalls showcasing agricultural products, household commodities, cosmetics, jewellery, electronics, tourism, and banking services.
Vietnamese businesses are exhibiting pepper, frozen seafood, coffee, and processed food.
Vietnam’s Ministry of Agriculture and Rural Development and Ministry of Industry and Trade used the occasion to organise a Vietnam-Cambodia agricultural cooperation forum in coordination with Cambodia’s Ministry of Commerce.
It hopes to increase the competitiveness of and uncover investment opportunities for Vietnamese businesses entering Cambodia.
During the 2001-2011 period, two-way trade turnover between Vietnam and Cambodia grew by 23 percent annually—from US$169 million in 2001 to US$2.83 billion in 2011.
Cambodia is now one of Vietnam’s major export markets.
Phu Quoc International Airport inaugurated
Phu Quoc International Airport will facilitate the establishment of economic zones and protect the country’s sovereignty over seas and islands.
Prime Minister Nguyen Tan Dung stated the above at an inauguration ceremony for Phu Quoc International Airport in the southern Kien Giang province on December 15.
Addressing the ceremony, Dung highlighted how investors, contractors, and local authorities overcame difficulties to complete the airport’s construction.To make the airport operate effectively and become a high quality tourism site in terms of the region and the world, the PM asked both central and local agencies to connect the island to the national power grid, improve the island’s road infrastructure, and ensure safe water for residents.
He urged Phu Quoc, Kien Giang, and relevant agencies to update and perfect Phu Quoc Island’s development plan, both for infrastructure and the socio-economy. He also asked the southwestern steering committee to continue conducting tourism projects in future.
With a total investment capital of VND3,000 billion, Phu Quoc International Airport has met International Civil Aviation Organisation (ICAO) standards and the strict requirements for modern aircraft like the Boeing 777 and 747-400. The airport’s terminals can serve more than 2.65 million passengers annually with a peak capacity of 1,350 passengers per hour. It is equipped with the latest advanced equipment and technology.
The US-Singapore consortium CPG-PAE designed the facility in accordance with international standards.
Application of modern financial products discussed
Nearly 200 managers, researchers, experts, and entrepreneurs gathered in HCM City on December 15 to discuss the application of modern financial products.
Delegates discussed the risk management applications of modern financial mechanisms, financial strategies reducing risks and improving business performance, new product development, and competitiveness improvements to Vietnam’s commercial banks.
They also outlined solutions to help businesses to make profit in the context of international economic integration.
Participants debated major issues arising from the monetary market’s new productsand the necessary conditions, opportunities, and challenges in applying these products.
Some Vietnamese scholars delivered speeches on derivative markets, the Vietnamese securities market’s forecasted development trend, and the rapid advances in retail banking services.
Vietnam attends ASEAN-India trade fair
Twenty-five Vietnamese businesses and association and corporation representatives will attend the second ASEAN-India Business Fair (AIBF) in New Delhi from December 18-20.
The fair is part of activities marking the 20th anniversary of the partnership between ASEAN and India relationship and 10 years of advancing the relationship to higher levels.
Through the event, Vietnamese enterprises want to advance the status of their farm products, consumer goods and other commodity exports in the Indian market. They also hope to introduce the potential of Vietnam’s investment environment, attracting foreign investors as well as promoting the nation’s image.The Vietnamese Embassy in India’s Trade Counsellor Nguyen Son Ha stated that the large-scale event will feature over 350 pavilions from a number of ASEAN and Indian businesses.
The Vietnamese pavillions, the largest representation yet, will feature products such as garments and textiles, chemicals, processed food, cosmetics, and handicrafts from 25 businesses,groups and corporations.
The Ministry of Industry and Trade will coordinate with its Indian counterpart the Federation of Indian Export Organisation, and other partners on exchanges between Indian and Vietnamese businesses in Kolkata City on December 17 and in New Delhi on December 19.
Vietnam-Japan economic partnership under discussion
The southern Ba Ria Vung Tau province has hosted a December 14 seminar discussing the Vietnam-Japan Economic Partnership Agreement (VJEPA) after its first three years of implementation.
Addressing the seminar, Ho Van Nien – Head of the Steering Committee for International Economic Integration—explained the event offered an opportunity to introduce Japanese businesses to the investment potential of both Vietnam and Ba Ria Vung Tau, shared import-export market information, and devise ways to attract Japan’s investment capital in the name of local socio-economic development goals.
The event also helped both Vietnam, local and foreign experts, and international organisations learn more about chances to strengthen cooperation between Vietnam and Japan.
Delegates also discussed the agreement’s benefits for the businesses of both nations, incentives encouraging investment in Vietnamese industrial parks and economic zones, and the host province’s policies for attracting FDI to the logistics and support industries.
The VJEPA took effect in October 2009, aiming to liberalise trade and service activities, remove tariffs, andenhance overall economic relations between Vietnam and Japan. Japan provided tax exemptions to 95 percent of items imported from Vietnam while Vietnam also granted tax exemptions to 88 percent of items imported from Japan over the next ten years.
Total two-way trade turnover has increased around 92 percent in the ten years since trade liberalisation.
Vietnam has 15 coastal economic zones and 283 industrial parks, mainly located in the north, central and southern key economic regions, and taking full advantage of location, transport infrastructure, and human resources.
Ba Ria Vung Tau boasts a ports system that could maximise the efficiency of Japanese businesses investing in as areas like mineral ore exploration, steel production, support industries, seafood processing, and logistics service development.
80 percent of domestic consumers using Vietnamese goods by 2015
By 2015, around 80 percent of Vietnamese consumers will favour Vietnamese goods, and 90 percent of rural and mountainous communes will have access to stores stocking domestically produced products.
The information was unveiled by the central steering committee at a conference held in Hanoi on December 14.
The conference reviewed the first three years of implementing the campaign “Vietnamese people use Vietnamese goods”.
In his opening speech, Vietnam Fatherland Front (VFF) Central Committee President Huynh Dam said highlighted the campaign’s contributions to the country’s socio-economic development despite facing global economic downturn, thus improving its competitive capacity, and bolstering the nation’s pride.
According to a report released at the conference, the campaign’s first three years have made Vietnamese consumers fully aware of its significance and altered their shopping habits encouraging the purchasing of Vietnamese products over foreign goods. The report said up to 71 percent of consumers have placed their trust in Vietnamese goods, especially in relation to garments, textiles and footwear.
Enhancing the competitiveness of Vietnamese goods requires upgrading vocational training available to labourers, paying special attention to marketing and product quality, and stablising prices. Businesses should protect the reputation of their trademarks.
In his speech, Deputy Prime Minister Hoang Trung Hai said that the campaign has helped with curbing inflation, stablising the macro economy, and made businesses aware of its role in the country’s socio-economic development.
Hai emphasised that the campaign’s next stage will be vital to upholding the nation’s patriotism and pride, giving a fresh impetus to high quality goods production meeting the local demands and fulfilling export targets. It will also further the socio-economic development strategy in the 11th National Party Congress’ resolution.
The campaign’s central steering committee stressed the necessity of stepping up communications on the campaign, bettering market management, and combating smuggling, trade fraud, and fake goods.
The committee commended 76 collectives and 8 individuals for their outstanding achievements during the three years of carrying out the campaign.
Foreign investment soars in Binh Duong
The southern province of Binh Duong will attract an estimated US$2.6 billion in foreign direct investment (FDI) in 2012, far exceeding the target of US$1 billion, according to the provincial People’s Committee.
Among the foreign firms to invest in the province was Japan ‘s Sai Gon Stec Co which spent US$175 million on expanding its factory to produce electronic circuit boards for cameras in the Vietnam-Singapore Industrial Park (VSHIP) II. This expansion has raised the company’s total investment in the province to US$ 340 million.
Another Japanese enterprise, Wonderful Sai Gon Electrics, added US$150 million to its hi-tech factory to produce camera modules used in mobile phones, allowing it to turn out 245 million products each year. Sun Steel Co also expanded its operation in steel and corrugated iron with a capital supplement of US$100 million.
New FDI registered in the province also contributed to this year’s boom. Over 100 new projects, capitalised at US$1.58 billion, were granted investment certificates.
To date, the province has attracted 2,117 foreign-invested projects worth a combined capital of US$17.3 billion.
According to financial analysts, the strong inflow of FDI to Binh Duong, despite the global economic difficulties, showed that the province had responded to demands from investors for a safe and secure investment environment.
Binh Duong’s high quality infrastructure and its provision of land are attractive to overseas investors, they said.
To date, the province has developed 28 industrial parks, covering a total area of over 9,000ha, many of which have become well-known in international business circles, including VSIP, My Phuoc and Song Than.
While maximising its existing strong points, local authorities have realised that they need to pay more attention to improving local services and the quality of its human resources as well as simplifying administrative procedures to make it easier for investors.
North central region’s tourist numbers increase sharply
Six provinces in the north central region (spanning from Thanh Hoa to Thua Thien-Hue) have so far recorded 10.3 million tourist arrivals in 2012, up 12 percent against last year.
The tourism industry’s total revenue has increased 20 percent year-on-year.
Thua Thien-Hue, which hosts the 2012 National Tourism Year for the North Central region, has welcomed over 2.5 million arrivals, a 24.9 percent rise.
The number of foreign tourists traveling the region is almost at 803,000, up 24.5 percent against the same period in 2011.
The tourism industry has brought in VND4,470 billion to the imperial city of Hue.
The Ministry of Culture, Sports, and Tourism coordinated with localities to organise 30 major initiatives as part of the 2012 National Tourism Year for the North Central region.
The north central region has mobilised more than VND70 billion from social resources to fund the initiatives and reduce the state budget’s burdens.
VietJetAir launches HCM City-Phu Quoc route
VietJetAir officially inaugurated its Ho Chi Minh City – Phu Quoc island route on December 15.
It is the budget carrier’s ninth domestic route. The company said that it will operate an Airbus A320, which is capable of carrying up to 180 passengers, on its daily flight from Ho Chi Minh City to Phu Quoc and vice versa.
The new air route demonstrates VietJetAir’s pledge to promote beautiful landscape, traditional culture and history and the people of Kien Giang province, and Phu Quoc island in particular, to domestic and international tourists.
Currently, VietJetAir operates around 250 flights per day linking major cities in Vietnam.
Hanoi-Phu Quoc direct route launched
The National Flag Carrier Vietnam Airlines on December 14 launched the Hanoi- Phu Quoc direct air route in the presence of Primer Minister Nguyen Tan Dung, former Party General Secretary Le Kha Phieu and other senior officials.
With five flights a week by Airbus 321, the Hanoi-Phu Quoc route will help boost economic, trade and investment, and tourism development in the Phu Quoc district of the Mekong Delta province of Kien Giang.
Vietnam’s largest island of Phu Quoc boasts great potential for tourism development and is vital to the international and regional maritime transport network.
The route will increase Vietnam Airlines’ air routes to 86, to 20 domestic and 28 international destinations.
‘Cao Lanh Mango’ awarded brand recognition
The National Office of Intellectual Property of Vietnam has officially recognized the ‘Cao Lanh Mango’ from Cao Lanh District in the Mekong Delta province of Dong Thap as a brand name.
The ‘Cao Lanh Mango’ was awarded the brand recognition certificate during the trade and investment promotion exhibition in Dong Thap Province, which took place from December 10-15.
A representative of Café Control Vietnam Company granted the Global GAP Certificate to My Xuong Mango Cooperative in Cao Lanh District.
At the ceremony to present Cao Lanh Mango to the public, representatives of Japanese Tasaka Company and two other enterprises in Hanoi and Ho Chi Minh City signed a mango dealership agreement with My Xuong Cooperative for 2013 and subsequent years.
Cao Lanh Mango now has two varieties–the Cat Chu and Hoa Loc varieties.
The recognition of Cao Lanh Mango as a brand name is the result of efforts made by 25 members of the My Xuong Cooperative and many other mango growers in Cao Lanh District.
Cao Lanh District is a mango-growing area with 3,500 hectares under mango groves providing more than 30,000 tons of mangoes every year.
Cao Lanh Mango is grown in accordance with Global GAP and VietGAP quality standards, which are safe for consumer health.
Four star Novotel Saigon Center opens in HCMC
The four star Novotel Saigon Center was officially opened on December 13 at 167 Hai Ba Trung Street in District 3 in Ho Chi Minh City.
Rex hotel is one of five-star hotels in HCMC (Photo: U. Phuong)
The hotel has 18 floors, 247 rooms, three basements, a conference room, swimming pool and a state-of-the-art Spa, designed by Accord Corporation. The total investment for the Center was more than VND1.2 trillion.
The investor, Que Huong Liberty Company, an affiliate of Saigon Tourist Travel Service Company, said it is continuing investments in other restaurants and hotels and planning the four-star Liberty Center Saigon Riverside and five-star Pullman Saigon Center in HCMC in the third quarter of 2013.
Tran Hung Viet, director-general of Saigon Tourist, said as part of its development strategy for the period 2011-2015 with vision for 2020, the company will become a leading travel agency in Vietnam, that will provide accommodation and travel services with the hope of pushing up tourism to become one of the key economic sectors of the City and the country.
The cooperation between Saigon Tourist and Accord Corporation will help increase international holidaymakers to Vietnam as well as improve tourism quality, services and management as per international standards.
The country has currently around 13,500 hotels with more than 285,000 rooms, of which 55 are five-star hotels, 142 are four-star hotels, and 314 are three-star hotels. HCMC has around 1,100 ranked hotels of which 90 are from three to five-star.
Free Trade Agreement with South Korea poses challenges for Vietnam
The Free Trade Agreement between Vietnam and South Korea was expected to help economic growth in Vietnam to rise by 1.47-3.22 percent and in South Korea from 0.19-0.74 percent.
Since the establishment of diplomatic relations in December 1992, two-way trade between Vietnam and South Korea has climbed 36 times from US$0.5 billion to $18 billion in 2011. Last year, South Korea was the fourth largest trading partner of Vietnam while Vietnam was the eighth biggest importer of South Korea.
However, trade gap between the two countries surged from $1.7 billion in 2000 to $8.4 billion in 2011.
Vietnam mainly imports machinery, equipment, raw material for garment and textile industry, shoe leather, petroleum, oil, steel, and plastic while exporting minerals, raw materials, footwear, agro-aqua-forestry products, and wooden furniture. The remarkable feature in the two countries’ trade relations is that goods structure has clearly no direct competition.
Until December 20, there were more than 3,100 foreign direct investment projects from South Korea with a total registered capital of $24.5 billion, the highest among 11 investors in the number of projects, and the second largest in total registered capital. During the same period, the implemented capital from South Korea was $8.3 billion, standing at second place behind Taiwan.
Although there was no detailed assessment on the commercial impact when the two parties signed the agreement, free trade agreement between ASEAN and South Korea(AKFTA), which started in 2007, showed that Vietnam had advantages in exporting tea, pepper, coffee, and fruits. However, South Korea’s commitment for these commodities was limited. Many products of Vietnam did not meet quarantine regulations so exports to South Korea have not been as high as expected.
The implementing of AKFTA has helped improve export turnover of Vietnam for seafood and garment products but exports of farm produce has remained low. Although Vietnam has seen an increase in export turnover, the country has not fully exploited the potential of the free trade agreement.
Many key export products of Vietnam enjoy low tax rate or zero percent tax rate such as raw material and farm produce. Meanwhile, machinery, equipment, and electronic products which receive tax incentives were in smaller proportions. Benefits from low tax rate are not enough to attract firms as costs for certificate of origin, customs procedures, have increases. Meanwhile, under the double impact from WTO commitments and FTA, import of machinery, equipment, and electronic products have been in greater proportion due to low tariffs. Many FDI companies switched from manufacturing to importing as they no longer received protective tariff while distribution markets opened according to WTO agreements.
These shortcomings show that Vietnam has not initiated processes to take advantage of the opportunities brought by the agreement, leading to a huge trade gap. The country also has not created changes in structure of export commodities while regulations, technical standards, and intellectual rights have not been properly put into place.
Starting this year, Vietnam will slash tax rates to very low levels until 2015. If Vietnam fails to meet standards, the country will face enormous difficulties in bridging the trade gap, especially when import tariffs from South Korea and Japan are lowered.
Banks lower profit expectations for the year
Amid economic difficulties, many banks have proposed lowering their profit targets for this year. Experts have said that the trend will continue by the end of the year.
The Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and the Bank for Foreign Trade of Vietnam JSC (Vietcombank) have pioneered this trend.
Vietinbank has sought approval from the State Securities Committee and the Ho Chi Minh City Stock Exchange to lower their business targets for this year. As a result, Vietinbank wants to decrease its pretax profit target from 7% to negative 11%, equivalent to VND7.5 trillion (USD359.5 million).
Their total expected asset increase may be lowered from 19% to only 3.1%, while its credit growth target could be reduced from 17% to only 9%.
The bank’s dividend payment plans for its shareholders may be also lowered from 16% in shares to 13%-15%. The adjustment could be applied in December.
As of November 31, Vietinbank made a pretax profit of over VND7 trillion (USD335.6 million), meeting 94.2% of its new target, while their assets totalled approximately VND465 trillion (USD22.3 billion) during the same period, meeting 98% of this year’s new target.
Another banking giant, Vietcombank was seeking approval from shareholders to adjust their business targets for this year as it had just fulfilled 67% of its pretax profit target for the year as of the end of September.
Even though Vietcombank has yet to make public documents sent to shareholders, Viet Capital Securities Company said in their news bulletin on November 21 that the bank planned to lower its credit growth target from 17% to 12%.
The bank’s target for asset increases may be reduced from 18% to 15%. Its pretax profit target could be reduced by 12% from expected VND6.6 trillion (USD316.4 million) to VND5.8 trillion (over USD 278 million), the source said.
Meanwhile, Kienlongbank has decided to lower its pretax profit from VND620 billion (USD29.7 million) to VND530 billion (USD25.4 million) but their bad debts increased from 2% to 3%.
HDBank also wanted to adjust its profit target by holding an unscheduled shareholder meeting. However, after some delay, the bank has yet to confirm the exact date for the meeting.
Banking experts said banks seek to lower their profit targets as a result of the modest amount of lending. Despite lowering the lending interest rate to 15% by demand of the State Bank of Vietnam (SBV), the credit growth rate has remained modest.
In the first ten months of this year, the banking system recorded a credit growth rate of nearly 3%, which was much lower than the targeted 8%.
Dr. Cao Sy Kiem, former Governor of the SBV, said that it is understandable to see such a modest credit growth rate due to the large amount of bad debts and modest lending.
“In the first eight months of this year, credit grew modestly as a result of tightened monetary policies and a sharp increase in bad debts. The country’s credit growth rate may reach from 7%-8% by the end of this year,” Kien noted.
Those experts also estimated that not only banks but many enterprises have had to adjust their profit targets due to their lack of foresight of the economic situation.
Government falters in rescuing housing market
The Ministry of Construction and enterprises have held many meetings to find a solution to rescuing the failing housing market in the last two months, but no real solutions have been found.
Reducing prices, splitting the large apartments into small ones, reducing taxes and using funds from the State budget to buy commercial housing to convert them into public housing were some of the main proposals given at various meetings and seminars held recently on the issue.
The Ministry of Construction has asked the Ministry of Finance to research and implement these potential solutions, such as a 50% reduction of VAT for homes smaller than 70 sq.m and cheaper than VND15 million (USD720) per sq.m.
The Vietnam Association of Financial Investors also sent the Prime Minister their proposals; giving preferential lending interests rates of 7% to people who buy homes for VND2 billion or less.
Two other proposed solutions were to build resettlement areas from commercial projects and to reduce the deposit interest rate for foreign currency to 1% or 0% per year.
Reports from the Bank for Investment and Development of Vietnam suggested the establishment a new company to deal with the problem of empty homes, forming new sector for low-income people and also a way to find additional capital for the real estate market.
Many said that the Government has been slow in carrying the needed plans.
“The Minister of Construction mentioned mini-apartments in June but regulations concerning them only came out in November. Splitting large apartments into smaller ones has been mentioned many times, but there have been no real regulations issued yet.” a company said.
Several experts disagree with the idea of using State funds to buy commercial property and turn into public housing because it will put a serious strain on the State budget.
“How will this be paid for? Who will the Government sell or rent the homes to? People who have to live in resettlement areas will not have enough money. The Government can’t use those houses as headquarters because it would mean throwing out a lot of money and get nothing in return,” economist Le Dang Doanh said.
Vietnam auto industry faces gloomy future
Reports from the Ministry of Industry and Trade (MIT) show a gloomy picture and huge inventory of the automobile companies since 2008 until now.
Vietnam Automobile Manufacturers’ Association forecast domestic producers will only be able to make 80,000 vehicles in 2012, down 34%-38% compared to last year, which would mark a low productivity.
From now to 2018 the import tariff for fully-assembled automobiles may be lowered and exempted in line with the ASEAN-China Free Trade Agreement, Vietnamese auto manufacturers may stop operation and choose to import fully-assembled vehicles instead of manufacturing.
The MIT also pointed out that most of the production quotas set in Government’s plan for automobile development in 2004 are not met, especially the quotas for producing engines for automobile. For example, the goal was to produce 100,000 diesel engines in 2010, but this received little support from manufacturers. Only in 2012 did Truong Hai Auto Company start to build a diesel engine factory.
Experts have said that support industries in Vietnam are weak. There are about 210 enterprises in the industry, but most of them only produce simple component parts. The number of enterprises in support industries in Vietnam is only one fifth of that of Indonesia and one fiftieth of that of to Thailand. Domestic manufacturers have largely failed in localising the industry.
Many also lay blame for this on incomprehensive policies. The MIT said the current infrastructure in Vietnam is not favourable for the industry’s development.
To ensure the stability of the traffic and infrastructure, the Government has issued a number regulations, such as high taxes and limitations on the number of personal vehicles, which has caused trouble for the auto companies. The automobile development plan for the period of 2001-2010 has proven largely ineffective and unconducive to the real situation.
The MIT suggested keeping import taxes for automobiles high until 2018 to encourage domestic manufacturers and exempt import taxes for materials and component parts that Vietnamese manufacturers cannot provide.
Shops prey on consumer ignorance
Many people are unaware of tax duties and are often tricked into buying smuggled or fake luxury items.
After buying a VND1.2 million (USD58) dress in a fashion store in Diamond Plaza, HCM City, the customer was told this item was discounted so it wouldn’t have a VAT invoice.
A customer who bought a VND3 million pair of glasses at the Saigon Tax Trade Centre was also refused a VAT invoice. The shop said they would provide the invoice several days later, but hadn’t registered to issue VAT invoice to tourists.
N. D., a well-known model said she has bought many luxury items but never been given a VAT invoice although she certainly paid the added taxes.
Although the laws stated that goods that are worth over VND200,000 must have VAT invoices but only a few shops provide the invoice to the customers. Meanwhile, many buyers don’t even know what the invoice is for.
A shop in Dong Khoi Street, HCMC said most of their customers only come to buy the goods quickly and never asked for VAT invoice, so they sent the invoices to the customers’ addresses.
Chau Boi Hue, director of the Duy Anh Company which distributes brands such as Bvlgari, Cartier, Rolex, Ferragamo and Versace shared that there are many ways to smuggle goods.
Because Vietnam is a small market, most of the companies will partner with a domestic distributor. But in reality, the shop may sell both fake and smuggled goods to earn profits. The smuggled goods are often discounted, outdated or faulty items from foreign collections.
Tram Nguyen, a regular customer of shops on Le Thanh Ton Street in HCMC said seasoned buyers would have enough experience to evaluate genuine goods. But even they will not be familiar with all of the luxury items so they’ll have to depend on the VAT invoice.
According to the distributors, the luxury market in Vietnam had boomed by 20-30% over previous years. But due to economic downturn and decreasing consumer confidence, the market are slowing down.
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