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Stimulus plan aims to boost small business
Both the Government and companies, particularly small- and medium-sized ones, are working to prevent further economic failures amid the global financial crisis.
The Government’s VND17 trillion (US$1 billion) stimulus package has recently been implemented, under which the Government would pay 4 per cent of any commercial loans taken out by vital small – and medium-sized businesses.
The contribution, starting in January, will be for a maximum of 12 months.
However, businesses that import non-basic goods and those involved in securities and real estate are not eligible for the preferential policy.
In addition to interest rate support, the Government has also provided enterprises with either registered capital below VND10 billion (US$572.246) or with a workforce under 300, with preferential tariff policy.
Enterprises will also enjoy a 30 per cent reduction in their corporate income tax.
The Government will reduce or defer tax payment for enterprises facing certain problems. Exporters can receive up to 90 per cent of the tax suggested under a bank guarantee.
According to the Department for Small – and Medium-Sized Enterprises, Viet Nam now has more than 300,000 SMEs and the number may climb to millions if individual business households are counted.
Economic experts say that the biggest difficulty facing small domestic enterprises is the sale of products in both domestic and overseas markets.
The Government’s tax and lending interest rate support will help enterprises reduce input costs, increasing their competitive ability on the markets.
Each SME has its own way to survive. To minimise costs, some employ part-time workers for each production process. They exchange workers with other enterprises involved in the same industry.
Some other businesses have to switch from producing to distributing products. Some businesses have shifted their investment activities to areas that require less investment capital.
Power price hikes
The Ministry of Industry and Trade has asked the Government to increase electricity prices between 8.3 and 9.8 per cent in the first quarter of this year. The Ministry of Finance is evaluating the proposal.
Deputy Minister of Industry and Trade Do Huu Hao said that 2009 would be chosen as a base year for calculating power supply and demand and that these market-driven prices would be applied in 2010.
The electricity generation cost accounts for 70-75 per cent of the total cost and depends greatly on prices of fuels, so any rise in fuel prices will have a big impact on power tariffs.
The ministry’s power price increase plan is based on the assumption that oil prices are within the range of $40 to $100 per barrel. But, oil prices are chiefly decided by world markets.
However, the main objectives of the ministry’s power price hike plan is to encourage investment into the electricity industry to make it develop in advance and meet development demand.
In other words, if the power price is not increased, the electricity industry would not have enough capital to develop new power sources.
Despite the industry ministry’s explanations, the industry did not receive support from many businesspeople, economic experts and residential consumers for its power price hike plan.
They said that the ministry’s plan would be contrary to the Government’s current stimulus strategy, and enterprises’efforts. It also might create further burden on the economy.
The Government is trying to help enterprises and individuals to cut costs to push up production and consumption while an increase in power prices would cause the price for many goods and services to rise.
Deputy general director of Viet Nam Textile and Garment Association Nguyen Son said if power prices increase, enterprises would use less electricity and production would slow down. This also meant that the electricity sector would not maintain its income source.
Some householders said that residents’ income were generally lower compared to those of 2007-2008. If electricity prices increase, prices of goods and services will follow suit, life would be more difficult.
Le Dang Doanh, former head of the Central Institute for Economic Management, said that increasing electricity prices at present went against attempts to lower petrol and gas prices. The move should be more carefully considered to ensure that it is necessary.
Nguyen Tri Thanh, director of the Centre for Economy and Policy Study for Economy and Policy Study at Ha Noi National University, said electricity prices should not be raised now because of the possibility of inflation.
Lending levels to increase
Capital stagnancy has prodded local commercial banks to strengthen lending activities for personal loans, despite the risks.
The banks expect to further offer more loans during the Tet (Lunar New Year) since spending often increases on this occasion. To grasp the opportunity, many have prepare thousands of billion dong for lending and pledged to use simple procedures.
The Bank For Investment and Development of Viet Nam (BIDV) typifies the trend. It has decided to inject VND16 trillion in investment and consumption stimulation activities. Meanwhile, the Viet Nam Export Import Commercial Joint Stock Bank (Eximbank) has announced that it will set aside VND3,700 billion for consumption lending. An Binh Joint Stock Bank (ABBank) also is ready to provide loans for consumers to build or repair houses, do shopping, study overseas and travel.
However, their efforts seem to be in vain, with a modest number of consumers applying for such loans.
The Asia Commercial Joint Stock Bank (ACB) said that the number of people getting ACB loans was 50 per cent lower than the figure recorded in the same period last year.
Eximbank plans to cut interest rates for personal loans to 1 per cent a month to attract more borrowers but the situation has not changed much.
Independent market watchdogs have said that demand for personal loans has fallen significantly compared with last year.
The economic downturn has caused many customers to balk, but many of them also think that interest rates will drop further.
Efforts to seek foreign investment in HCM City’s industrial parks (IPs) and export processing zones (EPZs) in 2008 did not pay off due to a lack of available land for rent and insufficient infrastructure.
According to the HCM City Export Processing and Industrial Zones Authority (Hepza), facilities in IPs and EPZs, including power and water supply, and communication infrastructure did not meet the requirements of many foreign investors.
Another factor discouraging foreign investors was that construction costs and rent for factories were higher than in neighbouring provinces.
As a result, many investors from the US, Australia, Germany and Japan want to rent dozens of ha of land. But the lack of land has prevented more tenants from coming in, as 96 per cent of the land in IPs and EPZs has been rented.
HEPZA predicted the global economic situation will continue to affect the situation. However, the city still expects to attract about $680 million of new FDI into local IPs. — VNS
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