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Small firms need survival strategies
In the past few months, small and medium-sized enterprises (SMEs) have been hit severely by inflation and interest rates which are threatening their survival. TheViet Nam News spoke to Cao Sy Kiem, chairman of the Viet Nam Association of Small and Medium Enterprises, about the current circumstances and possible solutions to help SMEs overcome difficulties in the context of curbing inflation and tightening bank credit growth.
What is the biggest challenging for SMEs at the moment ?
Inflation, the business environment and high interest rates are the major problems for businesses, especially for SMEs.
Under the Government Resolution 11, the nation has made an effort to curb inflation while tightening bank lending. As a result, SMEs have found it hard to borrow from banks for their business activities.
SMEs have a weaker position than other economic sectors due to capital shortages and their small size and they have been hit hard by inflation and tighter credit growth. They are forced to find capital for their survival.
Most SMEs borrowing from banks find that high interest rates have eaten into their profits. The more cash they borrow, the less benefit they receive.
How would you compare the current situation with the recession in 2008?
This year seems to be tougher. In 2008, the Government offered a stimulus package which helped both banks and enterprises reduce their losses.
This year, enterprises in general and SMEs in particular are also facing increased electricity and petrol prices while the State Bank of Viet Nam has limited bank credit growth to under 20 per cent.
Due to this cap of 20 per cent, SMEs are still finding it hard to access bank loans for their production and investment, especially enterprises operating in agriculture, forestry processing and handicraft. At the moment, only a few companies have their margins higher than bank interest rates.
Banks also have been in a dilemma because they are in fierce competition to mobilise capital while being restrained by credit growth limitations.
I think banks should reduce expenses and increase banking services in order to raise revenue to offset the shortfall from lending restriction, thereby, sharing difficulties with businesses.
In fact, interest rates fluctuate based on inflation. If inflation goes down, interest rates should be lowered, helping banks lend more.
If the Government does not roll out necessary solutions to help SMEs, they will be unable to survive.
What has the association done to help its members ?
In April, Prime Minister Nguyen Tan Dung agreed to allow SMEs to receive their corporate income tax extensions for an additional year with the aim to help them overcome inflation and disadvantages created by the foreign exchange rate. The tax extension is applicable to an estimated VND7 trillion (US$325.5 million) worth of corporate tax payments.
However, corporate income tax exemptions or reductions must be considered by the National Assembly, not the Government.
We have requested a corporate income tax reduction for SMEs along with a review of the threshold of the tax for 2011. Based on the Ministry of Finance's assessment, the Government will decide whether to bring it to the National Assembly.
However, as far as I know, several members of the Committee on Economy and Budget are hesitant to review the Law on Corporate Income Tax in the next session.
I think that the tax reduction should be based on the inflation rate or a fixed level of 20 per cent. However, the reduction based on the 2011 inflation rate is likely to be better.
If the proposal is approved, it would help SMEs significantly. Though the State Budget might be affected, businesses would have a chance to survive and grow, which would help lift the economy.
Do you have any advice for SMEs ?
Corporate income tax extensions are just a temporary solution as businesses are required to pay an accumulated amount for two years instead of one year. It may make things more difficult in the coming years.
A new survey conducted by the Viet Nam Chamber of Industry and Commerce showed most SMEs found it very difficult to borrow from banks.
I think that businesses should review and assess themselves in order to restructure and decide what they should do. They also should have their own strategies to help them reach sustainability in the long-term.
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