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Private businesses’ margin down, why?
The 2011 VNR 500 shows the profitability level of the private economic sector in the top 500 Vietnamese enterprises keeps decreasing. Pham Chi Lan, a well known economist, explains why.
The number of private businesses in VNR 500 has been increasing steadily from 118 in 2007 to 188 in 2011. However, the margin of the businesses has been decreasing. The ROA has dropped from 3.1 percent in 2007 to 2.4 percent in 2011, while the ROE from 34.9 percent to 16 percent. What would you say about that?
I think that in the current economic difficulties, the reduction in the profitability level of private businesses is not a surprise at all.
Since 2008, the inflation rate has been staying very high, while the bank interest rates have been increasing, which means that the businesses have to bear high capital cost. Most private businesses do not have many assets to mortgage for their loans; therefore, their capital costs are even higher than that of other businesses.
Especially, the capital cost has become unbearably high this year, when the State tries to restrict credit to curb inflation, which has resulting in the dissolution of 50,000 businesses as declared by the Ministry of Planning and Investment.
Meanwhile, the real estate market has been scorching hot over the last few years. Land plots have fallen into the hands of real estate trade corporations and the enterprises which have relations with the power circle. Since private businesses cannot have such good relations, they have to lease land from land brokers at high fees.
There exist a lot of other factors which also have affected private businesses’ operation, including the electricity, fuel price increases, which have pushed the prices of materials and services up. The dong/dollar exchange rate adjustment has made the enterprises, which use import input materials, suffer. Meanwhile, in Vietnam, nearly all businesses, at high or low level, have to use import materials.
Since the inflation keeps increasing, businesses have to pay higher for hiring labors. The labor cost increase in Vietnam in recent years has also made foreign investors complain.
Since all kinds of expenses have been increasing, the under the table fee has also increased, which has put a heavier burden on businesses.
The problem here is that while the production costs have increased, the market has become more competitive, and it is very difficult to sell goods at this moment. Since consumers have to fasten their belt, they do not accept to buy goods at higher prices.
The VNR 500 report has also pointed out that the business efficiency of many state owned enterprises tends to decrease, but more slightly. Especially, the ROA even rose from 3.7 percent in 2007 to 5.2 percent in 2010, before reducing to 2.7 percent in 2011. How can you explain this?
As I said above, state owned enterprises SOEs bear fewer burdens than private businesses, because they have some advantages. First, they do not have to lease land, but get land allocated from the State, or they can lease land at fixed prices for a long term. In many cases, SOEs do not use all the land areas they have, and they can re-lease to others at high prices.
Second, they can enjoy preferences in accessing bank loans. In many cases, they do not have to use commercial loans, but can access the state budget, and the ODA capital (official development assistance) at the interest rates lower than the market interest rates.
Especially, many SOEs operate in the key business fields where they enjoy the monopoly. Therefore, they can raise the sale prices, and consumers have to accept the higher prices.
I have to say that SOEs have better business result than private businesses not because they are better, but because they have advantages in the resources.
Some people believe that the declared figures do not exactly show the actual business result of private businesses, because many of them have been trying to hide their actual profits to evade tax. Do you agree?
It is true that a lot of researchers have complained that businesses usually try to declare wrong profits in order to avoid tax. However, I have to remind you that this occurs at all kinds of businesses, not only private ones.
50,000 businesses have shut down business, which means that nearly 1 million jobs have been cut.
Trang Thu
Vietnamnet
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