53% of businesses are unprofitable, 42,000 businesses are waiting for dissolution

Explaining the increase in the number of enterprises awaiting dissolution in the past 8 months, a representative of the Ministry of Planning and Investment said that since April 2018, localities have been actively implementing the work of standardizing and cleaning up enterprise data to eliminate enterprises that were established a long time ago but are no longer operating; after review, those enterprises are transferred to the status of awaiting dissolution.

The number of enterprises completing dissolution procedures in the first 8 months of 2018 nationwide was 9,135, an increase of 17.8% over the same period in 2017.

In the first 8 months of 2018, the number of dissolved enterprises increased sharply.

According to some experts, the worrying thing is that recently, the majority of dissolved enterprises have come from the private economic sector. As a measure of the health of the economy, when the private economic sector contributes more than 2/3 of the gross domestic product (GDP), 3/4 of the value of industrial production and creates many new jobs for the economy, this shows that enterprises are still weak in operation and have low competitiveness.

Recently, at the Capital - Finance Forum, with the theme "Expanding Vietnam's capital - financial market, challenges and solutions", Deputy Prime Minister Vuong Dinh Hue said: "The current situation that the Government is very concerned about is the thin capital of enterprises, including financial institutions and banks. According to data up to December 31, 2016, up to 53% of enterprises operating in Vietnam are not profitable, only 47% of enterprises are profitable and pay corporate income tax".

The Deputy Prime Minister asked why business activities are not optimistic. In an economy where 53% of enterprises are unprofitable, besides other subjective reasons, is it due to the thin capital situation? Many enterprises operate mainly on bank loans, many enterprises have low equity, so high financial costs plus other costs such as market access costs, logistics costs, trade costs... make businesses not do well. Even banks, which are the places that provide capital for the economy, have very limited capital.

Talking about the difficulties of enterprises in accessing capital, Mr. Nguyen Kim Hung - Director of Vietnam Enterprise Restructuring Joint Stock Company - said: "The group of small and medium enterprises faces many difficulties in accessing capital from banks. Meanwhile, actual capital only accounts for 20 - 30%, the rest is financial connections between family, friends, and siblings. When banks do not lend, government bonds cannot be accessed, they are forced to use informal capital sources or so-called "black credit". There are small and medium enterprises, even up to 60% of total production and business capital is capital from black credit.

From another perspective, an expert believes that there are two main reasons why the number of dissolved businesses is increasing. Firstly, due to prolonged business losses, businesses face many difficulties in the process of operation because they cannot mobilize capital and finance to continue operating. This is considered the main reason and accounts for the highest percentage of businesses carrying out dissolution procedures at the Business Registration Office.

Second, due to the limited management and operation capacity of individuals and organizations, and lack of experience in managing and operating enterprises, the business situation of enterprises is increasingly deteriorating and cannot develop.