The dangers of the economy

High interest rates, weak purchasing power, constant on-off operations due to the Covid-19 lockdown and many other factors accumulated over the past few years have left his business in a state of exhaustion. “I am negotiating with several foreign partners to buy the company. At this point, it is difficult to keep it,” he said.

I have known this businessman since he started his business as well as the persistent efforts, the failures that seemed to have failed, the burning desire he went through to develop the business. Selling the business to investors and then working for his own company is unacceptable. But that is the only way to save the company, save jobs and save himself. Perhaps, many Vietnamese businesses are facing the same situation as the above businessman. Whatever is said, the unprecedented Covid-19 pandemic in human history is leaving increasingly clear consequences on the "health" of many Vietnamese businesses.

The impact of the pandemic combined with a series of other macro factors in 2022 after Covid-19 has triggered many more challenges and risks for businesses. Just to take a small example, more than 12,000 businesses have to close every month, which is a very large and worrying number. Obviously, the story of the above businessman is not new. They have to find resources to restructure in order to survive. The problem is that it seems that mergers and acquisitions (M&A) of businesses with the leadership of foreign investors are becoming a trend right in our country. At the M&A Forum held in Ho Chi Minh City. In Ho Chi Minh City recently, people cited data from KPMG Auditing Company that the total M&A value in Vietnam reached 5.7 billion USD in the first 10 months of 2022. This figure has decreased by more than 35% compared to the same period in 2021. The problem is that M&A transactions are led by foreign investors when Vietnamese enterprises only account for 1.2 billion USD of the total transactions above.

Incomplete figures presented on this forum show that M&A activities have reached a value of nearly ten billion dollars each year recently. M&A activities are normal when Vietnam has pursued a market economy and deeply integrated into the world economy. However, the interesting thing is why these activities mainly take place with Vietnamese enterprises in the country? Why do Vietnamese enterprises not conduct M&A activities abroad? On the other front, the Vietnamese stock market has fallen the most in the world in the past year, causing many stocks to be "dirt cheap" and causing many listed enterprises' assets to "evaporate". However, foreign capital continues to flow in. Let's take a look at some recent prominent headlines: "Foreign investors have the highest net buying month since the beginning of the year", "Foreign investors increase net buying, focusing on collecting real estate and securities stocks", "Foreign investors net buy more than 1,900 billion VND in a fiery market session"...

Illustration photo.

According to economists, the preferred way of global investors is to find good businesses in the host country to buy at the best price, usually when the economy is in difficulty or crisis. Good businesses, but facing the risk of losing liquidity or going bankrupt, still have to accept selling themselves. With the current difficulties, the possibility of some good businesses in Vietnam falling into the hands of foreign investors is very high. The reason is due to lack of liquidity, inability to mobilize capital domestically, while there is a lot of cheap capital outside, so some businesses may have to sell themselves.

The highest realized FDI capital in 11 months in the past 5 years. This proves that foreign investors continue to believe in the economic prospects in our country and they are willing to maintain and expand production and business activities in Vietnam. However, the problem lies in the fact that this business sector is growing stronger and stronger, becoming the main pillar of the economy and in many cases, causing pressure and overwhelm to the business sector of the country.

The Central Economic Committee said in a document that in the current economic structure, the FDI sector contributes up to 20.13% of GDP, accounting for 72% of total export value, and about 50% of industrial output. Based on the value-added index, revenue and employment, FDI enterprises dominate 12/24 processing and manufacturing sub-sectors, playing a dominant role in 4/5 of Vietnam's largest export industries, namely textiles, footwear, electronics and wood products, and import-substituting processing and manufacturing industries such as rubber-plastics, basic metals and mechanical products. However, the FDI sector's contribution to the state budget is still modest; the growth rate in budget contributions is lower than the growth rate in profits; the proportion of contributions to the state budget tends to decrease.

The above figures show that FDI enterprises are playing a very large role in the Vietnamese economy. These enterprises dominate the export sector and also in purely domestic sectors such as consumer goods and retail systems. Just looking through the gateways in Hanoi, or Ho Chi Minh City, now a few populous provinces to see who owns the supermarkets is clear. Such a presence of course has many advantages because they bring capital, management skills, and technology. However, such dominance is also very concerning if Vietnam wants an "independent, autonomous" economy, challenging the desire for national enterprises to become the main pillars and raising risks or risks of manipulation from external factors.

Some economists warn that if the government of one or several countries supports its businesses with cheap credit or other ways to acquire businesses and assets in countries they want to influence, it will be a challenge for Vietnam's security and economy. In the context of Vietnamese businesses not growing, accounting for only 10% of GDP for decades, and suffering major shocks like the businessman mentioned above, this trend is very alarming and can happen to Vietnam today. The risk of "illegal investment, investment under cover" has been included in the resolution to warn of the situation of disguised real estate transactions when Vietnamese people or Vietnamese businesses are in the name, but in fact they are owned by outsiders. Mentioning this again to see that being vigilant in the current context is not redundant.

When mentioning this issue, I have absolutely no intention of discriminating against the foreign sector, the sector that has brought so many new, modern, and advanced things to the economy and to the people over the past thirty years. The problem is that we need to continue with more effective reform programs so that national enterprises can develop, so that people can continue to invest in business, instead of keeping gold at home, or transferring assets abroad. Major policies such as public-private partnership, socialized healthcare, improving the business environment, enforcing property rights, etc. need to continue to be reformed. That is in the long term. In the short term, for the above-mentioned businessmen, they want to have access to capital to maintain cash flow, otherwise selling is inevitable./.