Lower purchase power has created more pressures to enterprises which are facing high inventories and debts.
Many companies have had to downsize production activities and sell products at discounts or even suffer losses in order to survive, said Van Duc Muoi, a member of the Economic and Budget Board under the Ho Chi Minh City People’s Council cum General Director of Vissan Ltd. Company
A quiet shop. Photo by VEF
Challenges
Pham Hai Long, General Director of Agrex Saigon Foodstuff JS Company, said that every year it exported more than 2,000 tonnes of foodstuffs, but this had declined to just 1,000-1,500 tonnes. The firm also has to pay more for materials and wages while product prices are lower. It is also unable to increase one-year export contract values because of a commitment to importers. At present, the company is only able to pay salaries for its staff and not make any profits.
Dinh Anh Viet, Head of Dong Nai Tile Brick Company’s Business Department said his company had to offer big discounts to attract customers, affecting their profits. Furthermore, late payment by many project owners has added to its burdens.
Mr. Hung, an owner of a helmet manufacturing company said, “the company is trying to maintain production to pay staff. A number of companies at Le Minh Xuan Industrial Park in Binh Chanh District have halted operations for many months, firing hundreds of workers. Every day, dozens of workers come to my company looking for work.”
Vinamilk Director of Public Relations Bui Thi Huong said the domestic purchasing power in the first half of the year sharply dropped, meaning the company had to boost milk exports.
Property companies face a worse situation. According to Le Hoang Chau, Chairman of Ho Chi Minh City Real Estate Association, most enterprises had suffered losses or even faced bankruptcy.
The latest increase in electricity prices from July 1 is putting additional burden on small businesses. Electricity prices have risen to VND2,192/kWh (USD0.1/kWh), meaning that small businesses are trying to make as many savings as possible to mitigate the effect of the 5% price hike.
Nguyen Van Thien, Chairman of the Vietnam Cement Association, complained that the cement sector is coping with high inventories. Despite offering big discounts, firms continue to fail to attract customers; while electricity accounts for 7% of their total costs annually.
Seafood companies also share the same fate. A medium-sized enterprise in this sector has to spend around VND2 billion on power costs every month.
Demand stimulus is needed
Do Ha Nam, Chairman of the Vietnam Pepper Association said the Vietnamese economy is threatened by deflation. If enterprises continue reducing production and go bankrupt, causing more unemployment, this was even more dangerous than inflation.
Companies must restructure their distribution network, protect trademarks and set targets for community development so that customers remained loyal to them, he said, noting that the most important thing was the solutions from the State Bank to help deal with their bad debts and ability to access capital.
Chau emphasised that, “The urgent solution is lowering interest rates as well as boosting consumer demand to reduce inventories. Banks must be banned from applying deposit interest rate of 9% and lending interest rates of up to 17-18%.”
Several economists said it is also necessary to consider state expenses such as public investment.
Chairman National Financial Supervisory Commission Vu Viet Ngoan said the Government had recently issued many solutions to support businesses, including Resolution 13 on personal income tax extension and exemption and lowered interest rates. He hoped that they would have a positive affect on the country in the coming time.