SMEs Development: Vietnamese Experience€¦ · SMEs and large businesses, promoting PPP...

SMEs Development: Vietnamese Experience

Feb 13th 2017 Dr. C.V.Luc/ APEC Conference 1

Presenter: Dr. CAN Van Luc

at the Conference on “APEC’s Post 2020 Agenda: Rising Protectionism,

Economic Rebalancing and Diversified Growth”

Session 2: Micro Competitiveness, Inclusive and Quality Growth: Potential Synergy

and Competitiveness Profile of Regional Small and Medium Enterprises,

E-Commerce and Digital Financial Inclusion

Singapore, February 13th 2017

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CONTENTS

I. Overview of Vietnamese SMEs

II. SMEs development initiatives in Vietnam

III. Achievements and limitations

IV. Recommendations

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I. Overview of Vietnamese SMEs

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- Role of MSMEs in Vietnam: About 97% of total number of businesses 77% of total employment Contribute 41% of GDP. - 590,000 active MSMEs (10/2016), of which 68% are micro.

Micro Enterprises68%Medium

Enterprises2%

Small Enterprises30%

Source: Vietnam Association of SMEs.

I. Overview of Vietnamese SMEs

Fig.1: Breakdown of MSMEs in Vietnam (2016)

Fig.2: Business lines of Vietnamese SMEs

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Manufacturing, 43%

Trade and distribution,

24%

Services and agriculture,

33%

Source: Vietnam Trade Promotion Agency (2016)

Fig.3: Business lines of Vietnamese SMEs

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Wholesale and retail trade; repair of motor vehicles,

40.3%

Manufacturing industry, 15.7%

Construction, 13.7%

Agriculture, forestry and fishery, 1.0%

Transportation and storage, 5.4%

Administrative and support services activities, 2.9%

Others, 21.0%

Source: MPI White Paper on Vietnamese SMEs (2014).

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II. SMEs development initiatives in Vietnam

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II.1 Improving business environment

Decree 56/2009/NĐ-CP dated 30 June 2009 on supporting SMEs

Resolution 19/NQ-CP (2014, 2015, 2016 and 2017 ): on improving business environment and national competitiveness;

Draft Law on Supporting Small and Medium Enterprises (to be passed in 2017);

Resolution 35/NQ-CP dated May 16th 2016: for enterprise development to 2020 (to achieve 1 million firms by 2020);

Improving legal framework; including guidelines and policies facilitating SME establishment and operation;

Promoting the role of VCCI, industry associations and career development agencies

Financial institutions have diversified products and services.

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II.2 Enhancing SMEs’ competitiveness

Decision 58/2013/QD-TTg on establishment and operation of the credit guarantee funds for SMEs

Lower lending interest rates for 5 priority sectors including SMEs (since 2014)

The SME supporting fund (since Sep 2014)

Increasing access to finance of SMEs (including knowledge of financial services for SMEs);

Supporting recruitment and staff training for SMEs to develop skills in digital technology, risk management

Facilitating innovation and creativity at all levels (governmental agencies and firms).

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II.3 Strengthening synergy (cooperation) between SMEs and large businesses, promoting PPP

Strengthening public – private partnership (PPP): a governmental decree since 2015;

Facilitating activities of associations and organizations supporting large enterprises and SMEs;

Developing business portals and seminars, which provide information exchange between SMEs, large enterprises, associations; and Governments;

Promoting cooperation between MSMEs and investors, research centers and universities, etc;

Strengthening regional integration to support cooperation between local and foreign firms

Encouraging FDI enterprises to partner with local firms.

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III. Achievements and limitations

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Achievements

SMEs contribute to reduce unemployment rate, alleviate poverty and social stability

SMEs’ registered capital was around USD130 billion, equal to 1/3 total firms’ registered capital as of Dec 2016

SMEs contribute 33% of total State budget revenues

49% in creating added value for the economy and 41% of GDP.

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Achievements (2)

83,600 77,500

69,800 76,900 74,845

94,754

110,100

-

20,000

40,000

60,000

80,000

100,000

120,000

2010 2011 2012 2013 2014 2015 2016

Fig. 4: Number of newly established firms (mainly SMEs)

Soure: Vietnam Ministry of Planning and Investment.

Fig.5: Registered capital of newly established firms

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Achievements (3)

Soure: Vietnam Ministry of Planning and Investment.

489.60 513.70467.27

398.68 432.29

601.52

891.09

5.866.63 6.69

5.185.78 6.35

8.09

0

3

6

9

12

15

0

200

400

600

800

1000

2010 2011 2012 2013 2014 2015 2016

Total registered capital (Left-hand side) Average registered capital (Right-hand side)

VND trillion VND Billion

Achievements (4)

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Fig.6: Registered number of employees of newly established firms

1,061,284 1,091,000

1,471,920

1,268,000

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

2013 2014 2015 2016

Soure: Vietnam Ministry of Planning and Investment.

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Limitations

Limited access to finance (Fig.7)

Difficulty in accessing other resources such as land, registering assets , information, etc.

Still un-leveled playing fields among FDI, SOE and private enterprises

Limited participation in global value chains (Fig.8).

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Fig.7: Finance for SMEs in Asia

Source: Yoshino và Wignaraja – ADBI (2015).

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Fig.8: Large firms and SMEs in supply chain

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Causes of limitations

1. High cost of finance (especially, unofficial/hidden costs)

2. Cumbersome lending procedures and stringent collateral requirements

3. Underdeveloped capital markets

4. Uneffective loan guarantee funds

5. Financial sector has been under radical restructuring

6. “Crowding-out” Effect (credit for SOEs, policy credit…)

7. Due to SMEs themselves (limited capability and inefficiency, lacking transparency; lack of management skills, strategic planning, skilled employees…).

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IV. Recommendations

Recommendations: For APEC

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To establish institutions/agencies in APEC to support, propagandize and counsel SMEs in information, policy, market, and technological issues, etc;

To form the regional Union of businesses to facilitate SMEs to join the value chain of MNCs and FDI firmsin the region and beyond;

To promote APEC entrepreneurial spirit and start-ups

To promote dialogues, forums and experience sharing among SMEs and other firms.

Recommendations: For Government and Ministries

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To improve institutions (especially legal framework and administrative procedures) and transparency to reduce unofficial costs; to facilitate SMEs participation in global/regional supply chains

To support and advise SMEs in legal, management and information issues;

To enhance the role of supportive institutions and programs encouraging creativity, research and development of SMEs;

To enhance performance of the SME loan guarantee funds, R & D funds; and encourage banks to provide loans to SMEs, etc;

To improve IT infrastructure and supporting SMEs in applying and developing appropriate technology.

Recommendations: For SMEs

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To enhance strategic planning, corporate governance and risk management;

To diversify funding sources (thus reducing reliance on bank credit);

To focus more on R & D and Staff training to develop skills indigital technology, risk management, and foster innovation;

To proactively engage in global and regional supply chains;

To seize opportunities for cooperation among enterprises toimprove creativity, innovation and participation in the globalvalue chain;

To join industry associations to access information about state policies, corporate governance experience, etc.

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Q & ATHANK YOU!