A steel company at the Tan Tao industrial park in HCM City. (Source: VNA)
But despite being the backbone of the city and country’s economy, MSMEs facing many challenges in accessing funding to upgrade technology to boost productivity and competitiveness.
According to a survey by the HCM City Business Association, of the number of original brand manufacturers (OBM) – enterprises that design their own products, buy components produced by others and sell products under their own brands – operating in city’s six key industries of mechanical engineering, food processing, chemical-plastics-rubber, electronics-information, textile-garment and footwear, only 48 percent are MSMEs.
Moreover, MSMEs that operate as OBM in mechanical engineering, chemical-plastics-rubber and electronics-information use limited or out-of-date technologies.
Do Phuoc Tong, chairman of the HCM City Association of Mechanical Electrical Enterprises, said that most mechanical enterprises are MSMEs or household businesses.
Since they lack new technologies and research and development capacity, MSMEs, usually working as sub-contractors for big companies or second- and third-class suppliers, mainly handle raw materials and assemble products with very low value addition, he said.
Besides, Vietnamese consumers’ preference for “foreign brands” is also a big challenge for MSMEs.
Tong said there are Vietnamese products that match the quality of foreign-made items, but they are not accepted in local markets until they are exported to overseas markets like Japan, South Korea, Taiwan and Thailand and imported back to Vietnam.
Export-import enterprises claimed it is because Vietnamese export products are “better” than local ones though local manufacturers said they are of the same quality.
Whatever the reason is, the fact remains that enterprises have to bear the logistics costs of sending their products overseas to sell them at home.
MSMEs are unlikely to grow rapidly in the near future due to shortcomings in Government policies, one of which is the tax regime, according to experts.
To attract foreign investment, the Government waives tax on import of machinery, equipment and tools by foreign direct investment (FDI) companies for use in manufacture. But local enterprises have to pay 10 percent import tariff on the same stuff.
The cumbersome procedures involved in getting loans also make it harder for MSMEs to operate. Most lenders demand mortgage of assets which is a big problem for MSMEs.
Nguyen Dinh Tue, director of the Centre for Supporting Small and Medium sized Enterprises, said because of financial constraints, MSMEs cannot upgrade their technologies or improve productivity to compete on price.
To support MSMEs, the Government needs to create a healthy business environment and reduce issues like red tape and harassment. Besides, to help them access credit, the Government should share their risks to reduce their mortgage burden, Tue said.
Director of the city’s Department of Trade and Industry, Pham Thanh Kien, said his department is considering a lending rate cut in preferential loans for enterprises to below 7 percent.
The municipal Department of Trade and Industry recently said it would continue to work with the State Bank of Vietnam’s Branch in HCM City to implement the bank-enterprise link-up programme in the city with a focus on five sectors and industries.
They are agriculture and rural development, exports, MSMEs, supporting industries, and enterprises that adopt new technology.
Under the programme, credit institutions in the city can sign up to lend to enterprises at a preferential interest rate of 6.5 percent for short-term loans and 8–9 percent for medium- and long-term loans.
Moreover this year, banks will consider further cut interest rates for enterprises that borrow a second or a third time through the programme.
The link-up programme, initiated by the SBV, began in 2012. Last year, banks provided loans worth more than VND300 trillion (USD13 billion) to 15,778 enterprises participating in the programme./.