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Seoul, 8/2009

Ministry of Planning and Investment (MPI) Enterprise Development Agency (ASMED) Policies to Strengthen Viet Nam’s SME capacity in the Global Economic Crisis Pham Thi Hong Trang (MS) International Cooperation Official. Seoul, 8/2009. Content. Overview on Viet Nam’s economy SME in Viet Nam

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Seoul, 8/2009

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  1. Ministry of Planning and Investment (MPI)Enterprise Development Agency (ASMED)Policies to Strengthen Viet Nam’s SME capacity in the Global Economic CrisisPham Thi Hong Trang (MS)International Cooperation Official Seoul, 8/2009

  2. Content • Overview on Viet Nam’s economy • SME in Viet Nam • Major Problems • Government Policies

  3. Overview on Viet Nam’s economy • SME in Viet Nam • Major Problems • Government Policies

  4. Viet Nam Viet Nam is located in the Eastern part of the Indochina peninsula, bordering China to the North, Laos and Cambodia to the West with a long land border of 4,550 km, and facing the Eastern Sea (South China Sea) and the Pacific to the East and the South Climate: Vietnam lies in the tropics and monsoon Topography: Three quarters of Vietnam's territory consist of mountains and hills Administrative Units: Vietnam is divided into 63 provinces and cities. Population: about 86,5 million people (Density 260 ppl per square kilometer. Language: Vietnamese. Capital: HA NOI. Currency: DONG

  5. Overview on Vietnam economyCompare to the first quarter 2008 • Industrial output increase 2.4%. • Agricultural output increase 0.9%; • Total sale in service sector increase 21.9%; • GDP in 1st quarter 2009 is 3.1% (compared to 7.4% in 2008)

  6. Overview on Vietnam economyCompare to the first quarter 2008 • Export turnover is US $4.7 billion, decrease by 15% compare to the first quarter 2008. • Import turnover is $4.3b, decrease by 45% compare to 2008; • Total committed ODA capital is US$26.23m; • Total newly FDI registered capital is $1.2m, equivalent 30% the same period in the previous year;

  7. Overview on Vietnam’s economy

  8. Overview on Vietnam economy

  9. Overview on Viet Nam’s economy • SME in Viet Nam • Major Problems • Government Policies

  10. New SME DefinitionDecree 56/2009/ND-CP on Supporting for the development of small and medium-sized enterprise

  11. Overview on SME in Viet Nam • Total number of registered SME: around 41,100 • SME present around 97% of total enterprises • SME create around 3 million jobs, account for 40% GDP and 29% export value with growth rate of 18%/year • Registration is steadily rising since simplification of procedures and introduction of new laws

  12. Number of Enterprise by Legal Form

  13. Overview on Viet Nam’s economy • SME in Viet Nam • Major Problems • Government Policies

  14. Major problems with SME • Lack of recognition of the great impact of globalization, the international and regional integration process • Have a small scale, have limited capital, a small number of employees. • Lack of information on input markets. • Limitation in market access; the quantity of products manufactured by SME is small in scale, mainly for domestic use, and even for very small local areas.

  15. Major problems with SME • Weaknesses in science and technology capacity and unskilled workers • Constraints in relation to linkages between business and production units • Unprofessional Internal management of SME • Lack of transparency in financial management

  16. Technology Capability of SME

  17. SME technology capability Most SME use backward technology, 3-4 generation compared to average level of the world Most SME use technology in 1980s Limited capability in technology research and innovation Only 0.1% annual turnover is used for technology innovation (GTZ survey on 1200 enterprises 80% SME have no strategy to invest in science and technology

  18. R&D activities • Less than 5% SME implement R&D activities. • There is no enterprise in insurance and ICT sector implement R&D • Technology innovation happen most often in garment and automobile sector (VCCI survey in 2006 in 8 sectors: Garment and textile, automotive, insurance, banking, ICT, sea transportation, fishery, electronic)

  19. Capability in technology research and innovation • 1% total cost used for R&D and 0.2% for technology innovation in all sectors • Almost enterprise has no strategy and budget for this activities

  20. Innovation rates(SME survey 2007 by CIEM, DOE, ILISSA)

  21. Technology characteristics

  22. Demand for techno innovation by SME New investment

  23. Demand for techno innovation by SME Investment purpose

  24. Reasons for the inability of SME to access to technology

  25. Major Problems • Export market narrowed down and Export price decreased Factory closing Unemployment increase Example: Fishery export turnover by 10.7% Footwear sector 8.7% Tex and Garment 1.3% • Domestic market suffered from input cost. Q1 of 2009: 65,000 laborers lost jobs, 39,000 laborers partially unemployed, 3,000 laborers abroad returned home early • Difficulty in accessing to supportive financial resources. • Security Market go down and interest rate go up Difficulty in mobilizing capital. • Real Estate Market is freezing

  26. Overview on Viet Nam’s economy • SME in Viet Nam • Major Problems • Government Policies

  27. 1. Urgent measures to be taken - Government Resolution No. 30/2009/NQ-CP: financial incentives SME can get the following benefits: • 30% CIT payable deduction for 2009. • The remaining 70% CIT payable:9 months extensionfor the deadline ofsubmission of the tax payablesfor selectedSME. • For exporting enterprises: arefund of 90% input VAT. Obtaining the remaining 10% of VAT input refund once the payment documents are justified.

  28. 2. Government's stimulus packages • The first stimulus package: short-term lending (Prime Minister’s Decision 131): 4% interest rate subsidy • The second stimulus package: long-term lending (PM’s Decision 443): 4% interest rate subsidy • For agricultural and rural development (PM’s Decision 497): interest-free lending for agricultural machineries, 4% interest rate for agricultural inputs and materials

  29. 3. Government eases conditions for credit guarantee • Businesses from all sectors that have charter capital of a maximum of VND20 billion (US$1.13 million), or employ less than 500 workers, are eligible for credit guarantees. • Credit guarantee does not apply to consultancy, real estate, securities, services, or for loans to pay debt, but does apply to low-income and student housing projects or to build cemeteries

  30. Short term measures to help SME over crisis • Credit guarantee program for enterprise: 575 billion VND • 4% interest rate subsidy program: 85 banks participate; 178.722 billion VND is disbursed; • Subsidy interest rate for export lending is 2.9%;

  31. Short term measuresTax policies • To issue policies on tax delay, reduction and exemption (PIT, CIT and VAT); • CIT: To reduce by 30% on CIT for SME. Reduction of 9,900 billion VND in state budget, 6,800 billion dong delay to 2010; • VAT: 50% reduction in VAT for some goods (1,050 billion dong), reduction in state revenue of 1000 billion dong; delay up to 180 days for import goods; • PIT: Delay in tax revenue is 1,600 billion (1st quarter 2009)

  32. Long term strategy

  33. New Government’s Decree 56/2009/ND-CPon supporting for SME development • New SME Definition • SME Development Plan • Support Policies

  34. GOVERNMENT DECREEOn Supporting for the development of SME • Scope of regulation: Prescribes the support policies and state management on supporting SME development. • Subject: Apply to SME, SME Support Organizations and State Management Bodies on SME development.

  35. New SME Definition Decree 56/2009/ND-CP on Supporting for the development of small and medium-sized enterprise

  36. Planning for SME Development Ministries, Provinces, Organizations SME development plan 5-year Plan Annual Plan Overall 5 year Socio-Economic Development Plan

  37. The State management body in SME development in localities MPI/ASMED Relevant Departments, Organizations Development Orientation Policies and legal documents formulation Supportive programs consolidations Information Supportive Programs Coordination, Guide and Examination Annual Report on SME development People’s Committees DPI SME Development Plan SME

  38. GOVERNMENT DECREEOn supporting for the development of SME 30/6/2009, Prime Minister issued Decree 56/2009/ND-CP and will be implemented on 20th August, 2009” • New definition of SME • Supportive policies are in more detail • Enhance the role of Enterprise Development Agency (ASMED): ASMED shall assist the Minister of Planning and Investment in performing the function of state management over SME development. • The State management body in SME development in localities: Department of Planning and Investment (DPI) to be the focal point in formulating the development programs and plans for SME. • SME development support plan: must be incorporated into the annual plan and 5-year plan of Ministries, agencies, localities, national economy plan with budget and solutions for implementation

  39. Domestic SME policy trends and initiatives • Facilitating SME’s access to finance • SME accounting regime • Human resource training support for SME • Technical and technological assistance • Promoting market expansion

  40. Domestic SME policy trends and initiatives • Supporting local industry development • Supporting SME’s access to information • Building up SME promotion institutional infrastructure • Implementation of the SME Development Plan 2006 -2010 • ODA attraction: ODA commit capital for 2009 – 2010 is expected US$8-10 billion

  41. Thank you very much Contact: Enterprise Development Agency Ministry of Planning and Investment No 6B, Hoang Dieu Street, Hanoi, Viet Nam. Tel: +84 80 4 3231 Fax: +84 43 734 2189

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