The pressure of lack of capital weighs heavily on businesses

Production activities in an enterprise. Photo: T.D

Challenges in accessing capital

This assessment is based on a survey of business associations by the board for private economic development research (Board IV) managed by the Government’s advisory council for administrative procedure reform on a number of major barriers and challenges directly affecting the resilience and sustainable development of businesses and the economy.

In the report submitted to the Prime Minister, Board IV stated that difficulties in cash flow, including working capital and medium- and long-term investment capital, were placing enterprises, especially Vietnamese private units, in extremely difficult situations, affecting the competitiveness of many industries, fields, and the domestic economy.

In addition to the decline in orders and the market (causing a sharp drop in cash inflow) in many industries, businesses are also faced with challenges of accessing capital to maintain production and business, and maintaining medium and long-term capital mobilization channels for investment expansion and business recovery.

The huge challenge of accessing capital makes it difficult for businesses, especially Vietnamese private units, to maintain production, business activities, purchasing, and preparing materials for production in 2023 as well as maintaining jobs for workers.

Enterprises in some industries reflected unprecedented difficulties in production and business activities due to a lack of capital.

Specifically, steel enterprises faced a "major crisis" when supply outstripped demand, while both export orders and domestic orders dropped sharply. Many units have to sell products at 30-40% lower than cost to have operating cash flow with high interest costs when waiting for the next credit allocation.

Enterprises in supporting industries could use signed contracts or mortgage real estate to borrow capital but now banks do not disburse due to pressure on credit room, so they cannot accept and sign new contracts. Moreover, for some demanding markets, due to improvements in scale, environmental commitment, and product quality, customers require Vietnamese enterprises to invest in new machinery and technologies. However, due to a lack of capital, they cannot meet this requirement, leading to the risk of not being able to maintain their position in the chain.

Agricultural enterprises reflect the lack of capital to purchase raw materials while some agricultural products (especially raw materials) have a concentrated purchasing period in the last months of the year and the beginning of 2023. The procurement time is urgent, and the amount of capital needed is large, but Vietnamese enterprises cannot access credit, so it is forecast that it would be difficult to compete with foreign-invested enterprises (FDI).

Enterprises producing building materials have stopped most of the contracts to supply materials for works; the completed contracts cannot be paid because investors also have no cash flow and cannot borrow from the bank to pay the material supplier. Besides, construction with public investment capital is also stagnating.

“After more than two years of being negatively impacted by the Covid-19 pandemic, at the present time, facing difficulties in capital, along with previous systemic difficulties of Vietnamese private enterprises in terms of governance and technology cause most Vietnamese enterprises to face a precarious situation to maintain a part of their operations, before considering recovery," said Board IV.

Meanwhile, FDI enterprises that have a more effective and scientific management background, and are less severely affected by the Covid-19 pandemic, do not depend on loans from domestic banks, which have many advantages in the current context.

Export figures for September 2022 from the General Statistics Office showed that exports of domestic enterprises decreased by 1.6% over the same period while FDI enterprises still maintained a growth rate of 14.1% over the same period. This situation, if prolonged, will create increasingly large gaps and disparities between the two economic sectors, reducing the intrinsic competitiveness of enterprises and the Vietnamese economy.

Not only facing the challenge of accessing capital, businesses also face the challenge of maintaining medium and long-term capital mobilization channels for investment expansion and business recovery. This is reflected in the effect of decreasing confidence from the market on real estate units, which has spread to all other types of businesses. It makes the bond mobilization channel unable to help businesses attract investors in the short term to solve urgent problems.

The stock market was also strongly affected, making the difficulties in enterprises’ capital more serious. Many large units have to arrange capital sources to buy back bonds before maturity.

According to Board IV, in the context of low market confidence, lack of working capital and investment flows, enterprises’ assets are at risk of being sold off; information from businesses and associations showed that there may be a wave of selling factories/production facilities of Vietnamese enterprises to foreign investors. Typically, Thai enterprises are conducting many negotiations to buy and sell textile factories and other manufacturing fields. This is a challenge not only for Vietnamese enterprises but also seriously affects the macroeconomy.

Proposing to prolong policies to support businesses

Stemming from difficulties and challenges facing the business community, one of the issues that Board IV and associations propose to the Government is extending a number of effective business support policies during the Covid-19 pandemic until the end of 2023, such as the 2% VAT reduction, extending/postponing the application of the new land rental tariff according to the Government's Decree No. 96/2019/ND-CP dated December 19, 2019; and credit policies such as rescheduling debt repayment, and keeping the debt group unchanged.

For challenges related to the financial market, it is proposed that the Government direct the Ministry of Finance and the State Bank to consult reputable domestic and international financial and policy experts to assess the context and identify solutions. If necessary, propose special solutions in a certain period to rescue businesses and the economy, such as allowing domestic commercial banks to participate in the repurchase of maturing bonds and treat them as a special form of credit in addition to ordinary credit.

Additionally, to increase the efficiency of using the credit line in 2023, helping capital flows to support businesses in many industries and fields, propose the Government direct the State Bank to work with commercial banks to research and design preferential credit packages for key domestic production sectors and fields, in which there are items for small and medium enterprises so as not to destroy business capacity.

Furthermore, with the policy of tightening credit for real estate, it is necessary to separate types of real estate so that types of construction such as social housing, hospitals, schools, and production infrastructure construction projects are not negatively affected according to the general policy, thereby creating opportunities for many related business groups.