1.5 million businesses by 2025: is it too challenging?

The Ministry of Planning and Investment’s (MPI) first quarter report showed that credit had grown by only 1.6% as of March 20, much lower than the growth rate of 4.03% in the same period last year. 

The figure shows the difficulties faced by enterprises and the low capital absorption of the national economy.

The number of newly registered businesses and businesses resuming their operation in the first quarter was nearly VND57,000, a decrease of 5.4% from the same period last year, lower than the number of businesses leaving the market (60,200), up 17.4%.

Meanwhile, a survey by the Vietnam Confederation of Commerce and Industry (VCCI) found that only 35% of businesses will expand their business scale in the next two years. This means that 65% do not intend to scale up production.

Nearly 11% of businesses said they intended to narrow business scale or even shut down business.

On average, a private enterprise had capital of VND15.6 billion and employed 21 workers in 2022, while the figures were VND22.3 billion and 23 workers, respectively, in 2019.

Only 5% of businesses increased investment capital and 5% expanded staff scale, a significant decrease compared with the 8.3% and 11.5%, respectively, in 2019.

Regarding business results, nearly 43% of private enterprises said they made a profit in 2022, (the figure was 63% in 2019), while 35% took a loss (23% in 2019)

A report from the General Statistics Office (GSO) showed that in 2022, 143,200 businesses withdrew from the market, up 19.5%, or 11,900 businesses a month.

In 2021, 54,960 businesses suspended business, up 18% over 2020, and 91% over 2016-2020. The number of these businesses was 1.28 times higher than the number of businesses resuming operation, and the proportion was much higher than the 0.84 times in 2016-2020.

Ambitious goals 

Analysts say that having 1.5 million businesses by 2025 is a very ambitious goal.

Under the administration of Prime Minister Phan Van Khai in the past, Vietnam pursued a plan to have 500,000 businesses by 2005 and 1 million businesses by 2010.

To reach that end, the then Prime Minister Phan Van Khai gathered strength to implement the 2000 Enterprise Law which said people were allowed to do whatever the laws did not prohibit, while civil servants could only do things allowed by the laws.

He shifted the management method from pre-inspection to post-inspection, and eliminated sub-licenses, thus creating momentum for the national economy to develop.  

The number of businesses soared from 39,000 in 2000 to 107,000 in 2005 with the average growth rate of 122% per annum, the highest growth rate in the history of the private sector after the Enterprise Law.

However, the business growth slowed as business conditions, called ‘sub-licenses’, one after another, were created, hindering the development of businesses.

In 2010-2017, the number of enterprises increased by 10.5% each year, according to MPI.

By mid-2018, Vietnam had 702,710 businesses on the management list of the General Department of Taxation (GDT) with tax codes, not including dissolved businesses and businesses following procedures for dissolution. 

As of the end of 2021, Vietnam had 857,551 operating businesses, according to the White Book on Vietnam’s enterprises 2022.

So, Vietnam will need serious business reform, and capital and land access improvement to raise the number of enterprises to 1.5 million by 2025. Meanwhile, the business community is facing difficulties after trying to overcome the impact of the COVID-19 pandemic.

The post-pandemic recovery process began when the new shocks of war, energy crisis, finance and banking uncertainties, high inflation and global demand decreases rushed down. The predicted GDP growth of large economies, plus worries about high inflation will make negative impacts on the economies with high openness like Vietnam.