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Unofficial costs still problematic for SMEs

Released at: 19:41, 11/11/2016

Unofficial costs still problematic for SMEs

Photo: Viet Tuan

Payments to government officials remain a burden for SMEs in Vietnam, survey finds.

by Hai Van-Duy Anh

A total of 2,628 Vietnamese small and medium-sized enterprises (SMEs) participated in a survey conducted by the Central Institute for Economic Management (CIEM), Copenhagen University, the Institute for Labor Science and Social Affairs, and the World Institute for Development Economics Research (WIDER) in 2015.

Of these, 42.7 per cent felt a necessity to pay bribes last year, with 40 per cent believing the amount required will increase in the future, the Seminar on the Characteristics of Vietnam’s Business Environment on November 9 was told.

SMEs pay the bribes to gain access to public officials when applying for licenses, resolving taxation problems, and seeking contracts, and when negotiating with customers.

The greatest barriers to the growth of SMEs include a lack of capital, difficulty in accessing finance, limited demand for products, excessive competition, and a lack of land and space for manufacturing and production, the report found.

Professor John Rand from Copenhagen University believes “the lack of capital and difficulty in accessing finance continue to be the biggest barriers for SMEs.” The number of SMEs viewing these as obstacles is falling, however, as 45 per cent identified them as an issue in 2011, 30 per cent in 2013, and 24 per cent in 2015.

Limited demand for products was identified as a barrier by 21 per cent of respondents and excessive competition 17 per cent, which remain largely unchanged from previous surveys.

In 2013, 44.6 per cent of respondents said they paid bribes while 42.7 per cent said likewise in 2015. The frequency of such payments in 2013 and 2015 were quite similar, with 70 per cent of respondent saying they paid two to five times a year.

Forty per cent of those that paid bribes in 2015 believe the amount required will go up in the future, compared to 49 per cent in 2013. The survey also showed that 58 per cent of SMEs that paid bribes in 2013 continued to do so in 2015, while 30 per cent that didn’t pay anything in 2013 did so in 2015.

While “gaining access to public officials” fell from 28.4 per cent of respondents to 18.75 per cent in 2015, payments for “solving taxation problems” increased from 17.6 per cent in 2013 to 24.1 per cent in 2015.

A significant number of SMEs clearly believe that making such payments is necessary. Those within the formal economy make such payments more frequently in order to deal with tax authorities and staff, as well as to gain access to public officials.

Most respondents, however, questioned the benefit of making such payments, as they don’t believe their business activities are in better shape compared to those who do not pay.

Such payments remain a serious problem and affect the competitiveness of enterprises. The government needs to better assist enterprises by banning these informal costs, according to Professor Smrtiti Sharman, a member of the study team.

Although the number of SMEs conducting investments has increased compared to 2013, their ability to access loans remains low, especially for household businesses. In 2015, 25 per cent of respondents applied for official loans, down 1.2 per cent, and 15 per cent experienced difficulties.

The 2,628 SMEs that participated in the survey operate in nine cities and provinces: Hanoi, Hai Phong, Ho Chi Minh City, Phu Tho, Nghe An, Quang Nam, Khanh Hoa, Lam Dong, and Long An, with 72 per cent being super small enterprises.

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