Seoul, 8/2009

Ministry of Planning and Investment (MPI)Ministry of Planning and Investment (MPI) Enterprise Development Agency (ASMED)Enterprise Development Agency (ASMED)

Policies to Strengthen Policies to Strengthen Viet Nam’s SME capacity Viet Nam’s SME capacity in the Global Economic in the Global Economic

CrisisCrisis

Pham Thi Hong Trang (MS)Pham Thi Hong Trang (MS)International Cooperation OfficialInternational Cooperation Official

Seoul, 8/2009Seoul, 8/2009

ContentContent

1.1. Overview on Viet Nam’s Overview on Viet Nam’s economyeconomy

2.2. SME in Viet NamSME in Viet Nam

3.3. Major ProblemsMajor Problems

4.4. Government PoliciesGovernment Policies

Viet NamViet NamViet Nam is located in the Eastern part of the IndochinaViet Nam is located in the Eastern part of the Indochina

peninsula, bordering China to the North, Laos and peninsula, bordering China to the North, Laos and Cambodia Cambodia

to the West with a long land border of 4,550 km, and to the West with a long land border of 4,550 km, and facing the facing the

Eastern Sea (South China Sea) and the Pacific to the East Eastern Sea (South China Sea) and the Pacific to the East andand

the South the South

Climate: Vietnam lies in the tropics and monsoon Climate: Vietnam lies in the tropics and monsoon

Topography: Three quarters of Vietnam's territory consist Topography: Three quarters of Vietnam's territory consist ofof

mountains and hillsmountains and hills

Administrative Units: Vietnam is divided into 63 provincesAdministrative Units: Vietnam is divided into 63 provinces

and cities. and cities.

Population: about 86,5 million people (Density 260 ppl per Population: about 86,5 million people (Density 260 ppl per

square kilometer.square kilometer.

Language: Vietnamese. Capital: HA NOI. Currency: DONGLanguage: Vietnamese. Capital: HA NOI. Currency: DONG

Overview on Vietnam Overview on Vietnam economyeconomy

Compare to the first quarter 2008Compare to the first quarter 2008• Industrial output increase 2.4%.Industrial output increase 2.4%.• Agricultural output increase 0.9%;Agricultural output increase 0.9%;• Total sale in service sector increase Total sale in service sector increase

21.9%;21.9%;• GDP in 1GDP in 1stst quarter 2009 is 3.1% quarter 2009 is 3.1%

(compared to 7.4% in 2008)(compared to 7.4% in 2008)

Overview on Vietnam Overview on Vietnam economyeconomy

Compare to the first quarter 2008Compare to the first quarter 2008• Export turnover is US $4.7 billion, Export turnover is US $4.7 billion,

decrease by 15% compare to the first decrease by 15% compare to the first quarter 2008.quarter 2008.

• Import turnover is $4.3b, decrease by 45% Import turnover is $4.3b, decrease by 45% compare to 2008;compare to 2008;

• Total committed ODA capital is Total committed ODA capital is US$26.23m;US$26.23m;

• Total newly FDI registered capital is Total newly FDI registered capital is $1.2m, equivalent 30% the same period in $1.2m, equivalent 30% the same period in the previous year; the previous year;

Overview on Vietnam’s Overview on Vietnam’s economyeconomy

Main figuresMain figures The first 6 The first 6 months in months in

20082008

The first 6 The first 6 months in months in

20092009

11 GDP (%)GDP (%) 6.56.5 3.93.9

Agriculture, Forestry, Fishery Sector Agriculture, Forestry, Fishery Sector (%)(%)

3.043.04 1.251.25

Industry and Construction Sector Industry and Construction Sector (%)(%)

7.007.00 3.483.48

Service Sector (%)Service Sector (%) 7.607.60 5.55.5

22 Industrial output (%)Industrial output (%) 16.516.5 4.84.8

Agricultural output (%)Agricultural output (%) 4.54.5 2.52.5

33 Export turnover ( billion US$)Export turnover ( billion US$) 29.729.7 27.627.6

44 Import turnover ( billion US$)Import turnover ( billion US$) 44.544.5 29.729.7

Overview on Vietnam Overview on Vietnam economy economy

Main figuresMain figures The first 6 The first 6 months in months in

20082008

The first 6 The first 6 months in months in

20092009

55 Total committed ODA capital Total committed ODA capital (million US$)(million US$)

1783.001783.00 1539.001539.00

66 Total newly FDI registered Total newly FDI registered capital (billion US$)capital (billion US$)

16.216.2 4.74.7

77 Number of newly registered Number of newly registered enterpriseenterprise

35,04735,047 41,10041,100

Total newly registered capital Total newly registered capital (billion VND)(billion VND)

291,743291,743 170,000170,000

New SME DefinitionNew SME DefinitionDecree 56/2009/ND-CP on Decree 56/2009/ND-CP on Supporting for the development of small Supporting for the development of small

and medium-sized enterpriseand medium-sized enterprise

SectorSuper small enterprise

Small enterprise Medium-sized enterprise

The number

of employees

Total capital

The number of

employeesTotal capital

The number ofemployees

I. Agriculture, forestry and aquaculture

<10< 20

Billion VND

< 200< 100 billion

<300

II. Industry and Construction

<10< 20

Billion VND

< 200< 100 billion

<300

III. Trade and Service

<10< 20

Billion VND

< 50 < 50 billion <100

Overview on SME in Viet Overview on SME in Viet NamNam

• Total number of registered SME: around 41,100Total number of registered SME: around 41,100

• SME present around 97% of total enterprisesSME present around 97% of total enterprises

• SME create around 3 million jobs, account for SME create around 3 million jobs, account for 40% GDP and 29% export value with growth rate 40% GDP and 29% export value with growth rate of 18%/year of 18%/year

• Registration is steadily rising since simplification Registration is steadily rising since simplification of procedures and introduction of new lawsof procedures and introduction of new laws

Number of Enterprise by Legal Number of Enterprise by Legal FormForm

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2002 2003 2004 2005 2006

SOEs Non-State FIEs

Major problems with SMEMajor problems with SME

• Lack of recognition of the great impact of Lack of recognition of the great impact of globalization, the international and globalization, the international and regional integration process regional integration process

• Have a small scale, have limited capital, a Have a small scale, have limited capital, a small number of employees.small number of employees.

• Lack of information on input markets. Lack of information on input markets. • Limitation in market access; the quantity Limitation in market access; the quantity

of products manufactured by SME is small of products manufactured by SME is small in scale, mainly for domestic use, and in scale, mainly for domestic use, and even for very small local areas.even for very small local areas.

Major problems with SMEMajor problems with SME

• Weaknesses in science and technology Weaknesses in science and technology capacity and unskilled workers capacity and unskilled workers

• Constraints in relation to linkages between Constraints in relation to linkages between business and production unitsbusiness and production units

• Unprofessional Internal management of Unprofessional Internal management of SME SME

• Lack of transparency in financial Lack of transparency in financial managementmanagement

Technology Capability of Technology Capability of SMESME

SM

E technology capability

Most SME use backward technology, 3-4 generation compared to average level of the world

Most SME use technology in 1980s

80% SME have no strategy to invest in science and technology

Only 0.1% annual turnover is used for technology innovation (GTZ survey on 1200 enterprises

Limited capability in technology research and innovation

R&D activitiesR&D activities

• Less than 5% SME implement R&D Less than 5% SME implement R&D activities.activities.

• There is no enterprise in insurance and ICT There is no enterprise in insurance and ICT sector implement R&Dsector implement R&D

• Technology innovation happen most often Technology innovation happen most often in garment and automobile sector in garment and automobile sector

(VCCI survey in 2006 in 8 sectors: Garment and textile, automotive, (VCCI survey in 2006 in 8 sectors: Garment and textile, automotive, insurance, banking, ICT, sea transportation, fishery, electronic)insurance, banking, ICT, sea transportation, fishery, electronic)

Capability in technology Capability in technology research and innovationresearch and innovation

• 1%1% total cost used for total cost used for R&DR&D and and 0.2%0.2% for for technology innovationtechnology innovation in in all sectorsall sectors

• Almost enterprise has no strategy Almost enterprise has no strategy and budget for this activitiesand budget for this activities

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

40.8

61.8

4.9

44.1

0

10

20

30

40

50

60

70

2005 2007

Introduce newproduct

Improved existingproduct

Technology characteristicsTechnology characteristics20052005 20072007

Level of Level of technologytechnology

Only hand tools onlyOnly hand tools only 10.310.3 7.77.7

Manually operated machinery onlyManually operated machinery only 3.53.5 5.05.0

Power driven machinery onlyPower driven machinery only 24.624.6 27.527.5

All of the aboveAll of the above 61.661.6 59.859.8

Age of technologyAge of technology Under 3 years oldUnder 3 years old 22.922.9 22.022.0

Between 3 and 5 years oldBetween 3 and 5 years old 34.934.9 36.536.5

Between 6 to 10 years oldBetween 6 to 10 years old 30.430.4 27.527.5

Between 11-20 years oldBetween 11-20 years old 9.59.5 12.512.5

More than 20 years oldMore than 20 years old 2.32.3 1.51.5

New or second New or second handhand

NewNew 61.161.1 71.171.1

UsedUsed 34.134.1 24.424.4

Self-constructedSelf-constructed 4.84.8 3.93.9

Demand for techno innovation by Demand for techno innovation by SME SME

New investmentNew investment% enterprise has made % enterprise has made investment 2005-2007investment 2005-2007

% financed by own % financed by own capital/retained earningscapital/retained earnings

20052005 20072007 20052005 20072007

AllAll 62.262.2 42.242.2 66.966.9 74.074.0

MicroMicro 55.555.5 34.234.2 67.367.3 77.977.9

SmallSmall 72.472.4 56.356.3 69.369.3 71.871.8

MediumMedium 76.776.7 69.469.4 57.157.1 61.261.2

UrbanUrban 56.556.5 38.638.6 72.172.1 70.170.1

RuralRural 66.666.6 45.245.2 64.064.0 76.576.5

Demand for techno innovation by Demand for techno innovation by SME SME

Investment purposeInvestment purpose

0

10

20

30

40

50

60

Add tocapacity

Replace oldequipment

Improveproductivity

Improvequality of

output

Produce newoutput

Safety Enviromentalrequirements

Other purpuse

Reasons for the inability of SME to Reasons for the inability of SME to access to technologyaccess to technology

Poor financial situations and low levels of

R&DPoor

adaptability to changing

trade trends

Desire to avoid risk

Non availability of

technical human

resources

Lack of management

skills

Lack of access to technological information and

consultancy services The inability

of SME to access to

technology

Major ProblemsMajor Problems Export market narrowed down and Export price Export market narrowed down and Export price

decreaseddecreased Factory closing Unemployment increase Factory closing Unemployment increase Example: Fishery export turnover by 10.7%Example: Fishery export turnover by 10.7% Footwear sector 8.7%Footwear sector 8.7% Tex and Garment 1.3%Tex and Garment 1.3% Domestic market suffered from input cost.Domestic market suffered from input cost.

Q1 of 2009: 65,000 laborers lost jobs, 39,000 laborers Q1 of 2009: 65,000 laborers lost jobs, 39,000 laborers partially unemployed, 3,000 laborers abroad returned home partially unemployed, 3,000 laborers abroad returned home earlyearly

Difficulty in accessing to supportive financial Difficulty in accessing to supportive financial resources.resources.

Security Market go down and interest rate go up Security Market go down and interest rate go up Difficulty in mobilizing capital.Difficulty in mobilizing capital. Real Estate Market is freezing Real Estate Market is freezing

SME can get the following benefits:SME can get the following benefits:

30% CIT payable deduction 30% CIT payable deduction for 2009.for 2009.

The remaining 70% CIT payableThe remaining 70% CIT payable:: 9 months extension9 months extension for for the deadline ofthe deadline of submission of the tax payablessubmission of the tax payables for for selectedselected SME.SME.

For exporting enterprises: For exporting enterprises: aa refund of 90% input VAT.refund of 90% input VAT. Obtaining Obtaining the remaining 10% of VAT input refund the remaining 10% of VAT input refund once once the payment documents are justified. the payment documents are justified.

1. Urgent measures to be taken - Government Resolution No. 30/2009/NQ-CP: financial

incentives

The first stimulus packageThe first stimulus package: short-term : short-term lending (Prime Minister’s Decision 131): lending (Prime Minister’s Decision 131): 4% interest rate subsidy4% interest rate subsidy

The second stimulus packageThe second stimulus package: long-: long-term lending (PM’s Decision 443): 4% term lending (PM’s Decision 443): 4% interest rate subsidyinterest rate subsidy

For agricultural and rural development For agricultural and rural development (PM’s Decision 497): interest-free lending (PM’s Decision 497): interest-free lending for agricultural machineries, 4% interest for agricultural machineries, 4% interest rate for agricultural inputs and materialsrate for agricultural inputs and materials

2. Government's stimulus packages

Businesses from Businesses from all sectorsall sectors that have that have charter charter capitalcapital of a maximum of VND20 billion of a maximum of VND20 billion ((US$1.13 millionUS$1.13 million), or employ less than ), or employ less than 500 500 workersworkers, are eligible for , are eligible for credit guarantees.credit guarantees.

Credit guaranteeCredit guarantee does not apply to does not apply to consultancy, real estate, securities, services, or consultancy, real estate, securities, services, or for loans to pay debt, but does for loans to pay debt, but does apply to low-apply to low-income and student housing projects or to income and student housing projects or to build cemeteriesbuild cemeteries

3. Government eases conditions for credit guarantee

Short term measures to helpShort term measures to help SME over crisis SME over crisis

• Credit guarantee program for Credit guarantee program for enterprise: 575 billion VNDenterprise: 575 billion VND

• 4% interest rate subsidy program: 85 4% interest rate subsidy program: 85 banks participate; 178.722 billion banks participate; 178.722 billion VND is disbursed;VND is disbursed;

• Subsidy interest rate for export Subsidy interest rate for export lending is 2.9%;lending is 2.9%;

Short term measuresShort term measuresTax policiesTax policies

• To issue policies on tax delay, reduction and To issue policies on tax delay, reduction and exemption (PIT, CIT and VAT);exemption (PIT, CIT and VAT);

• CIT: To reduce by 30% on CIT for SME. Reduction of CIT: To reduce by 30% on CIT for SME. Reduction of 9,900 billion VND in state budget, 6,800 billion 9,900 billion VND in state budget, 6,800 billion dong delay to 2010;dong delay to 2010;

• VAT: 50% reduction in VAT for some goods (1,050 VAT: 50% reduction in VAT for some goods (1,050 billion dong), reduction in state revenue of 1000 billion dong), reduction in state revenue of 1000 billion dong; delay up to 180 days for import goods;billion dong; delay up to 180 days for import goods;

• PIT: Delay in tax revenue is 1,600 billion (1PIT: Delay in tax revenue is 1,600 billion (1stst quarter 2009)quarter 2009)

Long term strategyLong term strategy

New Government’s Decree New Government’s Decree 56/2009/ND-CP56/2009/ND-CP on supporting on supporting

for SME developmentfor SME development

1.1. New SME DefinitionNew SME Definition

2.2. SME Development PlanSME Development Plan

3.3. Support PoliciesSupport Policies

GOVERNMENT DECREEGOVERNMENT DECREEOn Supporting for the development of On Supporting for the development of

SMESME

Scope of regulation:Scope of regulation:Prescribes the support policies and statePrescribes the support policies and statemanagement on supporting SME development. management on supporting SME development.

Subject:Subject:Apply to SME, SME Support Organizations and State Apply to SME, SME Support Organizations and State Management Bodies on SME development.Management Bodies on SME development.

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

SectorSectorSuper small Super small

enterprisenterprisee

Small enterpriseSmall enterprise Medium-sized Medium-sized enterpriseenterprise

The numberThe number

ofof employees employees

Total Total capitalcapital

The number The number ofof

employeesemployees

Total Total capitalcapital

The number The number ofof

employeesemployees

I. Agriculture, I. Agriculture, forestry and forestry and aquacultureaquaculture

<10<10< 20 < 20 Billion Billion VND VND

< 200< 200 < 100 < 100 billionbillion <300<300

II. Industry and II. Industry and ConstructioConstructio

nn<10<10

< 20 < 20 Billion Billion VNDVND

< 200< 200 < 100 < 100 billionbillion <300<300

III. Trade and III. Trade and ServiceService <10<10

< 20 < 20 Billion Billion VND VND

< 50< 50 < 50 < 50 billionbillion <100<100

Planning for SME Planning for SME DevelopmentDevelopment

Overall 5 year Socio-Economic Development Plan

5-year Plan Annual Plan

Ministries, Provinces, Organizations

SME development plan

Relevant Departments, OrganizationsRelevant Departments, Organizations

Development Orientation Development Orientation

Policies and legal documents formulationPolicies and legal documents formulation

Supportive programs consolidationsSupportive programs consolidations

InformationInformation

Supportive Programs Coordination, Guide and ExaminationSupportive Programs Coordination, Guide and Examination

People’s CommitteesDPI

SME

Annual Report on SME development

SME Development Plan

The State management body in SME development in localities

MPI/ASMED

GOVERNMENT DECREEGOVERNMENT DECREEOn supporting for the development of On supporting for the development of

SMESME30/6/2009, Prime Minister issued 30/6/2009, Prime Minister issued Decree 56/2009/ND-CPDecree 56/2009/ND-CP and will be and will be

implemented on 20implemented on 20thth August, 2009” August, 2009”

• New definition of SMENew definition of SME

• Supportive policies are in more detailSupportive policies are in more detail

• Enhance the role of Enterprise Development Agency (ASMED):Enhance the role of Enterprise Development Agency (ASMED): ASMED shall assist the Minister of Planning and Investment in performing ASMED shall assist the Minister of Planning and Investment in performing the function of state management over SME development.the function of state management over SME development.

• The State management body in SME development in localities:The State management body in SME development in localities: Department of Planning and Investment (DPI) to be the focal point in Department of Planning and Investment (DPI) to be the focal point in formulating the development programs and plans for SME. formulating the development programs and plans for SME.

• SME development support plan: SME development support plan: must be incorporated into the annual must be incorporated into the annual plan and 5-year plan of Ministries, agencies, localities, national economy plan and 5-year plan of Ministries, agencies, localities, national economy plan with budget and solutions for implementation plan with budget and solutions for implementation

Domestic SME policy trendsDomestic SME policy trends and initiatives and initiatives

• Facilitating SME’s access to financeFacilitating SME’s access to finance• SME accounting regimeSME accounting regime• Human resource training support for Human resource training support for

SMESME• Technical and technological Technical and technological

assistanceassistance• Promoting market expansionPromoting market expansion

Domestic SME policy trends Domestic SME policy trends and initiativesand initiatives

• Supporting local industry developmentSupporting local industry development• Supporting SME’s access to informationSupporting SME’s access to information• Building up SME promotion institutional Building up SME promotion institutional

infrastructureinfrastructure• Implementation of the SME Implementation of the SME

Development Plan 2006 -2010Development Plan 2006 -2010• ODA attraction: ODA commit capital for ODA attraction: ODA commit capital for

2009 – 2010 is expected US$8-10 2009 – 2010 is expected US$8-10 billionbillion

Thank you very muchThank you very much

Contact:Contact:Enterprise Development AgencyEnterprise Development AgencyMinistry of Planning and InvestmentMinistry of Planning and InvestmentNo 6B, Hoang Dieu Street, Hanoi, Viet Nam. No 6B, Hoang Dieu Street, Hanoi, Viet Nam. Tel: +84 80 4 3231Tel: +84 80 4 3231Fax: +84 43 734 2189Fax: +84 43 734 2189

Seoul, 8/2009

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