Nearly 12,000 businesses stopped operation or got dissolved in the first quarter of the year, the latest report by the Ministry of Planning and Investment show.

Enterprises are doing everything they can to struggle with the current difficulties - scaling down the production, laying off workers and cutting down expenses. The bank loan inaccessibility, input material price increases, and weak demand all have put a heavy burden on manufacturers and service companies.

Nguyen Tien Nghi, Deputy Chair of the Vietnam Steel Association VSA, said that the sales of steel products increased slightly in March, but the increase is not big enough to offset the decreases in the first two months of the year. The steel manufacturing has been stagnating due to the real estate freeze caused by the policy on tightening the monetary policy, cutting down public investment projects and the decrease in private invested projects.

Nghi said that steel manufacturers have been bent with the sky high interest rates at 17-19 percent per annum. The fuel price increase in early March has also dealt a strong blow on them, because it has led to the input cost increase of 70,000-80,000 dong per ton, while the demand remains weak.

“A lot of steel manufacturers are considering scaling down the production and lay off workers to cut down expenses,” Nghi said.

Ngo Ngoc Thanh, President of the Rang Dong Light Source and Vacuum Flask Company, said that the company has been trying to cut down expenses by rationalizing the phases in the production line to save materials and fuel, but this cannot offset the materials, electricity and petroleum price increases.

Thanh said that some smaller businesses have to scale down the production or just keep production at moderate level, warning that this is the opportunity for low cost products from neighboring countries to flood the domestic market.

In the service sector, Nhat Nam Joint Stock Company, the owner of Fivimart superamarket chain, said that the retailer is trying to negotiate with suppliers to avoid a new product increase wave. 

However, manufacturers all have said that they have to raise the sale prices due to the overly high expenses. Therefore, the distribution chain may have to raise the prices of some essential goods by 3-5 percent in the second quarter of 2012, though it fears that the sales would decrease due to the weak demand.

A recent report by the Ministry of Industry and Trade shows that the production was in a very bad situation in the first quarter of 2012, when the market got narrowed, the purchasing power decreased. If not counting on the price increase, the total retail turnover in the quarter increased only by five percent in comparison with the same period of the last year, the figure which most clearly shows that the products have been left unsold.

Businesses urged to slash interest rates

Chair of the Hanoi Supermarket Association Vu Vinh Phu has affirmed that there are problems in the State Bank’s interest rate policy. Though the State Bank has instructed to lower the deposit interest rate to 13 percent at maximum, the lending interest rates have not been eased, while most of the businesses still have to borrow money at the interest rates of 18-19 percent.

Phu stressed that with the high lending interest rates, banks now can earn the high interest rate margin of 5-6 percent, while 3 percent would be enough to bring profit to them

Warning about the signs of the “stagnation inflation”, Phu said that the consumer price increase (CPI) slowdown in the first quarter of the year should not be seen as a good sign, because the prices of products and services have increased by two or three folds. 

He believes that the thing that needs to be done now is to lower the prices of goods and services in order to stimulate the demand, thus allowing to encourage production. The problem now lies in the distribution work. With too many intermediary parties, the prices have been pushed up. In general, manufacturers can only earn 40 percent of the value of the goods, while distributors pocket the other 60 percent.

Source: Lao dong/ VNN