Business Beat
The cost of electricity has soared 13 per cent since the beginning of this month, due to several hikes by the Government. This has created problems for energy-hungry businesses. Higher electricity prices have meant higher production costs, though most businesses are in no position to raise prices due to competition from cheap imports.Initial calculations show that production costs will increase between 2 and 9 per cent in many sectors such as steel, cement, and fertilisers. However, as these are inputs for many of Viet Nam’s export industries, the competitiveness of Vietnamese goods may be widely affected, especially processed agricultural products.
Electricity of Viet Nam EVN says it has no alternative but to raise prices periodically, until they reach an average of 7 cents per kilowatt-hour. only at this level, they say, can they source capital for power generation, desperately needed in the coming years. However, the price hikes may mean revenue losses for EVN, as households may crimp on power consumption. The increased prices may also affect plans to bring electricity to rural areas.
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The Finance Ministry will establish a financial investment company in HCM City, in a pilot project to reform the management of State assets in companies. The company will control the State’s stakes in equitised companies as well as all one-member limited liability companies that were previously State-owned.
The company will have free rein in balancing the investment flow of its subsidiaries, like selling shares of companies it doesn’t need to control, or buying more shares of profitable companies. It will also be an active player in the stock market and may even be aggressive in buying out small State-owned companies.
This is an important step for keeping the State out of day-to-day business management, at the ministry and provincial levels. People say such a big company will be unwieldy given the wide range of business fields it might become involved in. Executives to run such a company may be hard to come by, these days.
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Viet Nam is looking for ways to spruce up its export act, as the so-called on-the-spot export mechanism is not being used effectively, due to a lack of co-ordination among State agencies.
Under the system, when signing export deals with foreign buyers, local suppliers have to deliver to the buyers’ sub-contractors based in Viet Nam. These sub-contractors then use the materials to produce goods for export. In recognition of this form of export, the Government has granted preferential treatment to the local suppliers by waiving value added tax.
In reality, only enterprises with foreign investment are able to operate under this system. Domestic textile manufacturers say that while the Government says they can sign contracts with American companies for supplying cloth, and deliver the cloth to subcontractors to make garments and export them, customs and tax people say they cannot. Instead, the latter say that local textile manufacturers can only sell the cloth directly to the subcontractors,, paying 10 per cent value-added tax for their sales.
A consistent approach is lacking because the Finance Ministry has not received guidance from the Government for this type of export. Industry officals say export performance could be improved rapidly through better communication between Government agencies.
VNS
