Despite facing challenges in the capital market in 2022, businesses in Vietnam in 2023 are projected to have growing opportunities

Activities of businesses in Vietnam in the first half of 2022 brought an optimistic outlook to the economy of the whole country due to the strong post-pandemic recovery. However, the situation has slightly changed in the second half of the year in which new difficulties have emerged and the business results of the fourth quarter of 2022 are differentiated. Beside the negative impacts of the world economy, businesses in Vietnam in 2022 must face capital depletion, although the business opportunities in Vietnam are expected to be positive in 2023. 

According to a recently issued global research report by Standard Chartered Bank in January, Vietnam’s economy is forecasted to grow 7.2% in 2023 and 6.7% in 2024, following a solid recovery to 8.0% in 2022. 

“We still have a conviction on Vietnam’s high growth potential over the medium term,” said Tim Leelahaphan, Economist for Thailand and Vietnam, Standard Chartered. “While macro indicators moderated somewhat in Quarter 4 2022, they remain largely robust. Retail sales posted solid growth in the second half of 2022, implying improved domestic activity.”

The forecast shows that Vietnam is emerging as one of the top go-to destinations for foreign investors in Southeast Asia. This also means businesses in Vietnam will have big opportunities and a favorable economic environment to capitalize on. To optimize these advantages, businesses in Vietnam should make concerted efforts and Vietnam in general should find appropriate solutions to overcome existing challenges.  

Highlights of businesses in Vietnam in 2022

According to a report by the General Statistic Office, in 2022, Vietnam had more than 208 thousand enterprises to register for new establishment and return to operation, an increase of 30.3% compared to the previous year. On average, there are more than 17 thousand businesses per month that decide to establish and return to operation.

By economic sector, in 2022 there were 1,959 newly established enterprises in the agriculture, forestry and fishery sectors, a fall of 2.0% compared to 2021; 36.3 thousand enterprises in industry and construction, a raise of 16.1% and 110.3 thousand enterprises were in the service sector, a raise of 31.9%.

These numbers show the prospects in production and business in the last months, after a long period of stagnant due to the global pandemic. However, businesses in Vietnam still had to face numerous difficulties and challenges. 

Capital depletion and the turbulence of bonds, credit and securities

The report of the General Statistics Office also shows that in December 2022 alone, 11,384 businesses withdrew from the market, of which 3,776 enterprises registered to suspend business for a definite time; 5,847 enterprises halted their operation while dissolution procedures are pending; 1,761 enterprises completed their dissolution procedures.

These figures are the result of many disadvantages that businesses in Vietnam are facing. In the context that the world economy is fluctuating due to geopolitical factors, Vietnam’s demand for imported goods is directly affected, causing aggregate demand to decline. Moreover, countries around the world will continue to tighten their fiscal and monetary policies to combat inflation, which means that external interest rates will increase. Meanwhile, domestic consumption, which is the foundation for growth this year, is facing the risk of a sharp decline due to disruptions in the financial market and real estate market. 

Nevertheless, the most concerning problem that most businesses in Vietnam are struggling with in 2022 is capital depletion. A survey by the Private Economic Development Research Board under the Prime Minister's Advisory Council for Administrative Procedure Reform shows that, from the second half of October 2022, private enterprises are in urgent situations because of lack of capital, no cash flow to maintain production and prepare raw materials for next year's production periods. This difficulty occurs not only with industries directly related to real estate, but also with many other industries such as supporting industries, agriculture, etc.

This precarious situation due to depleted capital can stem from the fact that all three pillars of the capital market - bonds, credits and securities - were suddenly congested at the same time, leaving businesses in Vietnam unable to respond accordingly. 

Since the Tan Hoang Minh event occurred in April 2022, Vietnam’s corporate bond market has been facing continuous difficulties, leading to the risk of cross default. Over the past month, the wave of bond run took place on a large scale, businesses have had to buy back nearly VND 160,000 billion of bonds ahead of time (an increase of more than 50% compared to the same period last year), while the issuance of new bonds decreased by 54%. The wave of bond run also led to fund run (shunning from bond investment funds), causing some bond investment funds to face liquidity risk.

The turbulence in Vietnam’s corporate bond market has spread to the stock market as a crisis of confidence escalates. Compared to the end of last year, the stock market capitalization has decreased by 50%, or about USD 160 billion has evaporated.

Meanwhile, under pressure of inflation, interest rates, exchange rates and liquidity, bank credit was also tightened. If in the first 6 months of the year, credit increased by an average of 1.56%/month, then in the last 4 months, credit increased by an average of 0.5%/month.

As a result, the VN-Index saw the strongest drop in the world in many sessions, and the stock price fell deeply beyond the expectations of many investors. 

Positive business environment in Vietnam in 2023 

On the bright side, some businesses are finding ways to save themselves and businesses in Vietnam in 2023. The hope for a favorable business environment in Vietnam is coming from two indicator stocks, NVL and PDR. In particular, with NVL, NovaGroup has announced that it will sell 150 million shares of NVL to have more money to deal with bond issues. Similarly, Phat Dat has recently announced the early settlement of the 9th bond issue in 2021 with a total value of VND 150 billion, bringing the outstanding bond balance down to 2,698 billion VND, while the value of the collateral assets was about VND 7,000 billion. 

Despite all the hindrances, the outlook of  business opportunities in Vietnam in 2023 is quite a positive one. The results of a survey on business trends of enterprises in the processing and manufacturing industry in the fourth quarter of 2022 by the General Statistics Office showed that: 32.6% of enterprises rated better than in the third quarter of 2022; 33.7% of enterprises said that the production and business situation was stable and 33.7% of enterprises rated it as having difficulties.

It is expected that in the first quarter of 2023, 31.5% of enterprises assessed the trend would be better compared to the fourth quarter of 2022; 37.3% of enterprises think that the production and business situation will be stable and 31.2% of enterprises forecast more difficulties.

In conclusion

After a strong rebound from the pandemic, businesses in Vietnam in 2022 still had to encounter several difficulties both from the world geopolitical situation and domestic turbulence. One notable problem faced by businesses in Vietnam is capital depletion as a result of the instability of the capital market's three primary pillars - bonds, credits, and securities. Vietnam’s corporate bond market has slowed down in 2022 due to liquidity risks and declining investor confidence. However, it is believed that this is a necessary step back to reflect, transform and develop more sustainably for businesses in Vietnam in 2023 as numerous experts are optimistic about the business environment in Vietnam in the next year.