Helping Viet Nam’s Small Businesses and Female Entrepreneurs Endure | Asian Development Blog

Small businesses are the backbone of the Vietnamese economy. The government should take decisive action to help them, particularly those owned by women.

After avoiding the worst of the pandemic’s economic impacts for over a year, Viet Nam is now facing its worst outbreak. The General Statistics Office reported that retail sales of goods and services fell 20% between last and this July, and in the July supplement to the Asian Development Outlook, the Asian Development Bank lowered its forecast for Viet Nam’s economic growth for 2021 from 6.7% to 5.8%. Further downward revisions are likely if lockdowns persist.

Economic slowdowns fall disproportionately on small- and medium-sized enterprises (SMEs). Small businesses have lower cash reserves and less access to credit. As such, they are more reliant on cash flows and less resilient to a drop in demand.

Whereas the media often reports on “too big to fail”, SMEs have the opposite problem. They are “too small to save”. Loan restructuring is time intensive. Banks have a strong incentive to undertake this expense for their larger clients, whose non-payment could harm their own financial health. SMEs have a harder time acquiring the attention of their bankers.

SMEs also have a lower adoption of ICT technologies, which makes their operations harder to maintain during lockdowns.

Although the government is providing support, SMEs in Viet Nam have less awareness of and capacity to access relief programs. However, they are not alone. A report from the Organisation of Economic Cooperation and Development identifies better promotion of relief services for SMEs as an early lesson of the pandemic.

Although these challenges apply to all SMEs, they are exacerbated for women-owned ones. On average, they are smaller. Only one in four of them is owned by a woman in Viet Nam, an indicator that reflects an uneven playing field. They have poorer access to financial services, which are also unlikely to be tailored to their specific needs, such as women’s lower ownership of land and other forms of collateral. They are more likely to be in the services sector, which is especially vulnerable to shutdowns. It is unsurprising that surveys conducted in Viet Nam at the beginning of the pandemic found that female business owners feared business survival more than their male counterparts.

Then, there is childcare and other social norms that impinge on the time and resources of female business owners. A report from the International Finance Corporation (IFC) in 2020 found that on average, Vietnamese women spend 105 more minutes on unpaid care work than men each day. These demands will have only heightened during the pandemic. Female entrepreneurs must manage their businesses while often also having to help children to learn remotely. Moreover, many of the daycare, tutoring, and home services on which busy working mothers relied have been shut down or have reduced their services.

Whereas the media often reports on “too big to fail”, SMEs have the opposite problem. They are “too small to save”.

Given these challenges SMEs are facing, the policy priorities are numerous. However, the policy response must foremost begin with vaccinations. Although many countries in Asia-Pacific controlled the pandemic adroitly for over a year, the Delta variant is significantly more transmissible. Economic growth is bifurcating between those economies with high levels of vaccination and those without.

The second priority for SMEs is avoiding business closures. There is nothing more economically inefficient than the shuttering of a viable, solvent, but illiquid business.

Monetary policy is already conducive. Banks have been asked to restructure loans and reduce interest rates. Concomitantly, the State Bank of Vietnam has given banks leeway on reporting of non-performing loans.

These are important measures, but given the severity of Viet Nam’s latest wave, SMEs need more direct support. Guarantees and direct government lending tend to be cumbersome and create credit risk for the government, and SMEs must be careful about additional debt.

Although more expensive, cash payments are needed. Viet Nam has already been deferring and reducing taxes and fees to help businesses. There have also been one-time payments to household businesses and the unemployed.

Viet Nam prudently managed its public spending in the years preceding COVID-19. This prudence now provides flexibility to expand emergency support, including for SMEs’ employees, many of whom are unable to work, may be migrants stranded in lockdown cities, and lack food and other necessities.

When moving beyond emergency assistance, economic stimulus should prioritise SMEs’ adoption of Information and Communications Technology (ICT). In the short term, greater use of ICT can help businesses to pivot their sales to online channels, which not only helps to maintain operations during lockdowns but also protects the health of employees and clients.

In the medium term, it will boost productivity and reinforce the government’s economic strategy. Moreover, experience from overseas suggests that businesses have postponed ICT investments during the pandemic because of falling revenues, which strengthens the justification for credits on the purchase of or accelerated depreciation for ICT equipment. This can be particularly relevant for women-owned SMEs. A recent IFC report on Southeast Asia suggested potential gains of up to $280 billion if women’s businesses were to transition to e-commerce.

A final consideration, particularly for female entrepreneurs, is to get children vaccinated so that schools can reopen. A 2020 report from United Nations Economic and Social Commission for Asia-Pacific found that women-owned SMEs were twice as likely to have reduced their businesses’ activities during the pandemic, which the authors link to the unequal distribution of childcare responsibilities that is an unfortunate reality in Viet Nam. Reopening schools safely for children will have important spillover effects for women across the economy, who have had to juggle increased unpaid care work responsibilities with paid work, including running a business.

The American Food and Drug Administration has already approved Pfizer’s vaccine for children aged 12 and older, and has announced that it could approve the Pfizer and Moderna vaccines for younger children around the end of 2021. These vaccines are in limited supply, and planning should consider, where possible, to reserve them for school-aged children.

It is a cliché but is nonetheless true: SMEs are the backbone of the Vietnamese economy. The government should take decisive action to help them – including more vulnerable female-owned SMEs – maintain their businesses through this latest wave of the coronavirus pandemic.

A version of this post was originally published in the Viet Nam Investment Review.