52,800 Vietnam businesses temporarily suspend operations in Jan: What do the numbers mean?

The fact that over 52,800 businesses temporarily suspended operations in January isn't just a temporary economic blip; it may point to deeper, underlying issues within the business environment, writes Dr. Nguyen Si Dung, former Vice Chairman of the National Assembly Office.

According to the General Statistics Office, in January, Vietnam saw notable fluctuations in the business landscape. Over 52,800 businesses temporarily suspended operations, up 20.2% year-on-year. Meanwhile, the number of businesses completing dissolution procedures decreased by more than 5,500 compared to January 2024.

Meanwhile, nearly 33,500 businesses joined the economy in the month, including 10,700 new businesses and 22,000 that returned to operation. The total additional registered capital reached over VND367,200 billion ($14.5 billion), a nearly 158% increase from the previous year.

However, the registered capital of new businesses dropped to VND95,000 billion ($3.75 billion), a decline of over 39% compared to 2024, with the average registered capital of a new business standing at around VND8.8 billion ($347,688), down from VND10.1 billion ($399,052) the previous year.

In addition, 34,200 new business households were licensed to establish themselves in January, with total registered capital of nearly VND8,500 billion ($335.8 million) and more than 58,500 employees. These figures paint a diverse economic picture, showing a strong rise in businesses exiting the market while simultaneously highlighting signs of recovery with new businesses and returning companies.

The significant increase in businesses leaving the market is a worrying signal. The fact that over 52,800 businesses registered to temporarily suspend operations in January, a 20.2% increase year-on-year, raises serious concerns about the health of the economy.

This trend not only reflects the challenges businesses are facing but also negatively impacts economic growth, the labor market, supply chains, investment conditions, and long-term development opportunities.

The sharp increase in businesses ceasing operations could result in slower GDP growth since businesses, especially in the private sector, are the primary drivers of value-added production. A wave of corporate closures could lead to decreased aggregate demand and investment, ultimately affecting production and consumption. If this trend continues, the economy could struggle to maintain sustainable growth.

Furthermore, the impact on the labor market would be significant. When a business shuts down, it’s not just the business owners who suffer; hundreds of workers lose their jobs, which leads to lower incomes, reduced purchasing power, and more strain on the social security system. With each business employing an average of 10 people, this wave of 52,800 closures could leave more than 500,000 people at risk of unemployment.

This phenomenon doesn’t just affect the businesses directly involved - its ripple effect extends throughout the supply chain. When a company shuts down, its suppliers, partners, and customers also face negative consequences, raising the risk of widespread bankruptcy. Lessons learned from the 2020-2021 period, when many businesses closed due to Covid-19, show that disruptions to the supply chain can almost bring an economy to a standstill.

The growing number of businesses exiting the market also signals problems within the business environment. Rising operating costs - such as electricity, bank interest rates, and logistics costs - are eroding business profits and reducing competitiveness. Weak purchasing power across the economy is also making it harder for many businesses to stay afloat. Additionally, pressure from administrative procedures and difficulty accessing credit are further obstacles that make it harder for businesses to recover and thrive.

In addition to the short-term impacts, the wave of closures has long-term implications for attracting investment. An economy with a high rate of business closures will diminish investor confidence, particularly among foreign investors. If the business environment becomes unstable, foreign direct investment (FDI) may shift to other countries with more favorable conditions, such as Indonesia or Thailand, which would weaken Vietnam's long-term growth prospects.

In summary, the surge in businesses leaving the market is not just a temporary issue - it reflects deeper challenges in the business environment, purchasing power, operating costs, and competitiveness. Without timely and effective support measures, the economy could face serious consequences, ranging from stagnating growth and job losses to the risk of losing regional competitive advantages.

The increase in businesses suspending operations in January is a wake-up call, requiring the government to act swiftly and decisively. Over 52,800 businesses temporarily suspending operations is not merely a temporary economic fluctuation but may point to deep-rooted issues in the business environment. If the underlying causes are not identified and addressed, the economy will face substantial short- and long-term challenges.

First, it is essential to understand the root causes of this phenomenon. Objective reasons include the global economic recession, inflation, high input costs, or shifts in consumer behavior. However, internal issues - such as tax policies, complex administrative procedures, difficulties in accessing credit, or legal barriers - may also be contributing to the struggles businesses are facing. Without comprehensive analysis, proposed solutions may fail to address the core issues effectively.

Studying these causes will not only help the government better understand the situation but also provide a foundation for crafting policies that support businesses. For example, if high financial costs are a key issue, the government could consider offering preferential credit policies, debt deferrals, or interest rate reductions.

If administrative barriers are the major problem, streamlining business licensing processes and reducing unnecessary regulatory requirements could be key solutions. If weak purchasing power is limiting business revenue, initiatives to stimulate consumption may be necessary.

A deeper study of the business closure trend will also help the government make long-term strategic adjustments, support businesses in overcoming immediate challenges, and create a conducive environment for sustainable development. If this phenomenon reflects the economy's shift to a new model, the government needs to have policies to guide and support businesses in converting their business models and adapting to market changes.

More importantly, a prompt investigation into the causes, followed by timely policy responses, will bolster the confidence of the business community and investors. When businesses see that the government is responsive, listens to their concerns, and takes action, they are more likely to continue investing and expanding, rather than leaving the market. This also sends a positive signal to foreign investors, maintaining Vietnam's attractiveness in the global investment landscape.

In conclusion, the rapid increase in business closures is a serious issue that requires a quick and accurate policy response from the government. It is vital to conduct thorough research to determine the causes and then propose appropriate solutions to support businesses, improve the business environment, and maintain economic stability.

If no action is taken, the economy may face dire consequences and miss out on future growth opportunities.