Vietnam Sees Record Business Formation, But Withdrawals Still Outpace Entries

In a landscape marked by both promise and peril, Vietnam's entrepreneurial spirit has surged to new heights in the first four months of 2024.

Newly registered businesses have not only exceeded the averages of the past two years but have reached unprecedented levels. However, this surge in entrepreneurship is juxtaposed against a backdrop of persistent market challenges, with withdrawals from the market continuing to outpace entries.

According to data from the General Statistics Office, April 2024 witnessed a remarkable milestone as the nation saw 15,300 newly registered businesses with a staggering registered capital of VND 175.8 trillion (approximately $6.89 billion).

This figure, while representing a 4.1% decrease in the number of businesses compared to the same period in 2023, marks a significant 13.7% increase in registered capital. Notably, the number of new businesses in April 2024 rose by 8.4% compared to a month ago.

The first four months of 2024 have been characterized by sustained momentum in new business creation, with nearly 50,000 businesses entering the market since the beginning of the year. With the addition of 15,300 businesses in April, the total number of newly established businesses in this period has surpassed 51,550, eclipsing the average threshold of the preceding two years and achieving an all-time high.

Despite the buoyant atmosphere surrounding new business creation, caution remains palpable among entrepreneurs. While the average registered capital per enterprise has increased, it has yet to reach the pre-pandemic level of VND 12.8 billion ($500,000). This suggests that businesses are proceeding with prudence in their capital investments amidst lingering uncertainties in the market.

April 2024 also witnessed the return of 8,300  businesses to operation, reflecting a 13.6% decline compared to the same period in 2023. However, this downturn is mitigated by a cumulative increase of 2.4% in the number of businesses returning to operation in the first four months of 2024 compared to the previous year.

Despite this progress, the number of returning enterprises still falls short of the pre-pandemic average, indicating ongoing challenges in business recovery.

The combined influx of newly established businesses and those returning to operation in April 2024 brought the total number of enterprises entering and re-entering the market in the first four months of the year to 81,300, reflecting a modest 3% increase compared to the same period last year.

On average, approximately 20,300 new businesses are established or resume operations each month, underscoring the dynamic nature of Vietnam's business landscape.

Sector-wise analysis reveals varying trends in business creation. The agriculture, forestry, and fishery sector saw a marginal increase of 1.2% in newly established enterprises, totaling 507 businesses.

Meanwhile, the industrial and construction sector witnessed a more substantial uptick of 4%, with 12,500 enterprises entering the market. The service sector remained the primary driver of entrepreneurial activity, with 38,600 new businesses, representing a 3.2% increase compared to the same period last year.

However, amidst the surge in new business creation, the specter of market challenges looms large. The General Statistics Office reports a concerning trend of businesses withdrawing from the market, outpacing the influx of new entrants.

In April 2024 alone, 7,600 businesses registered to temporarily suspend operations, reflecting an 84.1% increase compared to the previous month and a 6.4% increase compared to the same period in 2023.

Additionally, 4,650 businesses ceased operations while awaiting dissolution procedures, marking a 6.5% decrease from the previous month but a 20.2% decrease compared to the same period last year. Moreover, 1.34 thousand enterprises completed dissolution procedures, indicating a 4.8% decrease from the previous month and a 10.9% decrease compared to the same period in 2023.

The cumulative figures for the first four months of 2024 paint a sobering picture, with 60,900 enterprises temporarily suspending business operations, reflecting a staggering 21.9% increase compared to the same period last year.

Additionally, 19,100 businesses have stopped operations while awaiting dissolution procedures, marking a 9% decrease from the previous year.

However, 6,400 businesses have completed dissolution procedures, representing a 4.9% increase compared to the same period last year. On average, 21,600 businesses withdraw from the market every month, highlighting the persistent challenges faced by enterprises in Vietnam.

While the surge in newly established businesses signifies the resilience and dynamism of Vietnam's entrepreneurial landscape, it is tempered by the sobering reality of ongoing market challenges.

The disparity between the influx of new entrants and the exodus of withdrawing businesses underscores the need for concerted efforts to address underlying structural issues and foster a more conducive environment for sustainable business growth.

As Vietnam navigates the complexities of post-pandemic recovery, the journey towards economic revitalization will require collaborative action from policymakers, industry stakeholders, and entrepreneurs alike.