State-owned enterprises (SOEs) have been given much preference but they do not generate corresponding results because they are bad at arranging personnel, using capital and investing. It is a hard-nut-to-crack issue improve the efficiency of investments made by state-owned corporations and groups. Some people support the expansion of their business lines to other industries providing that they are profitable but others advocate the focus on main business fields only.
According to the report on multi-field investments of state-owned corporations and groups sent to the Prime Minister by Enterprise Reform and Development Steering Committee, state-owned firms invested VND7,370 billion (US$446.66 million) in banking, insurance, real estate and securities, accounting for 2.16 per cent of their owner equity and 0.92 per cent of their total assets. The Ministry of Finance said, with regard to the capital adequacy ratio (CAR), these figures are in the safe zone. However, their invested fields are highly risky, especially in the stock and real estate markets. As of end 2007, 76 state-owned enterprises raised VND514,465 billion (US$31.18 billion), equivalent to 1.36 times of owners’ equity. While they actively invested into other industries, they neglected their main business tasks. Their actions caused negative impacts on the national economy, especially the financial market.
High preference, low efficiency
Although they accounted for only 8 per cent of total local enterprises, State-owned enterprises took 48 per cent of employment and 62 per cent of capital. They generated a half of GDP of the enterprise block and a third of the country’s GDP. They made up above half of the State Budget. From the above figures, SOEs are a strong force. The inefficient use of capital and the sluggish governance reform have led to the stagnation and weakness of SOEs. The ratio of returns over equity of SOEs remains very low, lower than the lending rate. If the total capital of SOEs is VND181,000 billion, their receivables exceeded VND100,000 billion, of which a considerable proportion was bad debts and payables surpassed VND200,000 billion. To sum up, they incurred debts of over VND100,000 billion, more than a half of their equities. SOEs took 80 per cent of credits at domestic banks and 70 per cent at foreign institutions while they generated only 40 per cent of GDP. However, a proportion of the GDP generated came from the privilege to exploit the national natural resources.
When the State set up big corporations, it pinned very high hopes on their increasing overseas presence. However, very a few of them made present in other nations while becoming “sharks” in the home market where they are monopolists. Many economic exports expressed concerns about the efficiency of SOEs.
The Government has shown their strong determination to make changes to SOEs. Recently, the Ministry of Finance has issued a circular on “special supervision” over loss-making wholly state-owned enterprises (not applied to enterprises operating in the financial, banking, insurance and securities sectors). SOEs, which suffer losses and lose 30 per cent of owner’s equity upward, or suffer two years of loss in three years (not two consecutive years) and used to be put into special supervision one year before, or have current ratio of less than 0.5, will be put into special supervision. Loss-making governance activities and executives of loss-making SOEs will be put into supervision.
More secondary, less primary
From 2006 to 2008, many state-owned groups and corporations intensified investments to other industries on the principle that they invested in profitable fields that the Government did not prohibit. According to the statistics released by the Ministry of Finance, SOEs made some 40 per cent of the country’s GDP, equivalent to around US$30 billion. As of December 31, 2007, total assets of 70 SOEs valued at VND803,748 billion but they invested VND116,786 billion into non-core industries. 28 out of 70 SOEs invested VND23,344 billion in securities, insurance and banking sectors. Vinashin, the country’s largest shipbuilder, invested VND3,323 billion into securities, banking, insurance and real estate sectors, equalling 1.1 times of owner’s equity. Vinashin received special preference two years ago when it was the sole receiver of US$750 million proceeds from the sovereignty bond issuance.
While the country is suffering serious power shortage and the Electricity of Vietnam Group (EVN) always cries for insufficient investment capital for power sources, it still made strong investments in banks and securities companies. The implementation of its investments projects is at least 3-6 months behind time. The Prime Minister had demanded EVN to stop investing in non-core industries. The Vietnam Coal and Mineral Industries Group (Vinacomin) always made local coal consumers to worry about the coal quality while illegally exported coal reached millions of tonnes a year. They are the monopolists in their industries but they cannot bring in expected outcomes.
In the first six months this year, EVN failed to supply sufficient electricity. The National Oil and Gas Group (PetroVietnam) met only 95 per cent of oil production plan set for the six-month. Vinacomin was still unable to eliminate illegal coal exploitation and exportation. In the first six months of 2008, total revenues of SOEs fulfilled 59 per cent of the full-year plan, profits were equal to 52.4 per cent of the plan and tax payments completed 64.8 per cent. Four SOEs only completed 29-36 per cent of revenue plans, four SOEs suffered total losses of VND1,076.8 billion, six made very small profits and four paid very small taxes. Many SOEs have chartered capital of thousands of billions of VND but their tax payments valued below VND2 billion.
According to the figures released by the Enterprise Reform and Development Commission, at the end of 2007, sixteen SOEs rushed into sensitive sectors like finance, banking and real estate market. Remarkably, they poured more than VND15,000 billion into these sectors. In detail, they injected VND4,965 billion into the banking industry, pumped VND316 billion into securities sector, contributed VND933 billion to set up investment funds, invested VND6,518 billion into financial and insurance firms and spent VND2,331 billion into real estate. However, according to the Ministry of Finance, 28 SOEs invested more than VND23,344 billion into these fields. Dr. Nguyen Dai Lai, Deputy Director of Bank Development Strategy Department of the State Bank of Vietnam, said the investment into the service sector did not create materials and wealth to the society.
Focus on primary
Dr. Lai said if SOEs are unable to make presence in foreign markets to bring back profits for the nation and to conduct researches to produce more materials for the society but only invest in nonproduction service sectors; the State investment for the domestic economic efficiency is almost useless.
Regarding this matter, Prime Minister Nguyen Tan Dung said there was an unclear understanding in outside investment and supporting investment. He said: “Multi-sector is sectors relating to the primary sector and supporting sector. Core enterprises need to focus on their primary business lines. Any investment into other industries must be put under control.
After requesting state-owned groups and corporations not to invest more than 30 per cent of owner’s equity in non-core industries, he also demanded them to make report to him if they invested in finance, securities and banking sectors. The Ministry of Finance was assigned to supervise, examine and monitor the implementation.
According to the prime minister’s instruction, the Ministry of Planning and Investment is working out a decree on organisation, operation and supervision in state-owned economic groups. The government will, accordingly, tighten management and supervision over the establishment of state-owned economic groups to ensure the focus on core business lines. They must complete business tasks of primary business lines. The investment in other industries cannot leave negative impacts on the completion, expansion and development of primary industries. According to the draft decree, investments into high-risk industries will be put under the supervision and monitor of the Ministry of Planning and Investment. The Ministry of Finance will supervise the capital increase and lending for investment in securities, banking, financial and real estate sectors as well as the capital inflows and outflows in economic groups.
Minh Chau
Vietnamese
