Economic Engines: Roles of Driving the Country forward

State-owned economic groups and corporations create the strengths of the Vietnamese economy. The growth of economic groups helps accelerate the national economic development by means of spillover effects, promote the technological progress and create new jobs. In contrast, the collapse of economic groups, especially influential entities, can give rise to very negative effects on the economy.

Looking at list of 500 largest enterprises in Vietnam rated by Vietnam Report Joint Stock Company, commonly known as VNR 500 Top 500 Company Table, State-owned economic groups and corporations are holding top spots - a clear evidence for their largeness of these economic concerns. According to the VNR 500 Top Company Ranking Table 2009, all economic groups and 60 percent of corporations were on the table, making up 41.85 percent of the total revenue of all companies on the list, compared with 15.31 percent in 2006.

 

However, it is said that economic groups are like buses, large but weak. According to data provided on the list of VNR 500 Top Companies, business indicators of State-owned economic groups and corporations are not much higher than those of private companies but much lower than those of FDI enterprises.

 

Return on asset (ROA) ratio and return on equity (ROE) ratio of eight State-owned economic groups and 54 corporations on the 2009 ranking list were only 6.3 percent and 6.2 percent, respectively, compared with 14 percent and 28 percent of FDI enterprises. This showed that FDI companies were 2 - 3 times more efficient than State-owned entities. Furthermore, contributions of State-run economic groups and corporations to the country’s GDP declined in the past four years to some 35 percent, compared with about 46 percent by non-State economic sectors.

 

It is said that State-owned economic groups and corporations suck out so many social resources but they do not use effectively while the practice gives rise to unfair competition and poor transparency, thus causing adverse impacts on the national economic development. It is also argued that State-owned economic groups and corporations make profit primarily because they are protected by the Government, granted monopoly on the domestic market, guarded by high tariff barriers and/or provided free capital, free land and cheap natural resources, or awarded money-spinning contracts.

 

The State economic sector currently possesses much of resources but uses them ineffectively and makes modest contributions to the State Budget and the country’s GDP growth, job creation, industrial development and export. As a result, it is recommended that Vietnam should drop the stance that there must be backbone or leading areas regardless of how they work.

However, in spite of ineffective operations, State-owned economic groups and corporations are still playing irreplaceable roles in the Vietnamese economy. The construction and development of State-owned economic groups and corporations meets requirements of the national economy and matches global economic trend while allows them exploit national comparative advantages. The formation and development of economic groups allows mobilising resources for socioeconomic development. With large scale and modern governance level, economic groups are promoting scale advantages, unifying development directions, cutting production costs, upholding common trademarks, thus enhancing synergised strengths of whole groups as well as their every member companies. In addition, tapping domestic comparative advantages to prop up development, economic groups prevent the massive penetration of foreign corporations in the context of globalisation and regionalisation world economies.

In developing and industrialising countries like Vietnam, economic groups play an important role in domestic production protection strategies. In the context of globalisation and trade liberalisation, the formation of economic groups is an important solution to protect domestic production since small businesses cannot compete with foreign giants. In some countries, the State’s supports together with sound development strategies formed economic groups expanding and dominating international markets.

Importantly, the strengths and roles of State-owned economic groups and corporations must be clearly understood to work out right policies, decisions and actions.

 

Firstly, the largest current core problem is to distinguish the role of the State in the economy with the role and position of State-owned enterprises - especially economic groups and corporations - in the economy. Business and State governance are two aspects that should not overlap because the State management is to regulate and govern the economy rather than involve in direct production. Because of unclear separation, economic groups and corporations are performing business functions and exercising some administrative functions as State management agencies. They have to run for business targets and complete political and social tasks at the same time.

 

If there are no solutions to the root of this matter and there is not a legal framework, we will encounter new problems when we finding solutions. It is clear that we need the Law on Public Investment, or the law on using State capital and assets, not only refers to State Budget sourced investments in projects but also regulates investments in enterprises.

 

Secondly, we need to clearly define authority and responsibility of the Board of Directors and the General Director in State-owned economic groups and corporations for State capital and assets they are in charge of, thus ensuring their enterprises’ business and production autonomy and improving the efficiency of using the State capital and assets.

 

In State-run enterprises, there are two important and dominant factors: ownership and governance. The source of capital and assets of a company does not decide on the performance of such company but corporate governance and business administration. Restricted governance will result to low efficiency of capital usage and poor performance.

 

Regulations on separating the State administrative management and capital ownership were approved given the Resolution of the 10^th National Assembly and the Enterprise Law 2005. Nonetheless, the enactment of this aspect is still limited.

 

In the Resolution of the National Assembly, after supervising economic groups and corporations, involved parties proposed six contents. The report to this effect clearly analysed weaknesses and reflected systematic loopholes in State-owned enterprises in general and economic groups and corporation in particular and put forth recommendations vis-a-vis legal framework, policies, State management, corporate governance, supervision, restructuring, etc.

 

Thirdly, in addition to amending provisions on financial management and inspection regime for State-owned economic groups and corporation, Vietnam needs to create an open and fair competitive environment, helping the private sector to grow up to match their potentials and contribution to the national economy. At the same time, it also needs to improve mechanisms and policies to encourage and develop non-State economic sectors, support small and medium enterprises to give them a greater role in the national economy in the future.

 

State-owned economic groups and corporations are economic locomotives but the economy moves forward not only on fixed rails.