Considered to be a major unknown in the multi-dimensional problem of economic restructuring, public investment restructuring in State owned enterprises (SOEs) has recently become a matter of concern because this field accounts for over 40 percent of total capital investment in social development.
Currently, Vietnam possesses over 1,200 SOEs of one member limited liability companies. Annually, losses of SOEs amount to approximately 12 percent, out of the 25 percent overall loss of enterprises. The average loss of SOEs is twelve times higher than that of non-State owned enterprises. Mr Le Xuan Ba, Director of Central Institute for Economic Management (CIEM), gave these figures in an interview with Vietnam Business Forum. Thanh Nga reports.
According to your point of view, what is the reason for low efficiency in SOE performance?
Firstly, inadequate investment management mechanisms have limited the investment efficiency of SOEs. The results of SOE performed tasks do not match the scale of investment resources.
Secondly is Vietnam’s specification towards SOEs; their main purpose is not profit maximisation like enterprises of other economic sectors. Thus SOEs’ structure is not reasonable for business, and a distance exists between policy and implementation. The result of SOEs’ restructuring process has just shown a reduction in the number of SOEs, it has not significantly influenced the mechanism of State resource allocation, industry restructuring or the operational efficiency of SOEs. Furthermore, SOEs’ management and supervision of operation efficiency are not good enough.
Policy priorities and supports from State ownership have decreased innovation to improve SOEs’ performance. The mechanism of assessing SOE performance does not effectively warn and prevent inefficiency in the use of state assets and capital investment.
Public investment restructuring has been identified as a source of economic growth, accompanying a change of economic structure, besides that, it has also triggered powerful effect, as a tool to adjust economic orientation and lead domestic and foreign investment. What are your points of view?
External turmoil is an opportunity to expose internal difficulties more clearly and quickly. In order to restructure the economy, it should begin with investment restructuring; re-allocating appropriate funds for society. When application - approval mechanism still exists in the budget “cake”, provinces will not improve their awareness and public investments are still ineffective.
Therefore Vietnam Government needs drastically cut public investments by selling off, or even sell at a loss uncompleted projects which are not necessary to maintain and possibly implemented by private sector, and get this benefit for more effective uses. It shouldn’t accept other projects so we have to discuss again to find out the reason for impossibility to loan repayment in the following years.
I think it is necessary to cut social investment to 35 percent of GDP, compared to over 40 percent in 2011 and strongly reduce public investment to less than one third of the total social investments. Particularly, all of ratified portfolio investment, which has not been implemented, should be rechecked; firmly reject portfolios which no longer fit to new conditions and criteria. There should be a plan for capital investment to play a real role in stimulating private and foreign capitals, strengthening connections between areas as well as nationwide.
In business, SOEs are at higher potential risk than other enterprise types. The reason is that SOEs have less motivation; meanwhile they receive much more “natural” supports from the state budget and become dependent on it. There are even worries that the economy could be ‘kidnapped’ to meet the requirements or to handle crisis caused by ineffective SOEs. According to international practices, the proportion of SOEs in GDP accounts for only 4-5 percent, if it is up to 7-8 percent they will sell a portion (through equitization). Therefore, they treat problems occurring in the SOE sector as stepping on the sand, while in Vietnam, there are too many SOEs that they feel like handling with huge stones.
The issue of reducing state intervention in business operations of enterprises has been set out for a long time. What do you think of the limited results?
It is true that the thinking and concept of roles and tasks of the state in market economy under socialism orientation is unclear. The thinking existing since the centralized market, according to which the state should intervene in every sector, is still considerably popular at all levels; there is not any clear distinction between duties of the state, of the market and of social organizations. This has dispersed State resources, even on goals inconsistent with market mechanisms.
Therefore, the Government should have measures to support SOEs to improve their operating efficiencies, increase productivity, not only to increase short term profits. SOEs should be subject to the same competitive pressures as other economic components.
So what do you think about promoting equalization of SOEs?
The most important thing in the restructuring of SOEs is publicized, transparent information. This will create pressure for business leaders to act flexibly under the market mechanism. One solution to enhance the competitiveness of the SOEs is to promote the equitization of SOEs, shrinking to the minimum level the number of SOEs which hold 100 percent of capital
As for businesses that the state should continue to manage and use as an economic tool, it should choose the form of joint stock companies, in which the State holds dominant shares. Therefore, the focus in the coming period is to continue reviewing SOEs to classify and firmly sort the approved earlier SOE fit company structure.
Currently, the Government has commissioned the Ministry of Planning and Investment in the construction of the scheme: "Separating state management functions and ownership functions from the SOE sector." Hopefully, when the project is submitted to the Government, the picture on the mechanism of state management of SOEs will be newly open.
Do you think that the Government should sell ineffective SOEs, even profitable SOEs but of purely commercial business?
It is the general trend and is a good solution. If it is not a field that SOEs must be involved in, the Government must sell those enterprises and commission the field to private enterprises. The Government in turn uses the collected money to invest into other fields which the private sector is still incapable of doing, and when the SOE operates effectively, the Government continues to sell it. This is how the state sectors in most countries do. And that is how the State shows its leading role.
Because the ratio of public debt to GDP of Vietnam is currently up to 50 percent which is too high, if this number mounts up to 70 percent we will surely go bankrupt. Let the State do what it is good at, and leave private sector do what it is good at; the State should only set out criteria for implementation. The State should even sell profitable SOEs which it is not necessary for the state to hold.
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