Drastic State-owned enterprise reform, privatisation acceleration and business monopoly elimination are vital tasks for Vietnam in 2014 and 2015 to create development momentum for the nation in the context of global economic recovery.
The above tasks were stated by the Vietnamese Prime Minister at an online national conference with ministries, branches, localities and leaders of State-owned enterprises (SOEs) in December 2013. He said, “In 2014, definitively, SOEs must be restructured after the restructuring schemes are adopted. If SOE leaders refuse to carry out restructuring, they will be fired.”
Debt burden weighs
According to the Ministry of Finance, SOEs accounted for 31.41 percent of total domestic revenue in 2012 and over 32 percent in 2013, the highest in three economic sectors and generated about 30 percent of the country’s GDP. In 2012 and 2013, over 80 percent of SOEs made a profit.
However, increased debt burden carried by SOEs caused negative pressures on the entire economy, forcing the Government to consider schemes to relieve bad tax debts and fines incurred by four groups of SOEs before 2007 as specified in Circular 179/2013/TT-BTC dated December 2, 2013.
Total debts as of the end of 2012 of the 127 State groups and corporations topped VND1,348,752 billion (US$62-63 billion), equivalent to roughly 50 percent of the country’s gross domestic product (GDP). These debts equalled 78.9 percent of their revenue in 2012, exceeded 132 percent of their owner’s equity (VND1,019,578 billion) and amounted to more than a half of their total assets of VND2,569,433 billion.
Notably, their debts to commercial banks and credit institutions grossed VND402,955 billion as of end-2012, up 2 percent over 2011 and equal to a third of outstanding loans of the entire economy. Their foreign loans valued VND315,851 billion (short-term loans of VND70,659 billion and long -term loans of VND245,192 billion), of which two-thirds came from ODA loans and government guarantees. Debt to equity ratio (D/E) of SOEs was 1.46 as of end-2012, with that of 48 SOEs more than trebling this rate.
According to the General Statistics Office (GSO), the proportion of State budget-funded investment in SOEs increased steadily year after year before 2012 but the rate unexpectedly declined in 2013, from 54.8 percent of SOEs’ investment value in 2012 to 48.6 percent in the first nine months of 2013. The rate is forecast to decrease in the coming years. Total investment value of SOEs in the first nine months of 2013 still rose 104.2 percent over the same period of 2012. SOEs accounted for 37.8 percent of total social investment in 2012 and 39.3 percent in the first nine months of 2013.
Very high reform determination
To shed worries from SOEs, equitisation is an effective method. SOE equitisation process is believed to make breakthroughs in 2014 because of the resolve at the highest executive level.
At the "Vietnam Development Partnership" Forum in late 2013, Prime Minister Nguyen Tan Dung affirmed that about 500 SOEs would go public in 2014 and 2015, especially one economic group, five Corporation 91-model SOEs and most Corporation 90-model SOEs.
Thus, Vietnam will achieve the goal of retaining only about 300 wholly State-owned SOEs by 2020.
Currently, the Government is considering allowing SOEs to divest from noncore businesses in case of necessity, even though the selling value is lower than the purchasing value. They accept immediate losses to enhance operational efficiency.
World Bank Country Director for Vietnam, Ms Victoria Kwakwa, said a series of regulations and statements of the Vietnamese Government are and will continue to create a legal foundation to accelerate SOE reform like forcing SOEs to disclose more transparent information, to pay dividends to the State Budget, pay compensations for SOEs based on business performances, and require SOEs to divest from noncore businesses. If these solutions are uniformly applied this year, SOE reform will definitely make a progress.
Sluggish restructuring
The SOE restructuring process was initiated in the early 1990s with many ups and downs, it has now become one of three breakthrough economic restructuring tasks in the spirit of the third (October 2011), the sixth (October 2012) and the eighth (October 2013) meetings of the Party Central Steering Committee.
In general, the SOE restructuring process remains slow, quantity-oriented rather than quality-oriented, and lacks breakthroughs in operating and management mechanisms. Thus, the effectiveness and efficiency of restructuring is very low, even hindering renovation and burdening the economy.
According to the SOE Reform Committee, as many as 4,000 SOEs have gone public since 1992, or an average of 181.5 enterprises a year. As of late 2013, the Government approved nearly 100 percent of 101 reshuffle schemes for the 2011-2015 period submitted by central and local authorities. Although the Ministry of Planning and Investment on May 21, 2013 announced to delay the equitisation of 76 SOEs to after 2015, 41 SOEs successfully completed equitisation in the first nine months of 2013 (compared with just 12 SOEs in 2012). The number of wholly State-owned enterprises reduced from 5,655 in 2001 to 1,254 now. Nearly 50 percent of provinces and cities do not have wholly State-owned enterprises.
Seven economic groups and corporations have reshuffled their member units. Four groups and corporations have performed financial restructuring and divestment.
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