SOE Reform Pressures

According to a recent study by the Central Institute for Economic Management (CIEM), SOE's current assets are equal to 80 percent of Vietnam’s gross domestic product (GDP), equivalent to VND2,800 trillion, of which large-scale economic groups make up roughly 60 percent. Compared with other countries in the world, this ratio is quite high. For example, this rate is around 15 percent of GDP in Africa, 8 percent in Asia, and 6 percent in Latin America. In high-income countries (classified by the Organisation for Economic Co-operation and Development - OECD), the ratio is only 15 percent of GDP. The uneven distribution of resources creates an imbalance in Vietnam’s long term economic growth.

 

The Ministry of Planning and Investment said the equitisation process has reduced the number of SOEs from 12,000 in the 1990s to over 5,600 now. However, according to experts, the SOE reform process is still sluggish in Vietnam.

 

In a recent study on the State and the market of Vietnam, up to 51 percent of respondents said that SOEs’ contribution to Vietnam's economy is currently average. 8 percent and 21 percent of persons surveyed said their contributions are very negative and quite negative, respectively, while 2 percent and 17 percent said their contributions are very positive and quite positive. Compared with previous surveys, perceptions of people in SOEs’ contribution to the economy seemed not to improve, but even decline.

Dr Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance under the Ministry of Finance, said obstacles of SOE reform are rooted from multi-stakeholder, multi-level relations. Actually, leaders of many SOEs still rely on State supports and subsidies as they think that their firms are apparently awarded Grade-A contracts and projects without any competition against other rivals. They also do not fear corporate bankruptcy, because of State support.

 

However, he also warned that the support of the State for SOEs will run out. Specifically, State budget for development investment is increasingly limited, fat contracts backed by the State are no longer available for them, and they have to manage to survive. Thus, these financial pressures will force SOEs to change and reform breakthrough changes to sharpen their competitiveness on the market.

 

Sharing this point of view, Dr Nguyen Dinh Cung, Director of CIEM, said that the current development context is different from the past as the State will not, and cannot, play a guardian role for SOEs as before. They should be clearly informed to stand on their own feet. Moreover, against the backdrop of global competitive environment, investment and business climate is not only compatible with ASEAN 4 and ASEAN 6 but also corresponding with TPP standards and EUFTA standards.

 

Besides, if we continue to give priorities to SOEs, we will diminish the competitiveness of this sector and the whole economy at large. For that reason, we need to strictly apply market rules and discipline to SOE operations like a full accounting of cost expenses, full accountability of businesses and leaders in their operations, and separation of commercial activities and political and social activities. Also, we have to ensure the principle of equal treatment and non-discrimination between private enterprises and SOEs.

 

It is also necessary to detach the function of State management and State ownership. If this does not work well, the market will see more cases of concurrent State ownership and State management, like Electricity of Vietnam (EVN) which is performing the function of both State ownership and State management in setting electricity tariffs.

 

SOEs are controlling key industries like electricity and petroleum where the dynamic private sector hardly has a slot because of mountains of procedures, licenses, business mechanisms and restriction conditions.

 

According to Dr Cung, the urgent SOE reform issue is to review its functions and roles to reduce monopoly. It is recommended to set up agencies in charge of exercising State ownership rights and State capital management rights in SOEs while imposing hard budget discipline and market discipline for this sector before removing privileges. Equitisation must be in actuality.

 

Dr Le Xuan Ba, former CIEM Director, said that we also need to reduce the size of the SOE system for easy management. Specifically, we can reduce the size of SOEs’ assets to 20 percent for effective administration in every sector. If the current state is maintained, there will be no major improvements for decades.

 

According to Dr Tran Dinh Thien, to reform SOEs, it is essential to have a good private force. Of course, the SOE reform will help create a good private force but, to advance a good reform, we must have a private force strong enough to replace it. Otherwise, sometimes, we will fall into deadlock because of lack of successors.