Reports lay bare sticking points in SOE restructuring
Reports lay bare sticking points in SOE restructuring
With a slew of state-owned enterprises performing poorly, there have been warnings that slow reform will continue undermining the country’s competitiveness and investment climate.
For years, the Vietnamese government has been looking for ways to reduce its direct ownership in key state enterprises and so to broaden private ownership. For many reasons, equitisation and divestment have not yet taken place on schedule or as intended.
Recently, slow progress in equitisation and divestment of state-owned enterprises (SOEs) has been attributable to COVID-19, but the pandemic is only a recent cause. More fundamental causes are overpricing of shares, reluctance of local management to act, and bureaucratic inertia. Schedules have been set, and deadlines missed.
“The speed of equitisation and divestment remain slow, with the number of SOEs intended for these activities is small,” said a government report sent to the National Assembly (NA).
According to latest figures from the Ministry of Finance’s Department for Corporate Finance, state-run groups, corporations, and enterprises divested capital worth only $2.1 billion from enterprises, collecting $4.74 billion in September, and did the same with $20.26 million – collecting $99.56 million in the first nine months.
The government earlier expected that state capital collected from SOE divestment this year would be $869.56 million, but now it is uncertain if this will be reached.
Frowning upon this situation, Prime Minister Pham Minh Chinh said, “The rearrangement and renewal of SOEs and state-run units have failed to meet requirements, and the role of state-owned groups in partaking in large-scale works and projects has also failed to be promoted.”
NA deputy Tran Hoang Ngan, representing Ho Chi Minh City, has strongly urged the government to quicken reform of SOEs as soon as possible, which has been a bottleneck for economic growth and attraction of private investment.
“The restructuring, arrangement, and renewal of SOEs and state-owned units have failed to meet the requirements. It is necessary to promote strong restructuring of state-run groups, corporations, and SOEs, quickly handling inefficient enterprises, and further promoting their role in implementing major national projects,” Ngan said.”
Poor performance
The government cited reports from ministries, sectors, and localities as saying that as of late last year, Vietnam had 826 enterprises with state capital, including 673 SOEs and 153 enterprises having state capital and stake.
These enterprises had total assets worth about $163 billion, up 2 per cent as compared to 2020, of which 33 per cent is fixed assets. Their equity sat at $78.26 billion, up 3 per cent over 2020. Total state capital invested at these enterprises was $72.6 billion, up 3 per cent as compared to 2020.
Notably, 11 per cent of the enterprises suffered from additional losses of $698.43 million, and 22 per cent of those incurred accumulative losses of $2.3 billion. The total debts of these groups last year reached $83.78 billion, of which 53 per cent is for short-term debts.
When it comes to the performance of enterprises wholly owned by the state, especially 75 groups and corporations whose total assets were valued at $118.7 billion, their short- and long-term debts from commercial banks and credit organisations stood at about $20 billion, such as PetroVietnam ($9.77 billion), Electricity of Vietnam or EVN ($4.77 billion), Vinacomin ($1.86 billion), Vinachem ($900 million), Viettel ($586 million), Vinafood I ($226 million), Vincem ($213 million), and Vinataba ($142 million).
These 75 groups and corporations also had total foreign loans of about $13.5 billion, including EVN ($7.1 billion), Vietnam Expressway Corporation ($2.68 billion), PetroVietnam ($1.03 billion), and Vietnam Paper Corporation ($90.87 million).
The government report revealed that the operation efficiency of SOEs has failed to meet desired goals, while their investment efficiency was not as high as expected when the projects were adopted. Many projects with huge investments has failed or incurred losses for many years while the restructuring plans did not work.
The report also showed that SOEs’ total revenue in 2021 decreased 12 per cent as compared to that in 2020. Pre-tax profit also declined 20 per cent. Many of them earned a low ratio of pre-tax profit to equity, as much as 1-5 per cent, which was below the average banking deposit interest rate. Over 80 out of 400 reported accumulative losses for many years in a row.
Moreover, SOEs in general have failed to play their role in driving the development of other sectors and promoting value chain linkage. They also remain feeble in sectors that influence the improvement of the economy’s competitiveness such as high technology, precision mechanics, component manufacturing, and source technology. Most SOEs in key sectors operated in a close-ended manner, which did not create conditions for other enterprises to participate in their value chains.
Demand for bigger renewal
Last week, the NA adopted a resolution on Vietnam’s Socioeconomic Development Plan for 2023, with a growth rate of 6.5 per cent. To make the plan feasible, a series of tasks are to be implemented, including drastic reform of SOEs.
“Efforts are to be made to boost restructuring in order to mobilise more state resources into national socioeconomic development,” said PM Chinh.
The government ordered the rapid restructuring in the 2021-2025 period earlier approved by authorised agencies, with openness, transparency, and reform contents ensured in line with the law.
“We will continue divestment under norms and classification categories of SOEs cared in the prime minister’s Decision No.22/2021/QD-TTg dated July 2021 on SOE reform, especially poorly performing enterprises with state capital lost. They must focus on their core business sectors, and no ineffective investment is allowed,” said the government report. “There will be effective solutions to mobilise resources into national socioeconomic development, especially in the number of sectors such as energy, transport infrastructure of national importance, digital transformation infrastructure, and supplies of important input materials for production.”
From now until 2023, the government will soon review and make comprehensive assessments on the performance of all SOEs, and all state-owned projects, works, capital, and assets in order to devise suitable restructuring solutions.
“There will also be proper solutions to make SOEs healthy financially, with radical settlement of financial stagnations, insolvency, and assets that cannot produce profits in groups, corporations, and member companies,” the report stressed. “There will also be new mechanisms and policies to review the management of owners, facilitating the development of a number of major SOEs that can help promote the development of some key economic sectors and lead the development of enterprises of other economic sectors.”
The government has set a target of having at least 25 SOEs with a market capitalisation of $1 billion, in which there will be at least 10 with over $5 billion.
According to Minister of Finance Ho Duc Phoc, SOEs are slow to innovate, meaning they fail to keep up with the rapidly changing requirements of the market-based economy. He pointed out that the inadequate policies for managing them remain a major cause behind their slow innovation and confusion in formulating business and investment strategies and plans. “The legal framework for management and usage of state capital at SOEs should be reviewed and improved in line with the amendments to the Law on Bidding and the Law on Land to ensure efficiency,” Phoc said.
According to Minister of Planning and Investment Nguyen Chi Dung, SOEs need to focus on research and development, digital transformation, infrastructure development and finance to create growth drivers. It is necessary to ameliorate policies and mechanisms for the management to enable them to operate under the market-based mechanism, he said.
According to international organisations such as the Asian Development Bank and the World Bank, though Vietnam’s economy has seen high growth, quality and competitiveness remain problematic. One of the reasons is the slow-paced equitisation and restructuring of SOEs, which has been impeding private enterprises and investors from engaging more in the sectors currently held by the state.
