Dec 4, 2012

Vietnam - SOEs potential to be unleashed

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Carving up state ownership and management functions will be a golden key to unlock state-owned enterprises' potential.

Currently, state administrative organs own and manage about 1,300 state-owned enterprises (SOEs) in Vietnam – a practice which often leads to ineffective management decisions which are out of touch with market developments.

"To implement these two functions is like a person to be the judge in his own case which will badly affect business climate and create discrimination," said Le Xuan Ba, director of the Central Institute of Economic Management (CIEM). Ba said the practice was responsible for many SOEs' poor corporate governance, highlighted by the Vinashin and Vinalines scandals.

"SOE owners don't have enough capacity to undertake the role of an investor. Therefore, it is necessary to transfer the ownership function from state administration to more neutral others," he added.

Former CIEM director Le Dang Doanh agreed with the necessity to separate these functions, adding that apart from administrative management, state management agencies were too busy with SOEs' operation, while enterprises were not allowed to implement their ownership rights.

However, experts said untangling these two separate functions was not easy. "Vietnam's process to restructure SOEs started from 1965, but until now it has not been successful," said Doanh.

Habeco and Sabeco, two giant state brewers, underscore the challenges in untangling these two functions. Despite being equitised for many years, the Ministry of Industry and Trade (MoIT) retained its ownership rights in these enterprises with the rationale that the firms play such a dominate role in the market.

The MoIT proposed the prime minister allow it to transfer state capital to some small enterprises and then larger ones later, while under the current regulations, state capital would need to be transferred to State Capital Investment Corporation (SCIC) following equitisation.

Doanh said group interest was the reason why these two functions had not been separated. Dr Dinh Quang Ty, member of Central Theoretical Council, said it was necessary to change the perception of SOEs' roles in national economy.

"We cannot force SOEs to have the same rate of return as private enterprises. Therefore, SOEs should only focus on sectors and areas necessary for the common development of the national economy where private enterprises do not have enough capacity," said Ty.

To address group interests, Vietcombank board member Le Thi Hoa said the state needed to release legal documents to create a adequate and clear legal mechanisms for state capital ownership and management to be a premise for checking and inspecting SOEs.

Nguyen Trang |

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