Vietnam - Questions raised about SOEs’ commitments to cut down expenses

VietNamNet Bridge – State owned conglomerates all have made commitments to cut down expenses in the difficult period. A question has been raised that why didn’t the big economic groups practice thriftiness earlier, if they really could do that? 


Speaking at a recent conference, Minister of Finance Vuong Dinh Hue, said that by February 21, 2012, five state owned economic groups and general corporations had committed to cut down the production management costs by 2,353.6 billion dong this year.

Earlier this year, Ministry of Finance released a dispatch on January 17, 2012, calling on economic groups and general corporations to cut down the costs in the context of the big economic difficulties. The ministry also showed the goal to the state owned enterprises (SOEs)--cutting down the management costs by 5-10 percent to reduce the production costs and increase the business efficiency.

Just one month after the call, a series of state owned conglomerates and general corporations made commitments about the management costs. Bao Viet, a finance and insurance group has committed to cut down 145 billion dong, the Vietnam Textile and Garment Group by 178.6 billion dong, Vinalines 105 billion dong, and Petrolimex 137 billion dong, the Vietnam Coal and Mineral Industries Group 900 billion dong, the Housing and Urban Development Group (125 billion dong) and the Electricity of Vietnam (1800 billion dong).

Explaining the cutting, the SOEs said that they would reduce the material consumption level, cut down the spending on services, electricity, water, telephone charges, stationary, petrol, conferences and workshops. 

The strong commitments to cut down trillions of dong have made people surprised rather than glad. Private businesses, limited or joint stock companies, and households would think of practicing thriftiness right from the first day of operation. Meanwhile, SOEs only think of cutting down expenses after the government released a resolution on cutting management costs.

Another question has been raised that why the SOEs did not try to cut down expenses by 5-10 percent in the past, if they really could do that? Did they realize that they wasted too much money in the past, and they now need to be thrifty? But what will happen if they minimized the management costs already, but they now still have to cut expenses further to satisfy the government and the Ministry of Finance? They have committed to cut down expenses in 2012, and how about the next years?

Economic groups and general corporations are the legal entities formed up from the state budget, or the tax paid by people. Therefore, the sum of trillions of dong to be cut by SOEs is really a huge sum of money. However, if considering the huge assets the SOEs are owning, and the preferences the SOEs can enjoy (the monopoly, easy bank loan access, delayed debt payment in case of taking loss), one would see that the sum of trillions of dong makes nothing if compared with the potentials the huge assets can bring.

The first step in the restructuring process

The commitments by SOEs to cut down expenses have been considered as the first move in the restructuring process. However, the most important issue of the restructuring is to find out the new ways for development, not cut expenses and save money.

Meanwhile, as Nguyen Trong Dung, Head of the Enterprise Renovation Department of the government office admitted, though the line of actions is clear, insiders still do not know what exactly to do.

Pham Viet Muon, Deputy Head of the Steering Committee on Enterprise Renovation and Development, said in late February that he received a document from the Ministry of Transport, requesting the government to give concrete guidance on SOE restructuring.

Muon added that it is impossible to approve all the restructuring plans within the first quarter as previously planned. The first quarter would last in some 20 working days, while there are 21 restructuring plans for approval.

Source: TBKTSG

Business & Investment Opportunities

YourVietnamExpert is a division of Saigon Business Corporation Pte Ltd, Incorporated in Singapore since 1994. As Your Business Companion, we propose a range of services in Consulting, Investment and Management, focusing three main economic sectors: International PR; Healthcare & Wellness;and Tourism & Hospitality. We also propose Higher Education, as a bridge between educational structures and industries, by supporting international programs. Sign up with twitter to get news updates with @SaigonBusinessC. Thanks.