Vietnam - Time doesn’t wait

VietNamNet Bridge – A lot of activities have been underway to prepare for restructuring state-owned enterprises (SOEs), but how will the restructuring be?

The Ministry of Finance is finalizing the plan on restructuring SOEs. State-owned corporation and groups have also requested to urgently complete their own restructuring plans to submit to the government in the first quarter of 2012 and for implementing from now to 2015. It seems that activities to restructure SOEs are underway actively but where will this task be actually?

Mr. Pham Viet Muon, head of the steering board for enterprise reform and development, talked at a seminar entitled “Restructuring SOEs,” held by the Government Office and the World Bank in late February, saying that it was unfeasible for all state-owned groups to finalize their restructuring plans by the end of March. At mid-February, 21 state-owned groups were requested to submit their restructuring plans in the first quarter of 2012.

But if the government gives them more time to perfect their restructuring plans, restructuring will be a failure if the methodology and the goal of restructuring are not well determined.

Restructuring is different from the previous reform and rearrangement of SOEs because restructuring will be applied at all SOEs, even SOEs which were equitized and re-arranged like the Bao Viet Finance Group or the Bank for Foreign Trade of Vietnam (Vietcombank).

Reviewing the reform and re-arrangement of SOEs in the last ten years, one will see many reasons to worry about the success of the upcoming restructuring process if this task is not implemented scientifically, decisively and quickly.

According to the steering board for SOE reform and development, a total of 4,757 SOEs were re-arranged by October 2011, including 3,388 SOEs being equitized. In the 2002-2005 period, up to 800 SOEs were equitized annually. At present, 100 percent of SOEs have been transformed into one-member limited liability companies and many state-owned corporations have been emerged or dissolved. However, the reform and re-arrangement of SOEs has come to a standstill in the last 2-3 years, with dozens of SOEs being equitized annually.

However, it is better for SOEs for doing something rather than doing nothing.

Thanks to the reform and rearrangement of SOEs, the state’s capital and assets at these enterprises have increased. The number of enterprises which incur losses has reduced.

By the end of 2011, the number of SOEs that were completely owned by the state was 1,309, including 11 economic groups, 90 corporations and two commercial banks. The total state capital in SOEs at the end of 2010 was over VND700 trillion ($38.88 billion). There were 102 SOEs with capital of less than VND5 billion ($270,000) and only 8 with capital of less than VND1 billion ($50,000). The situation of the state-owned sector is much brighter than before.

However, this process has come to a standstill and there are many matters with SOEs that the reform and re-arrangement cannot solve.

There are a lot of problems associated with policies and legal frameworks on the rights and duties of the state as the owner of equitized enterprises. In fact, the state cannot control equitized and reformed SOEs if it does not hold at least 75 percent of capital.

Equitized and reformed SOEs still show a lot of weaknesses, including: outdated management models, loose financial disciplines, lack of transparency, or the ownership of state is not performed professionally, etc.

In this situation, restructuring is seen as a basic solution to deal with the remaining weaknesses at equitized, reformed SOEs and also at SOEs that have not performed this process.

At this moment, accelerating equitization and re-arrangement of SOEs is still necessary, but it is not enough to reform them. Restructuring SOEs appears as a solution and a new motive-force to change SOEs. However, restructuring should go with the ongoing reform and rearrangement of SOEs.

Ten reasons for SOE restructuring

According to Deepak Misha, the WB chief economist, there are ten reasons to restructure Vietnam’s SOEs:

-       SOEs work less effectively than non-State and foreign-invested enterprises.

-       Equitization is still useful for SOEs.

-       Implementing the industrial policy does not mean that Vietnam has to use state-owned groups as a tool.

-       SOEs are too big so they cannot fail; they are so bulky for being rescued.

-       The role of SOEs in the economy is changing.

-       Vietnam still has an unfair playground.

-       SOEs do not apply the modern business governance mode and still work in transparency.

-       The legal framework is weak and incomplete.

-       Lack of clear vision.

Nguyen Ha

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