Equitisation is key to grow economy

At the World Economic Forum last week, Prime Minister Nguyen Xuan Phuc confirmed the government’s policy to allow foreign investors to engage more in Vietnam’s economy via accelerated equitisation of state-owned enterprises and capital divestments.

Improving corporate governance is an integral part of reform at state-owned enterprises  Photo: Le Toan

“We will resolutely equitise state-owned enterprises (SOEs), with a special focus on withdrawing state-owned capital from enterprises under approved roadmaps and plans,” Phuc told leaders of 150 global firms at the forum in Hanoi.

“We will re-structure the state-owned sector’s investment capital portfolio and assets, foremost in SOEs, and transfer commercial assets and business opportunities to the private sector,” he said.

Many SOEs are now faced with major debts and losses, while their equitisation remains slow and their corporate governance is weak.

Last week, the Ministry of Finance (MoF) reported to the National Assembly that the total debt of parent SOEs last year was $39.22 billion, up 5 per cent year-on-year.

The total foreign debt of state-owned groups and corporations last year reached $15.83 billion, including nearly $1.77 billion in short-term loans and $14 billion in long-term loans.

Of the $15.83 billion in foreign debt, parent enterprises incur $13.65 billion – with Electricity of Vietnam ($9.5 billion), PetroVietnam ($1.075 billion), mining group Vinacomin ($1.038 billion), Vietnam Expressway Corporation (over $1 billion), and Airports Corporation of Vietnam ($596.4 million).

Among loss-making groups and corporations, Vinalines made a loss of $152.27 million in 2015, Vinafood 2 ($45.5 million), the Ministry of Defence’s Corporation 15 ($32.6 million), Vietnam Coffee Corporation ($18.2 million), and Vietnam Expressway Corporation ($5.2 million).

The National Assembly’s Economic Committee Chairman Vu Hong Thanh reported to the legislature that many SOEs are either suffering from losses or delaying their state-funded projects. This list includes the $325 million Dinh Vu polyester fibre plant in the northern city of Haiphong, the $100 million bio-ethanol Dung Quat plant in the central province of Quang Ngai, the $363.63 million expansion of Thai Nguyen steel plant, and the $545.45 million Ninh Binh nitrogenous fertilizer plant in the northern provinces of Thai Nguyen and Ninh Binh.

Meanwhile, according to MoF, Vietnam is very slow in implementing SOE reforms.

Specifically from 2011 to late September 2016, 557 enterprises had their equitisation plans approved, including 49 in this year’s first nine months.

However, out of 557 SOEs, only 426 have completed their initial public offering – of which merely 254 could sell their stakes under the approved equitisation plans, with total value of $1.97 billion.

Kobayashi Yoichi, chairman of Japan-Mekong Business Cooperation Committee, commented that Vietnam needs to boost SOE equitisation to create a level playing field for private firms.

“Many Japanese firms want to buy stakes from SOEs in Vietnam, but fail due to many obstacles,” said Yoichi, who is also vice chairman of Itochu Corporation. “Vietnam can develop its economy sustainably if private firms have more space to play.”

Over the past few years, the World Bank and the Asian Development Bank (ADB) have continuously urged the government to boost SOE reforms in order to make room for private enterprises – helping improve the economy’s competitiveness.

Stressing the importance of the government’s move to determinedly reform SOEs, the World Bank commented that Vietnam needs to focus on the equitisation quality.

“The majority of transactions only involve minority shares which may dampen the intended impact of private ownership on firm performance, in terms of enhanced management, technology transfer, and market access,” said Sebastian Eckardt, lead economist for the World Bank in Vietnam.

Agreeing with this view, the ADB also commented that Vietnam’s existing SOE equitisation “mostly involves the sale of minority stakes, which is likely to limit the potential for better performance at these companies.”

“SOEs continue to absorb a very large share of aggregate investment, yet their relative contribution to real GDP and aggregate employment is low relative to private enterprises,” said ADB country director for Vietnam Eric Sidgwick.

Currently, Vietnam has more than 650 SOEs that have yet to be equitised.


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