LookAtVietnam – Minister of Finance Vuong Dinh Hue has warned that the
cost for restructuring state owned enterprises SOEs would be big, which would be
a burden to the national economy and lead to higher public debts.

Hue said at a workshop held recently that the business efficiency and the
competitiveness of SOEs remain weak, even though the enterprises have big
advantages in resources.

In 2009, in order to create one dong of turnover, SOEs had to use 2.2 dong in
capital. Meanwhile, non-state owned businesses only needed 1.2 dong and foreign
invested enterprise needed 1.3 dong. The average level of Vietnamese enterprises
was 1.5 dong.

Also according to Hue, in 2010, the rate of return on equity of economic groups
and general corporations reached 16.5 percent. In the last 10 years, the figures
on the total capital of SOEs never exceeded six percent. Meanwhile, the figures
of foreign invested enterprises were always above 10 percent.

The sluggishness in the perception of innovation, the limitations in selecting
and building strategies, models and policies for enterprise development have
been cited to explain the problems. Besides, SOEs have poured too much money
into the business fields where high risks latent. Especially, the monopoly in
some business fields has exterminated the driving force for competition and
development.

The Vietnam Steel Corporation (VSC), for example, now holds 35 percent of the
total market share, the Vietnam Cement Corporation 50 percent, Petrolimex 60
percent. Especially, the Electricity of Vietnam produces and supplies 80 percent
of the total demand for electricity of the whole society. The Vietnam Coal and
Mineral Industry Vinacomin also makes up 98 percent of the market share.

Hue said that the SOE restructuring is considered the most difficult task for
both banks and non-bank enterprises. Besides, how to deal with abundant
employees would also be a big challenge.

Economically, the cost for SOE restructuring, including the irrecoverable
accounts receivable, losses, the expenses on arranging jobs for laborers, the
refinancing to intermediate finance institutions, would be relatively high,
estimated at tens of billions of dong.

“This would put a heavy burden on the national economy. This may lead to the
higher public debts, if Vietnam does not have reasonable measures to deal with
the problems,” Hue has warned.

Hue has suggested five groups of solutions for the restructuring of SOEs, with
the focus on economics conglomerates and general corporations.

First, putting existing SOEs into groups of businesses, and set up specific
solutions for the groups. These could be the groups of businesses with 100
percent of state owned capital, with over 75 percent of state’s capital, with
65-75 percent of state’s capital and the group of SOEs where the state does not
hold the controlling stakes.

Second, Vietnam needs to push up the equitization process, draw up the measures
to develop the stock market and debt trading market.

Third, building up the development strategy models to restructure capital that
fit different SOEs, and stopping the SOEs’ investment in non-core investment
fields.

Fourth, it is necessary to strengthen the management and supervision over SOEs.

Fifth, restructuring agricultural and forestry general corporations.

“We need to finish compiling the plan on restructuring SOEs this year. This
cannot be delayed any further,” Hue said.

Nguyen Dinh Cung, Deputy Head of the Central Institute for Economic Management
CIEM, has suggested that Vietnam needs to create a fair and transparent
environment in order to attract domestic private businesses.

Pham Viet Muon, Deputy Head of the Steering Committee on SOE Renovation,
emphasized that it’s the time to take actions. He said that a problem now lies
in the equitization of SOEs. Only 30 SOEs were equitized in 2011. Meanwhile, in
order to equitize 573 SOEs within five years as planned, Vietnam needs to
equitize 150 SOEs a year.

Hoang Loc

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Article source: http://www.lookatvietnam.com/2012/01/soe-restructuring-would-put-heavier-burden-on-government.html