Easy access to capital makes for ineffective state-owned firms in Vietnam

TN News

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Preferential policies provide state-owned groups with easier access to capital than private companies, but they perform less effectively.

The Statistical Handbook of Vietnam for 2011, recently released by the General Statistics Office, shows that that state-run enterprises accounted for only one percent of the country's overall firms, but these companies still saw the biggest increases in capital.

Non-state domestic companies and foreign firms made up 95 percent and 4 percent the country's enterprises, respectively.

The state segment's capital for business expansion surged 38 percent to VND4,819.8 trillion (US$230.34 billion) in 2011. At the same time, the number of state companies actually decreased slightly.

During the period, capital at private and foreign companies increased by some 30 percent each.

Le Dang Doanh, former head of the Central Institute for Economic Management, said state-run firms could increase their capital more easily and were likely to edge out firms in private and foreign segments to win bids for major projects.

The state segment takes advantage of preferential policies, he said, but it failed to translate those advantages into more effective performance.

In 2011, state-run companies posted a ratio of net profit to capital invested of 59 percent, while the figures at private and foreign segments were as high as 80 and 93 percent, VnExpress said, citing the handbook.

As of 2011, 13 leading state-owned groups and state corporations -- out of the country's 109 groups and corporations at that time -- collectively posted accumulated losses of VND48.99 trillion ($2.34 billion).

The country's sole utility Electricity of Vietnam accounted for 78 percent of the losses.

The report revealed that the average wages at state businesses in 2011 were the highest in the country. A whopping of 70 percent of the state-employed labor force earned VND8.5 million ($406.2) per month, nearly twice what employees in the foreign and private segments made.

The government has approved a master plan to restructure state-run enterprise through 2015.

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