Workers maintain an electric grid in Hanoi. Experts say Electricity of Vietnam and other state-owned enterprises in the country should only focus on their major business scope. Photo: Reuters
The Standing Committee of the National Assembly recently discussed a major economic restructuring plan for the coming years, a significant part of which has to do with restructuring state-owned enterprises (SOEs). Economist Le Dang Doanh told Vietweek the purpose of the plan would be lost if was a mere cosmetic exercise.
Vietweek: The government's plan on restructuring SOEs is considered ambitious. What is your assessment?
Le Dang Doanh: The plan will not be really effective if it only requires a superficial rearrangement in SOEs. We should define ownership in SOEs. Now, it is said that the state, on behalf of people, owns SOEs. The enterprises' capital is managed by the Ministry of Finance, and their leaders are appointed by the government. Thus, we should improve the transparency and explain the responsibility of the owners of SOEs.
We should develop corporate governance in a professional and modern manner that is in line with international standards.
The Organization for Economic Corporation and Development (OECD) has set clear corporate government regulations. China has implemented the regulations. It appointed a team of three to five independent experts to assess an SOE. The experts would point out 10-15 tasks including increasing production, upgrading technology and reducing production costs that the SOE needed to implement.
The plan would be submitted to related ministers for approval. Then, the recruitment of a general director for the SOE would be openly announced. Applicants for the position would have to outline measures they would take to implement their tasks. The general director would be chosen by a vote. The labor contract of the general director can be cancelled if he or she does not complete the task.
In Vietnam, citizens do not know why the person is appointed to a high position in an SOE. The case of shipbuilding group Vinashin is an example. After the scandal, some people were appointed to high positions in the group. However, one of them, just after the appointment, was found to have committed wrongdoings related to the scandal and was arrested.
So we should clearly define which sectors that SOEs should participate in, which they should not. Now, SOEs like Electricity of Vietnam and the Vietnam National Oil and Gas Group own financial companies and real estate projects. SOEs should not invest in such non-core sectors. The government has asked SOEs to withdraw their investment from the non-core sectors. However, we should give more detailed and stricter regulations on the issue to prevent the situation from happening again.
Despite receiving many incentives from the state, it is said that many SOEs are not very competitive, or that they would be weak in an international competitive setting. Why?
Economist Le Dang Doanh
Many SOEs now still have a monopoly, thus we should have an agency to monitor this and sectors should be opened up for foreign invested and private enterprises to participate in"¦ Now, Electricity of Vietnam increases its prices from time to time, attributing it to higher input costs, but nobody knows what the real truth is. We should establish an agency monitoring the electricity monopoly.
SOEs have a social agenda. They have to contribute to macroeconomic stabilization, for instance. Given this, can we restructure them in the way you talk about?
Saying that SOEs could contribute to macroeconomic stabilization is inaccurate. The macroeconomic situation now is unstable, so what have SOEs done? Where is their responsibility? It is not right to say that SOEs contribute to stabilizing consumer prices.
If the poor could directly receive money from the state, or transportation firms could directly receive support that aims to offset their losses due to higher gasoline prices, many private firms could invest in the sectors. They could do much better than SOEs. Thus, we should increase transparency, and not create a special playing field for SOEs.
Are SOEs too big and complicated to reform?
We can do it quite well if we have a strong will and political determination. We should use the discipline of the competitive market to improve the restructuring of SOEs.
It is not easy to eliminate privileges for SOEs in a short time.
So it is necessary to increase the surveillance of the National Assembly and elective bodies. The elimination can happen effectively if transparency is guaranteed.
Is there a short way to restructure SOEs?
The most important task is to improve corporate governance. We should accelerate privatization of SOEs and should not regard employees as firms' co-owners. Employees are interested in wages only. They are not investors.
SOEs should attract strategic investors with good technology and corporate management, which can help speed up their reform.
However, the privatization of SOEs has slowed down over the last few years for many reasons. Some people say the main reason is due to the bearish stock market. But, I don't think so. It is because the determination is not there.
Dr. Vu Thanh Tu Anh, Director of Research, Fulbright Economics Teaching Program in Vietnam, says SOEs should not be regarded as a tool to stabilize consumer prices and macroeconomic development.
"In both theory and practice, this is groundless. If we were to use SOEs as tools to ensure macroeconomic stabilization, we would have to pay a heavy price for it," he said.
The state will have to set aside many incentives for SOEs so that they can help stabilize the macroeconomy. Meanwhile, some SOEs hold a monopoly in their sectors, so they have no reason to improve their operation effectiveness, he said.
Anh said SOEs even hamper development opportunities of private firms in many sectors. Making use of privileges offered by the state, many SOEs have expanded their investment in non-core sectors. Thus, the restructuring of SOEs is an important task in ensuring the effective restructuring of the economy as a whole, he said.