Market downturn not an excuse to delay IPOs, they say
Employees work at an assembly plant of Truong Hai, a private automaker, in the northern province of Hung Yen. Photo: Reuters
Experts say Vietnam should stop building its economy around state-owned enterprises and stop favoring them over the private sector.
Instead, they argue, the country simply needs a fair business environment where the fittest survive.
Economist Pham Chi Lan said the government seems to think that private companies are still not capable of handling major projects. The fact is they have grown over the years into very strong businesses, she said.
"Preferential treatment has been given to state-owned enterprises and foreign-invested companies. Even pilot projects under public-private partnership model were given to foreign investors," Lan said. "Domestic private companies are not treated the same."
She said many state groups have ventured into various sectors outside their major business areas, using their advantages to compete against private companies. This has limited expansion of the private sector even as state-owned firms faced losses and were required to divest from non-core sectors.
State enterprises should focus on industries vital to the country including energy and security, and leave other businesses to the private sector, she said.
For instance, it is not necessary for the country to have state-owned companies to produce garment and footwear products, since private companies are the ones that account for most of the exports. Even the rubber and construction sectors no longer need state enterprises, Lan added.
It's time the government is fair to all companies and shares all of the resources, including capital and land, among both state and private companies, she said, noting that the private sector deserves to be trusted and assigned state-funded public projects as well.
"The government has pledged to ensure equality and create a level playing field, but so far private companies have not been given the resources. We can't just make statements on paper and leave it at that."
Phung Quoc Hien, chairman of the National Assembly's Finance and Budget Committee, agreed that there must be a fair environment for all companies. Favors, if any, should only be given to public service sectors in which businesses do not want to participate without support.
Some private firms have emerged very strong in recent years, contributing a lot of tax money to the state budget, Hien said, naming property firm Hoang Anh Gia Lai, telecommunications and software company FPT, automaker Truong Hai and steel producer Hoa Phat as examples.
"What we need to do is to give them the same incentives that are being offered to state companies so that they can grow and compete at the international level," he said.
According to the Ministry of Planning and Investment, the contribution of the state sector to Vietnam's gross domestic product fell sharply from 33 percent during the 2001-2005 period to 19 percent in the following five years. The GDP share of the private sector, on the other hand, rose to 54 percent from 45 percent.
State-owned enterprises have dominated the list of 500 largest companies in terms of revenue, also known as the VNR500.
Last year, oil and gas group PetroVietnam, once again, came on top, followed by fuel distributor Petrolimex, the Vietnam Posts and Telecommunications Group, Electricity of Vietnam and gold producer SJC.
But more private companies have made it to the list over the past few years. They represented 37.4 percent of the companies in last year's top 500, compared to 31.2 percent in 2010 and 24 percent in 2008.
Vu Thanh Tu Anh, research director of the Fulbright Economics Teaching Program in Vietnam, said Vietnam, as a developing economy, needs to make the best use of its capital sources to create jobs, improve productivity and boost exports.
In order to do so, the country should not consider any specific business sector as the "backbone" sector and keep giving it incentives irrespective of its performance. Instead, it should just create fair business conditions for all companies to achieve their full potential, he said.
The calls from economists for structural reforms of the economy come amid a major financial scandal at state-owned shipping company Vinalines, which followed a similar mismanagement case at shipbuilder Vinashin just two years ago.
Still, Planning and Investment Minister Bui Quang Vinh said state-owned enterprises should be assessed fairly since most of them have contributed significantly to the economy, even though the recent scandals have given a bad name to the whole sector.
"We shouldn't see state-owned enterprises as burdens to the state budget and the economy," Vinh was quoted as saying in a report on the government's website earlier this month. "We have to review and deal with the violations strictly, but we can't disregard the efforts of millions of employees working day and night at state enterprises."
The government has also been pushing for changes in the public sector, ordering state-owned companies to divest from business lines not related to their main activities by 2015 and speed up initial public offering plans.
The Bank for Investment and Development of Vietnam has delayed its trading debut until the third quarter after a slide in the benchmark VN-Index. National carrier Vietnam Airlines has also postponed its IPO until next year.
Le Hoang Anh, managing partner at Ho Chi Minh City-based fund manager Dragon Capital, said the privatization of state companies in Vietnam has slowed down since 2006.
"The decline in the stock market was certainly a reason for the delays, but we think there must have been some other reasons, including the reluctance of state enterprise managers, the fear of transparency, and also the feeling of losing control among governing agencies," Anh said.
"The goal of selling shares of state companies is not to earn money, but to make them more effective. So the stock market going up or down should not be a factor affecting their privatization," he said, calling for new policies to attract foreign strategic investors to improve technological capabilities.
Dinh Quang Tri, deputy chief executive of Electricity of Vietnam, told Dau Tu (Investment) last week that there is a government regulation requiring state-owned enterprises to retain the value of their assets. Since state companies are not allowed to sell stakes to investors at a lower price than the book value, the privatization is not happening as fast as expected.
Professor Le Dat Chi from the Ho Chi Minh Economics University said even that regulation should not be an obstacle.
A state company can have other firms manage its initial public offering professionally and these underwriters will try to sell shares at the highest prices possible to receive high fees, Chi said.
The real problem now is that investors could lose confidence in the planned IPOs after long delays, he warned.
Deputy Finance Minister Do Hoang Anh Tuan said new regulations have been drafted to facilitate share sales of state companies. A divestment plan has also been created, but since each company is different from another, things cannot be rushed, he said.
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