Gauging room for further growth: starting from state-owned enterprises

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If numbers could speak…

“We are sitting on a mountain of money and are still worrying about not having enough for investment. I have a firm basis for this claim,” said Nguyen Dinh Cung, director of the Central Institute for Economic Management (CIEM), who clearly wants to address the important point of the economy at this time, as he drastically urges greater efforts to find the solutions requested by the government to boost economic growth.

However, the pile of money included in Cung’s calculations does not only come from the population as frequently mentioned in a lot of research. “What I meant was the public sector, especially state-owned enterprises (SOEs). The sector is holding resources as well as untapped potential that reforms could unlock to generate growth,” Cung said at a seminar organised by CIEM on the organisation and execution of effective and absolute SOE restructuring.

Specifically, looking at the list of SOEs scheduled to be reorganised in the 2016-2020 period (promulgated under Decision No.58/2016/QD-TTg), it can be seen that if all goes according to schedule and in strict accordance with the principle of minimising the proportion of state capital retained in enterprises, the book value of the state capital collected might hit over VND296 trillion ($13 billion) (see table).

Furthermore, revenues from the divestment of state capital in public listed companies and those named in the listing plan are being estimated by experts to reach 15 per cent of the GDP between now and 2020.

“While equitisation still faces a little hesitance due to concerns about underpricing in share sell-offs or delays in asset valuation, the divestment of state capital in public listed companies can proceed immediately and will certainly follow market prices. It inevitably requires the adoption of a few technical procedures and selling to maximise the value without affecting the market. Nevertheless, experts are fully capable of handle this,” Cung said.

However, before financial stock experts are able to do something, about 813 unlisted but equitised enterprises will have to move onto the trading floor. 738 of these enterprises have not registered for trading, 45 are under-qualified, and 30 are qualified but not listed.

Excuses are unacceptable

Properly using and allocating “the pile of money” above, whether in a speedy or steady manner, to generate growth for the economy or not, entirely relies on the government.

“The matter here is to identify who is in charge and what actions should be taken,” said Le Xuan Ba, an economic expert who has recently put these issues on the table and discussed the implications of the resolutions promulgated by the Politburo. Besides, he did not hide his concerns about the gap between these resolutions and their enforcement.

More to the point, these concerns are not groundless. Assessing the picture of SOE restructuring during the 2011-2015 period, although the number of equitised enterprises completed 93 per cent of the plan, the quality of SOE restructuring has been considered as inadequately low, since it failed to meet a couple of desirable targets. Regarding the ownership structure in equitised enterprises, state capital accounted for 81 per cent, new external investors contributed 9.5 per cent, and strategic investors held 7.3 per cent of the shares.

After the plan to restructure SOEs from 2011 to 2015 was finalised, as many as 20 per cent of state-run economic groups and corporations accumulated major losses. Moreover, they were exposed to several risks which eventually led to financial insecurity.

In 2015, 25 economic groups and corporations had to bear a debt ratio of more than three times the owner’s equity. Meanwhile, very few state-owned enterprises were permitted to file for bankruptcy or operate under the scheme of bankruptcy. Throughout the 2011-2015 period, only eight bankruptcy cases were approved.

Concerning the implementation of the 2016 equitisation plan, only three enterprises were included in the new list, while the rest were carried over from the previous period.

“There is a serious problem with the discipline of administrative enforcement. All the decisions have clearly stated the responsibilities and duties of relevant parties, but no one was indicted for being incompetent or inefficient when they failed to complete the missions,” Cung strongly emphasised.

In addition, transferring SOEs from ministries and government bodies to State Capital Investment Corporation (SCIC), which was launched in 2006, has not been completed.

Sharing similar concerns over the implementation issues, Pham Duc Trung, head of the Department of Enterprise Reform and Development at CIEM, the lead author of the study on SOE restructuring from 2016 to 2020, believes it is necessary to carry out a number of reforms with top-down imposition.

“The government, as the owner, needs to be the one who makes rational decisions and imposes enforcement discipline. It is also crucial to perform structural shifts via administrative documents, such as the transfer of SOEs to SCIC, but the impacts appear to be very strong when separating state management from SOE management,” Trung said.

This means that the government must change first to actively impose discipline in order to widen the path for the market to operate in line with economic laws.

The most important point that experts came up with visibly highlights the solutions needed to realise these accounts, which are supposed to be the most feasible measures up to date.

These extremely innovative views on the market economy and the role of the government, as well as the position of SOEs and the private sector in the economy were expressed in the three resolutions of the Fifth Plenum of the 12^th Party Central Committee. Particularly, as regards the SOE reform process, the prime minister has just approved the Scheme on SOE Restructuring, with a focus on state-run economic groups and corporations over the 2016-2020 period.

This is the reason why economic experts say that there will be no justification for any delays during the course of SOE restructuring.