World Bank calls time on state role in commercial enterprises

Sandeep Mahajan, lead economist from the World Bank in Vietnam, said that Vietnam needed to quickly change the role of the state away from being a producer and owner, to being a facilitator, service provider, and regulator.

“There has been strong engagement of the state in economic activities – directly through state-owned enterprises (SOEs), and indirectly through close links with an exclusive segment of the private sector. If the state continues its existing role, it will continue distorting the market’s performance,” Mahajan said last week in Hanoi at a conference on the state’s role in Vietnam’s market economy.

The conference gathered solutions from World Bank experts and local think-tanks to implement proposals in the Vietnam 2035 Report.

The landmark report, released in late February by the World Bank and the government, outlines a path for Vietnam to reach upper-middle-income status until 2035. To this end, one of the key solutions is reducing the state commercialisation through SOEs as soon as possible.

“Now is the time for the government to take more action,” Mahajan said.

Currently, SOEs participate in the full gamut of industries - from garment manufacturing, to mobile phone services, to banking - activities where private players could do a better job (see table for details).

Bui Duc Thu, a National Assembly member, told VIR that the state directly appointed SOEs’ general directors or chairpersons. In many cases, these enterprises were assigned by the state to devise policies that served themselves. “Obviously these policies are not in favour of private enterprises. That has caused inequality between enterprises and has created an uneven playing field.”

For example, over the past years, Electricity of Vietnam has made power-related policies in favour of itself, causing difficulties for private investors.

Nguyen Dinh Cung, head of the Central Institute for Economic Management (CIEM), also noted that “Vietnam will not be able to achieve higher and sustainable growth if the government remains slack in reducing its commercial interest in SOEs. Private enterprises want to have a level playing field in the economy.”

According to CIEM, the private sector is surging ahead, and is a central cog in Vietnam’s economic engine. It has sufficient capacity to engage in almost all industries controlled by the state.

“It is important to change the role of the state in investment, from the direct investor in production and running businesses, to a supporter and regulator,” Cung stressed. “The state should substantially retreat from the economy as an investor and producer, and focus on overcoming/repairing market failures.”