On March 17, the Government approved a plan on restructuring SOEs in 2021-2025. SOEs have had 35 years (1986-2021) and will have another five years to undergo restructuring.

The long path

SOEs have been restructured over many years. After a long period, the number of SOEs decreased from 12,000 to over 1,000.

In terms of the type of SOEs, most were initially enterprises, but there are now many economic groups and general corporations with large operation scale. In the past, all SOEs were 100 percent owned by the State, but the ownership type is diverse now (100 percent state owned, over 50 percent state owned, and below 50 percent state owned).

It’s now the time to analyze the restructuring process and find an SOE structure that is most suitable after 35 years, in order to start a new development period from 2022.

Why a new development period? This is because the public sector is outdated compared with the private and foreign-invested sectors in the last 35 years.

In the first development period, with 12,000 enterprises, SOEs were the only economic sector, taking charge of the development of the national economy from A to Z.

Since doi moi (renovation), the economy has had a private sector and foreign invested sector, which account for 40 percent and 30 percent of the economy, respectively. 

In the next doi moi years, from now to 2030-2045, Vietnam’s economy will be larger with an estimated GDP of trillions of dollars instead of $500 billion currently. How SOEs should develop in the new period is a question needing discussion.

Lessons

SOE restructuring over many years has resulted in the elimination of a number of SOEs, not because they are less important to the economy, but because they incurred big losses, such as Vinashin (shipbuilding), Vinalines (shipping firm), Ha Noi Mechanical and Tran Hung Dao Mechanical. Also, Vietnam’s railways have become outdated. 

SOEs include state-owned commercial banks, companies and general corporations in the fields of road, bridge, industrial zones and new urban area development, electricity generation and distribution, information systems and farm, forestry and seafood processing.

Minister of Information and Communication Nguyen Manh Hung, noted that businesses make profits because they accept risks. If the risk is zero, the profit is also zero. Meanwhile, with current laws, SOEs dare not take risks. They tend to choose safe things to do, and cannot make a breakthrough.

He suggested that it would be better not to assess SOEs by considering each project, but give overall assessment. If the way of assessment of SOEs doesn’t change, this will not create development and SOEs will still choose only safe things to do.

Statistics show that growth rates of SOEs in 2016-2020 were much lower than GDP growth rates, which means that the state-owned sector is getting smaller.

Hung also thinks that it’s necessary to avoid extremism in SOE management. SOEs once rushed to make investment in too many business fields, and then made investment only in their core business fields. As such, they did not have space for development.

In terms of organizations, SOEs set up too many subsidiaries, but later were put under strict control and even had to ask for permission from the Prime Minister for the establishment of a center. As a result, SOEs cannot be flexible.

In terms of capital, SOEs at times were allowed to reserve 100 percent of post-tax profits to increase their charter capital, but later they faced restrictions in capital increases. The policies for SOEs need to be created based on scientific analyses and should not be amended only after specific “accidents”.

Dinh Duc Sinh