State-owned enterprises hold a pivotal role in strategic sectors. To achieve double-digit GDP growth, they must truly become engines that lead and generate spillover effects across the economy.

Declining efficiency

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The Phuong Nam Pulp Mill project in Thanh Hoa Commune, Tay Ninh Province, formerly Long An, is among the most prolonged and difficult loss-making cases in the industry and trade sector. Photo: Nguyen Hue

During the 2010-2015 period, state sector investment capital grew at an average rate of around 6.34 percent per year. However, in the 2020-2024 period, that figure fell sharply to approximately 2.6 percent per year.

The share of state sector investment in the overall economy also dropped significantly, from 44 percent in 2010 to just 27.6 percent in 2024. Notably, the share of investment by state-owned enterprises in total public investment declined from 43.56 percent in 2010 to 34.43 percent in 2023.

From this data, Dr. Huynh Thanh Dien of Nguyen Tat Thanh University observed that in recent years, investment growth in the state sector has been markedly slower than in the non-state sector.

Beyond shrinking scale, the efficiency of capital use in SOEs has become a matter of concern. According to Dien, SOEs are typically large enterprises, yet their ICOR - a measure reflecting capital use efficiency - is higher than that of the private and FDI sectors.

Specifically, in 2023, the ICOR of the state sector stood at 6.19, compared to 4.9 in the private sector and 4.67 in the FDI sector. This indicates that to generate one unit of growth, the state sector must deploy more capital, implying lower investment efficiency.

“Although SOEs are identified as playing a leading role in the economy, in reality their investment levels and operational efficiency are trending downward. In principle, SOEs operate in key sectors with stable demand and relatively secure profitability, yet their investment efficiency is significantly lower than that of the private and FDI sectors,” he said.

The core reason behind this paradox lies in governance mechanisms and the investment institutional framework applied to SOEs.

Under current orientation, SOEs must focus on key sectors, essential public services, and national defense and security tasks. At the same time, they are required to divest from many other fields in line with policy mandates. This has narrowed their operational space, leaving insufficient legal grounds to enter new high-efficiency sectors and limiting their ability to seize market-driven opportunities.

In addition, the authority of the state owner’s representative agencies over SOEs remains overlapping and deeply interventionist. Although the law allows owner representatives to directly decide on investments below 50 percent of equity capital, many internal regulations still require enterprises to seek opinions and submit reports before making decisions. Lengthy appraisal and approval processes, coupled with complex procedures, slow investment progress, increase costs, reduce capital efficiency, and may even cause firms to miss market opportunities.

Another important factor concerns personnel and incentive mechanisms. The selection of owner representatives and management teams in SOEs has not fully adhered to market principles and still carries strong administrative characteristics.

In many cases, officials are transferred from administrative roles to enterprise management positions without fully meeting business governance requirements. Salary and bonus mechanisms are tightly constrained and less attractive than in the private sector, making it difficult for SOEs to attract and retain high-quality talent.

Furthermore, Dien noted that the legal framework for handling investment and business risks in SOEs remains unclear. Business inherently involves risk, yet if every instance of capital loss is automatically assigned personal liability, it fosters a fear of mistakes and responsibility, stifling innovation and the willingness to act.

In practice, many SOEs have suffered prolonged losses, insolvency, and mounting interest expenses over years, yet there is still no clear legal corridor for comprehensive restructuring or bankruptcy under market mechanisms.

Operating under modern market logic

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Oil and gas exploitation at the Bach Ho field. Photo: Petrovietnam

Against this backdrop, Dr. Huynh Thanh Dien said the spirit of Resolution 79 on developing the state economy, recently promulgated, is highly significant. However, to develop SOEs into forces capable of leading the market in line with Resolution 79, the core issue lies not merely in demanding growth or expanding scale, but in comprehensively reforming the institutional framework for governance and operations in accordance with modern market logic.

He outlined four key considerations.

First, SOEs should be clearly classified by function and operational objectives instead of being subject to a uniform management mechanism. They can be divided into three main groups.

The first group comprises infrastructure SOEs, tasked with ensuring essential service provision at reasonable prices and promoting regional connectivity and spatial linkages.

The second group includes SOEs providing public services in areas such as education, healthcare, and culture, aimed at achieving social welfare objectives and improving quality of life.

The third group consists of commercial SOEs operating in competitive markets with the goal of generating profits for the state and contributing to the budget.

Each group should have distinct objectives, evaluation criteria, and governance mechanisms, avoiding a one-size-fits-all approach.

Second, independence, standards, and transparency in SOE operations must be ensured. The overarching principle is that the state should not directly intervene in daily business decisions but manage through objectives, standards, and supervision mechanisms.

SOEs should publicly disclose financial information, business results, and corporate governance practices in line with international standards, thereby creating market discipline and enhancing accountability.

Third, the independence and capacity of supervisory agencies must be strengthened. These agencies should possess sufficient authority, resources, and expertise to conduct objective oversight, free from vested interests.

In particular, a clear risk governance framework should be established as the basis for evaluating responsibility. If managers have fully complied with risk management procedures yet still face objective risks, there should be mechanisms to exempt them from personal liability. Only then can the spirit of daring to think, daring to act, and daring to take responsibility truly take root.

Fourth, there must be transparent determination of sectors where the state should maintain long-term ownership and those from which it should divest.

State capital should concentrate on key industries of strategic importance to national security, social welfare, and macroeconomic stability. At the same time, in sectors where the private sector can perform more effectively, decisive divestment is needed to enhance resource allocation efficiency.

International experience shows that successful SOE models share common features: a clear separation between the state’s regulatory function and its ownership function, genuine autonomy granted to enterprises, accompanied by strict and transparent oversight.

In Vietnam, despite many reform efforts, state management agencies still simultaneously perform the role of owner representative, while the legal framework on the qualifications and standards of owner representative agencies remains insufficiently clear. As a result, many investment and business expansion proposals by SOEs are delayed, causing them to miss market opportunities, Dien noted.

What are other countries doing to develop SOEs?

Reflecting on some of the most successful SOE development models worldwide, Master Antoine Goupille, lecturer in management at the School of Business, RMIT University Vietnam, pointed to three main lessons.

First is the professionalization of the ownership role. The most important lesson is to shift the state from direct operator to professional strategic shareholder. Singapore’s Temasek stands as a typical example.

Temasek operates as a state investment company independent from politics. It demands commercial viability and international-standard governance from enterprises within its portfolio.

“This separation enables SOEs to compete globally based on real capabilities, while reducing administrative constraints that undermine operational efficiency,” he told VietNamNet.

Second is the application of global governance standards. Leading SOEs worldwide adopt stringent corporate governance standards, often aligned with OECD principles, to clarify accountability and enhance managerial autonomy.

Partial listing or equitization, as seen in Brazil and Poland, is not only aimed at capital mobilization but also at introducing market discipline, increasing transparency, and diversifying ownership while maintaining strategic control.

Third is strategic focus and innovation. Successful SOEs typically concentrate resources on strategic areas where private investment remains insufficient, such as national infrastructure, digital platforms, or frontier technologies.

Some Chinese SOEs, for example, demonstrate that policy-oriented enterprises can still become engines of innovation in strategic, high-risk sectors, provided they operate under corporatized models with professional governance.

Tran Chung