The Vietnam economy showed resilience in 2016 with GDP growth an estimated 6.2% bolstered mainly by robust domestic demand and strong performance in foreign sector manufacturing exports.

Yet the economic outlook for 2017 remains mixed in the eyes of foreign investors amid rising global economic uncertainties and questions about the government’s commitment to sell off state owned enterprises (SOEs) as part of the effort to resolve the banking system’s bad debt crisis.

In November of last year, the National Assembly adopted a revised economic restructuring plan for the next four years, which emphasizes the need for continued restructuring of SOEs.

Reforming Vietnam SOEs

The restructuring plan calls for the government to retain full ownership in SOEs operating in 11 segments of the economy.

The segments outlined in the plan include military mapping and measurement, industrial explosive material production and trading, management of national power grid, nuclear power, management of national railway and urban railway infrastructure, aviation control, search and rescue services, lottery and money printing among others.

In addition, the government announced a specific list of 103 SOEs for which it would continue to hold a 100% stake over the four-year period and another 137 for which its interest would be partially to wholly liquidated during the period 2017-2020.

Among those that would be sold, the state would continue to hold more than a 65% ownership interest in four, 50-65% in 27, and its interest would fall to below 50% in 106 of the SOEs.

As outlined, the plan through 2020 demonstrates a high commitment by the government to let go of its state-owned monopolies in the private sector for consumer goods such as the dairy company, Vinamilk, and alcoholic beverage manufacturers, Saigon Beer (Sabeco), and Hanoi Beer (Habeco).

The announcement of forthcoming sales of these monopolies has garnered considerable attention and positive feedback from foreign investors and others, particularly the international media.

The reasons for this are twofold. First, foreign investors view SOEs as a costly burden on the Vietnam economy that would best be left to the country’s private sector, thereby reducing government debt. The benefit from private sector efficiency and ingenuity would in turn bolster further economic growth.

Second, an accelerated agenda for restructuring SOEs would also go a considerable way towards resolving the bad debt crisis in the banking system, which has been a long-standing problem that must be addressed in a substantive and meaningful way before the economy can truly move forward to more prosperous times.

If the non-performing loans (NPLs) that were transferred to the Vietnam Asset Management Corporation (VAMC) in 2013 are not considered then it would appear that the ratio of NPLs to total banking assets has fallen to around 3.7%, well within an acceptable range.

However, the receivables by the banks from the VAMC are still there and the banks still own the underlying NPLs transferred to it— so they cannot be glossed over and ignored by anyone’s measure.

The original plan was for the VAMC at some point to issue refunding bonds to raise money to partially satisfy the bad loans. The plan was and still is a viable and a good temporary solution, but it does not make the NPLs problem go away.

Translated this means that insolvent banks have effectively been provided, at least temporarily, liquidity, but there remains a need to further address the underlying liquidity problem at some point. 

Foreign investors are under the distinct impression that either the banks underlying debt from the VAMC must be funded in whole or in part or many of them might be forced to shutter their doors, which could be disastrous for the country’s economy.

They look at the sale of SOEs as a solid mechanism to solve the underlying bad debt problem because the government can take some of the money that would have gone to fund non-performing SOEs and use it to repay the NPLs that were transferred to the VAMC.

The government’s commitment to selling its ownership interest in SOEs as demonstrated by past actions and the concrete plan laid out by the NA last November and resolve the lingering banking system bad debt problems bodes well for the Vietnam economy in the eyes of foreign investors.

It instils confidence in foreign investors to continue to look favourably upon the Vietnam business climate and the country as a good place to invest, which in turn tremendously benefits the economy and social welfare of the country’s citizens.

VOV