Dec 27th 2009
From the Economist Intelligence Unit ViewsWire
Debate over reform of the dominant state-owned sector is growing, but it is not being matched by action
Reform of Vietnam’s lumbering state-owned sector has slowed. The global economic and financial crisis has made conditions for “equitising”, or part-privatising, state-run companies more challenging, and some policymakers also seem to be having second thoughts about the process itself. The government is actively considering reforms, but it is likely to move cautiously, and there is still considerable resistance to challenging the state-dominated status quo.
Debate over Vietnam’s long-term economic development strategy is growing. Policymakers are preparing a Strategy for Socio-economic Development for 2011-20. One element of their discussion will be the viability (or otherwise) of the country’s current industrial strategy, and in particular Vietnam’s reliance on large state-owned enterprises (SOEs). For more than a decade, large SOEs have been at the forefront of the country’s industrial development strategy. This has reflected a belief in government circles that the fledgling private sector is insufficiently developed to take on this role, as it lacks a sufficient number of large and robust companies.
This view has come under increased scrutiny as a number of big, strongly performing private firms have sprung up in several sectors. There is a sense on the part of some policymakers that SOEs show little flair for innovation and lack the entrepreneurial talent demonstrated by many private companies. In addition to these shortcomings, the weak or dysfunctional corporate-governance structures of many (organisationally complex) SOEs are also readily apparent, as are the often cosy and convoluted relationships between some SOEs and the government ministries that regulate them.
However, as large SOEs are a significant source of economic growth and government revenue, instituting change in this area will be challenging even if the political will to do so exists on the part of some policymakers.
Some observers had hoped that the establishment in 2005 of the State Capital Investment Corporation (SCIC) would usher in a new era of reform for SOEs. This body has the task of representing and managing the state’s interest in SOEs, and of restructuring such enterprises. However, despite its far-reaching mandate, the SCIC has only really been given responsibility for managing the state’s equity in relatively small equitised firms, rather than in large SOEs. Larger state-owned firms and “economic groups” (powerful state-owned conglomerates) still typically report directly to the Government Office (a ministry-level agency serving the prime minister). This does not bode well for reform of the state-owned sector, as, without devolution, political influence and corruption are set to remain rife.
Ominously for reform, the government has plans to create two new economic groups in the construction sector. The two new groups, the Industrial Construction Group and the Housing and Urban Development Group, will both be managed by the Ministry of Construction. The two groups will serve as core holding companies for all the state-owned construction companies that remain under the management of the ministry; the SCIC is not expected to play a role in their administration. One argument put forward for the creation of these two new super-entities is that only by consolidating along these lines will domestic construction and property firms be able to compete with the influx of foreign competitors that is expected to occur as a result of the ongoing liberalisation of the market following Vietnam’s accession in 2007 to the World Trade Organisation.
The financial sector has been a prime candidate for reform, but here too there have been further setbacks. The long-delayed equitisation of the state-owned Bank for Investment and Development of Vietnam (BIDV) has been formally postponed until the first half of 2010. BIDV was originally scheduled to be equitised in 2007, but, as in the case of the state-owned Mekong Housing Bank, the process has encountered repeated delays. The current plan is to value the bank at the end of 2009, and then attempt to sell 20% of the bank’s shares to one or more strategic investors and a further 10% to retail investors. Of the other large domestic commercial banks, Vietcombank and VietinBank have already listed shares on the country’s main bourse, the Ho Chi Minh Stock Exchange. The Vietnam Bank for Agriculture and Rural Development and Mekong Housing Bank remain the laggards, having yet to equitise any shares. The government also owns and operates two so-called policy banks, Vietnam Social Policy Bank and Vietnam Development Bank, but these are not commercial entities and are unlikely to be equitised.