Slow equitisations discourage firms

At last week’s government-led meeting on reshuffling and equitizing state-owned enterprises (SOEs), Deputy Prime Minister Vuong Dinh Hue, also head of the National Steering Committee for Enterprise Renovation and Development, said that although 96.5% of SOEs have been equitized to date, 92% of state-owned equity has yet to be sold.

This means that the country remains unable to strongly attract private enterprises’ capital into the sectors that the state does not need to hold control over, Hue stressed.

The committee also reported that in this year’s first quarter, Vietnam saw the completed equitisation of only eight SOEs.

According to the prime minister’s Decision 58/2016/QD-TTg dated December 28, 2016, in the 2017-2020 period, a total of 137 SOEs will have to complete their equitisation.

At the meeting, representatives from some ministries ascribed the sluggish progress-of the reshuffle, equitisation, and divestment of SOEs-to the large scale of these SOEs’ equity, which may mount to many hundreds of millions of dollars.

Thus, thorough considerations must be completed before any final decisions are made. Enterprises that expressed concerns include Vinacafe, VNPT, Petro Vietnam, Electricity of Vietnam’s power generation corporations, Vietnam Rubber Group, and Vinafood 1 and 2.

The representatives also said that ministries and localities are waiting for the government to clarify regulations about land ownership of equitized enterprises.

They are also waiting for a final decision about the establishment of an agency or committee whose sole purpose is to represent the ownership of enterprises’ state capital.

For example, “though Vinafood I and Vinacafe are expected to have their values determined in 2017’s third quarter, they are waiting for the government to clarify regulations on determining land value,” said Deputy Minister of Agriculture and Rural Development Ha Cong Tuan.

Moreover, according to Dang Quyet Tien, vice head of the Ministry of Finance’s Corporate Finance Department, the stringent regulations currently in place regarding strategic investors for SOEs operating in key sectors like rice trading, petrol import, and internet-based telecommunications are also making it difficult for those wanting to become strategic investors of SOEs.

“Currently, a strategic investor is required to have good financial health, strong commitment to cooperate with enterprises, and a willingness to support enterprises after equitisation in terms of technology, corporate governance, supply of materials, and development of output markets,” Tien said.

“Though the strategic investor’s responsibility is very big, they are not allowed to sell the stake in the enterprise within five years. That has made it difficult for SOEs to attract strategic investors,” Tien said.

Over the past years, many international and local organisations such as Vietnam’s Central Institute for Economic Management, the Asian Development Bank, the World Bank, the International Monetary Fund, and many foreign business associations have been urging Vietnam’s government to accelerate the equitisation of SOEs-especially those that have been suffering from losses-in a bid to facilitate private business activity in sectors currently dominated by the state via SOEs.

At present, SOEs are monopolising important sectors like electricity, gas, oil, minerals, telecommunication services, domestic air transportation, credit financing, and railways. However, many of them are suffering from large losses.

“That’s unfair for private firms. These sectors can be run better by private firms. The slow equitisation rate is inhibiting private firms from accessing many great business opportunities,” said Pham Thi Thu Hang, general secretary of the Vietnam Chamber of Commerce and Industry, at last week’s forum on Vietnam’s private enterprise development in Hanoi.

In Vietnam, private firms-almost always small-and medium-sized enterprises-are playing an important role.

They account for about 97% of the country’s total enterprises, while creating 41% of GDP, 33% of the state budget, and 77% of employment.