Experts offer tips to revive SOEs’ strength

Wednesday, 2019-07-31 18:06:10
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A worker inspects an oil and gas pipeline system at Bach Ho (White Tiger) oilfield offshore the Mekong Delta. (Photo: Hung Huy)
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NDO – Amidst the difficulties, State-owned enterprises (SOEs) are forced to operate effectively to take the lead in the business scale and contribution to GDP and the State budget. Economists have shared with Nhan Dan Newspaper correspondents on several measures to remove barriers related to SOE management and governance institutions to facilitate their development.

Nguyen Huu Quang, deputy head of the National Assembly Financial and Budgetary Committee: Assigning specific plan targets for SOEs as for private enterprises

One of the very important indicators to assess the performance of a business is the return on equity (ROE). Compared with private enterprises and FDI ones, the ROE of the SOEs is lower. The reason is that for private and FDI enterprises, annual production and business plans are always approved by the general shareholders’ council through resolutions. Accordingly, they assign the operating agencies to administer specific targets related to profit and dividend rates. If the year-end report does not meet the set objectives, the executive agencies must explain and if there is an unreasonable reason, they will be dismissed by the shareholders’ council.

However, SOEs currently do not have such mechanisms. State-owners only assign a common task of "preserving and developing the capital," while the current legal regulations still do not set a mandatory plan for executives of SOEs to achieve specific ROE targets. The results are only counted at the end of the fiscal year, instead of being set at the beginning of the year. This is a problem that needs to be solve in the coming time.

Besides, it is necessary to let SOEs operate under the market mechanism equally as other enterprises. All their tasks on politics, national defence, market stabilisation and social security must use sources from the State budget during the implementation. If these two basic problems are solved, the efficiency of SOEs will be greater. In addition, attention should be paid to the legitimate income of the leaders and workers in SOEs.

Dr Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam (BIDV): Setting up a set of separate indicators for SOEs

The best prerequisite is to improve institutions, because it is a very important issue related to SOE management. SOEs must realise both political and social security tasks, so it is difficult for the Law on Enterprises, which acts as a common "platform" applying to all SOEs, private enterprises and foreign-invested ones, to cover everything. In the near future, it is necessary to have a set of principles related to SOE governance, and at the same time, setting up a separate set of criteria to assess the operational efficiency of SOEs to ensure fairness. In which, public-utility activities and commercial activities of SOEs must be separated, not integrated into one as the current regulation.

In this set of criteria, in addition to assessing the economic efficiency based on revenue and profit, it must also have criteria for assessing their contribution to the economy, including employment and income for workers and contribution to the State budget. I think that it is not accurate in saying the performance of SOEs is getting worse. It is true that the sector’s development is declining but it is due to the State’s policy to gradually reduce State ownership in such enterprises, so of course, the size and contribution of SOEs to the budget compared to other businesses decreases, and that is the orientation and so we cannot say they are less effective.

Many managers still think that SOEs are ineffective and they show a lack of transparency. I think that we need to evaluate more equitably because the sector is tied down by many things, such as recruitment, salary mechanisms and investment decisions. In the long term, to create more equality and to make SOEs fulfil their roles and duties, it is important to separate their business tasks with other tasks related to the politics and social security.

Economist Dr Tran Du Lich: Doing business is accepting both win and loss

The SOEs are a tool and a material force that the State uses to complement and solve market defects, because the market does not always serve the interests of the nation, the community and the development. Therefore, the Law No. 69/2014/QH2013 on management and use of State capital invested in production and business in enterprises stipulates that: the State pours capital investment in SOEs in four areas, including the public services (healthcare - education, urban transport, environmental sanitation, water supply and drainage, ...) the field of defence industry, the State monopoly areas (national backbone communications channels, satellite, oil exploitation, ...), and the areas needed for the nation’s economic development but are not attractive to the private sector or the private enterprises who do not want to do them or simply cannot.

For that reason, the restructuring of SOEs needs to comply with these four areas and must start from the functions of SOEs described in the law. We should not say that SOEs lead in a merely way. In these four areas, the functions of SOEs in each field are different and it must be thoroughly considered in each field to determine how SOEs are involved. SOEs are facing multiple difficult barriers, for example, in business, private enterprises may fail three to five times, but they just need to win one to compensate the losses. However, SOEs cannot follow that structure.

Moreover, the compulsory mechanism that requires SOES to earn more profit in the following year than the previous year usually halts development. Doing business is not a simple story. Every investment project must accept losses for at least two to three years.

Dr Nguyen Dinh Cung, Head of the Central Institute for Economic Management: Thinking must be more marketable

Previously, private enterprises often complained about unequal treatment, but now, SOEs only wish to be treated equally as private enterprises. This shows that we are maintaining an institution that has constrained both private sector and SOEs. It is an institution that draws back economic development, because domestic enterprises are the main force to develop the country's economy. The Law No. 69/2014/QH2013 regulates the authority for State management agencies, but in fact, such rights are the owners’ rights. The management agencies still intervene in the operation of the enterprises, just the brakes are used while the vehicle is accelerating its speed. Enterprise management is a very important issue but the current management is not suitable, so businesses do not have autonomy in operation. This issue must be changed.

The thinking also needs to be more marketable. Mistakes must be corrected the from the root to have a breakthrough. For example, when divesting capital in SOEs, if no one buys the State-owned capital amount, it’s normal, but if there is a lot of buyers and a week later the stock is up, immediately there will be a question on whether or not the State property has been wasted. Absolutely, it hasn’t. The price is decided by the market. If such kind of thinking still exists, it will turn a good deal into a bad one. Thus, inadvertently, we are pushing the SOE equitisation process in the direction of "keep doing it slowly, rather than making it more rapid and effective " as what is happening now. If this thinking does not change, SOEs do not have the motivation to restructure and promote equitisation to operate more effectively.