There should be a new mindset in managing state-owned enterprises (SOEs), allowing them to operate based on market mechanism and not influencing their decision making process, according to Nguyen Dinh Cung, director of the Central Institute for Economic Management (CIEM).
Overview of the conference. Source: Nguyen Tung.
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The ultimate objective of enterprises is to maximize profit, so the government should not consider SOEs an instrument for marco-economic management, Cung added, saying this approach causes a disruption to their operations.
Cung referred to the government’s management of consumer price index (CPI). “As prices of some goods increase, the government request certain SOEs not to raise prices of their products (for fear of inflation), leading to losses for enterprises.”
But when prices in the market go down, SOEs are instructed to increase the price, a move Cung sees as illogical and not based on market mechanism.
“This kind of intervention puts SOEs into difficult situation and causes them to incur losses,” Cung stressed.
Cung attributed this approach to the fact that Vietnam’s economy has not fully transitioned into a market economy.
Another issue is assigning a vague task for SOEs, which is to ensure no losses to state capital and higher profit in the subsequent year.
“A more challenging and ambitious task would motivate SOEs to transform themselves and operate efficiently,” he stated.
In this context, Cung said the market, not the government, should control the way SOEs operate. “The market in this case consists of investors, customers, banks, among others, who share common interests with SOEs, therefore, are willing to supervise their operation.”
Head of CIEM’s Corporate Development and Reform Department Pham Duc Trung said in reference to the asset turnover ratio, an indicator of the efficiency with which a company uses its assets to generate revenue, SOEs have the lowest ratio compared to foreign-invested and private companies.
In the 2015 – 2017 period, that ratio of SOEs was 0.47, 0.38 and 0.34, lower than the country’s average of 0.66, 0.67 and 0.67, respectively.
Moreover, the debt-to-equity ratio (D/E) of SOEs was also the highest among the three economic groups, reaching 4.2 in 2017 against 2.3 of the private sector and 1.6 of the FDI sector.
“These figures indicates a disproportion between SOEs’ growth rate and the resources at their disposal,” Trung stated, adding SOEs would require more capital than other economic groups to generate a certain amount of revenue.
Le Xuan Ba, former director of CIEM, recommended the government not consider SOEs as the driving factor of the economy, given their inefficiency.
“Providing public services is not the responsibility of SOEs but the government. There should be a financing mechanism to cover the loss for SOEs in this field, or opening bidding process for others to join,” Ba stated.
