An 18-page report on the Vinashin debacle sent to lawmakers who are attending the year-end meeting of the legislature reveals the Government was fooled by Vinashin leaders. In many instances, Vinashin’s top management sent to the Government the debt-laden company’s reports that had been falsified to bloat earnings.
Vinashin is part of the broader picture about the problematic management of state-owned enterprises, particularly conglomerates and corporations.
“The role of the state as an administrator and an owner at state-owned enterprises in general and conglomerates in particular has exposed problems and failed to catch up with changes in a market economy,” says a National Assembly Economic Committee review of the Government report on social and economic performance. “Mechanisms for scrutinizing, supervising, auditing and managing corporate finance have proved to be inefficient.”
The state corporate sector has got a lot of handsome privileges from the Government, such as easy and cheap access to capital and resources like land and minerals, which are still a far-fetched dream for the non-state sector that consists of local private and foreign-invested firms.
With such favorable treatment, state-owned enterprises should have led the charge on the country’s development front as had long been desired by the authorities. Surprisingly, however, the state sector has had the lowest growth rate and created the lowest number of jobs, according to Saigon Tiep Thi newspaper.
The paper quotes statistics as indicating that the state corporate sector’s ICOR (Incremental Capital Output Ratio) – the extra capital needed to increase one unit of output – has kept rising over the years, now at between 8 and 14. Meanwhile, the private sector with limited incentives from the Government has proved to be more efficient with the ICOR index ranging from 3 to 5, and thus contributed significantly to the nation’s growth.
Nguyen Quang A, a high-profile economist, says half the total amount of investment in the economy is sucked into the state corporate sector. But this sector’s contributions to the economy have been largely insignificant despite the huge investment being funneled into state firms by the Government. What’s more, they have been steadily falling over the years.
Vu Thanh Tu Anh, director of research at the Fulbright Economics Teaching Program in HCMC, says in an article published in Thoi bao Kinh Te Saigon of Saigon Times Group this week that state-owned enterprisers generated 30% of GDP in 2001-2005 but the ratio dipped to 28% in 2006-2009.
Their contributions to GDP growth plunged from 33% in 2001-2005 to 19% in 2006-2009, Anh says, because the state corporate sector’s GDP growth slowed down from 7.6% to 4%, half the percentage achieved by the private sector.
The state corporate sector workforce has also declined over time. A survey by the General Statistics Office shows the combined workforce of state-owned businesses slid from 44% in 2001-2005 to 24% in 2006-2008, Anh says, adding that even worse, massive layoffs happened at these companies with new job creations dropping from minus 4% to minus 22% in the corresponding periods.
The role of this sector in the manufacturing industry has also tapered off though the Government has taken a vision to steer Vietnam toward an industrialized economy by 2020. “If we look at industrial production, a focus of Vietnam’s industrialization strategy, state-owned enterprises have a very humble role,” Anh says. “In 1995, the proportions of industrial production value in the state and private sectors were equal but changed to 20%-80% in 2009.”
The picture about the state corporate sector is pretty clear now. It has failed to live up to expectations that it leads the economy. Resources should have been channeled into where efficiency of capital use is greater, more jobs are generated, and productivity is higher.
Another high-profile economist, Le Dang Doanh, has cast doubt over the lead role of state-owned companies. Speaking to Tien Phong newspaper late last month, he proposed the phrase “The state economic sector upholds the lead role” be removed from the draft document to be presented at the National Party Congress slated for January next year.
Sticking to this ideal is stirring up controversy, especially at a time when Vinashin remains a hot-button issue, he says, and Vietnam needs real conglomerates, not those technically merged via administrative decisions.
The state has kept insisting on championing a level playing field for all, so it is a paradox to emphasize the lead role of the state corporate sector only, he says.
Meanwhile, an editorial of Thoi bao Kinh te Saigon suggests putting an emphasis on the role of the state in macro-economic policymaking rather than the lead role of state firms. The rationale of this suggestion is that in the aftermath of the global financial crisis, developed economies have acknowledged the important role of the state in economic regulation and control and in coping with market shortcomings to reduce market volatility bred by greed or asymmetric information.
“It is the state that, through tools such as taxes and investment incentives, can orient businesses in all sectors toward the fields that most benefit the economy,” says the editorial.
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