Vietnam appears to be far behind in achieving its goal for the year in reforming state-owned enterprises, weighing on the Southeast Asian country’s efforts to enhance its competitiveness as it integrates further into the global economy.
The country managed to privatize, though only partially, just 27 SOEs in the first quarter, or only 9.3% of the number of SOEs it plans to privatize for all of 2015, the Ministry of Finance said in a report this week.
“A lack of investor base has hindered the country’s efforts to sell stakes in its state-owned enterprises,” economist and former government economic adviser Le Dang Doanh told The Wall Street Journal.
The investors aren’t interested in buying stakes in the SOEs, Doanh said, partly because they are offered only minority stakes in most cases. That prevents them from joining the management boards, which means they can’t get involved in pushing through much-needed governance reforms that could boost efficiency.
“Look at the initial public offering of Vietnam Airlines late last year—it offered only a tiny fraction of 3.5% to the public, most of which was bought by two local banks that are the creditors of the company,” Doanh noted.
Vietnam has faced pressure to reform its SOEs, whose inefficiency has been seen as a drag on the country’s economic growth. The number of SOEs in the country had been cut down to 949 by the end of 2013 from 1,350 at the end of 2010.
The most anticipated privatizations planned for this year include MobiFone, one of the largest mobile carriers in the country, and some power generating companies. However, most of the companies privatized in the first quarter were small-sized companies.
The lack of investor enthusiasm is illustrated starkly in the results of recent privatizations. According to the ministry’s report, the government managed to sell only 44% of the shares offered during the first quarter’s privatizations. It didn’t specify the buyers of the shares, but economists said very few foreign investors have shown interest in buying.
“Many foreign investors still find SOEs less attractive, largely due to poor management and widespread corruption,” said Chris Freund, founder and partner of the Vietnam-focused private equity firm Mekong Capital, which manages three investment funds in the country.
Mekong Capital is planning to open its fourth investment fund of $150 million over the next couple of weeks, and it will continue to focus only on investing in the private sector, Freund said.
“We absolutely have no immediate plan to invest in SOEs,” he told the Journal.
Failing to accelerate the reforms of SOEs will put Vietnam at a disadvantage as it integrates further into the global economy, Freund added. The country is expected to join several bilateral and multilateral free-trade agreements, including the U.S.-led Trans-Pacific Partnership. When that happens, Freund contends, poorly managed and inefficient local companies will find it hard to compete.
The government’s update of its SOE privatization was followed on Wednesday by the release of research by the National University of Singapore and the Chartered Institute of Management Accountants that spotlighted the inefficiency of SOEs and called on the government to objectively enforce a clear set of rules that apply to all firms, including those in which it maintains ownership.
The report found that SOEs in Vietnam required more capital than foreign-invested firms, and nearly double the capital required by domestic private firms, to achieve the same levels of output during the 2008-2013 period.
The low productivity of SOEs probably reflects not only weaker management and incentive structure, but also a broader structural problem wherein Vietnam is over-invested in capital-intensive industries that benefit least from the country’s relatively low-cost labor, the research concludes.
Markus Taussig, a researcher at the National University of Singapore said in the report that Vietnam’s failure to attract high-quality strategic investors indicates that such investors still don’t trust the current environment to allow them to effect much real change through minority shares.
“This is a meaningful loss for Vietnam,” Taussig said.
Source: www.wsj.com
Key words: Vietnam, struggle, achieve, privatization, goals
