RESTRUCTURING VIETNAM’S STATE – OWNED ENTERPRISE IN THE CONTEXT OF MARKET ECONOMY AND INTERNATIONAL INTEGRATION. Presenter A.Prof., Dr. Tran Xuan Cau . PRESENTATION CONTENTS. CONTENTS. 1. CURRENT OPERATION OF THE STATE OWNED ENTERPRISES (SOE). 2. EXECUTION OF
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RESTRUCTURING VIETNAM’S STATE – OWNED ENTERPRISE IN THE CONTEXT OF MARKET ECONOMY AND INTERNATIONAL INTEGRATION
A.Prof., Dr. Tran Xuan Cau
2. EXECUTION OF
SOE’ RESTRUCTURING, FOCUSING ON STATE GROUPS AND CORPORATIONS IN THE COMING TIME
1. SOEs identification
3.The limitations of the current VN SOEs
2.SOEs in the context of VN economy and world economy
1. SOEs identification
According to Article 4 in the Vietnam’s Law on Enterprise in 2005: "Enterprise is an economic entity having its own name, assets, and stable transaction office; its business is registered following the legal regulations with the aim of carrying out business activities, whereas State-owned enterprises are enterprises in which the State owns over 50% of charter capital (i.e the capital which is contributed by members and shareholders in a given period of time and is recorded to the company charter) "
1. SOEs identification
Divided by size:(As Decision 90, 91 of Gov., 1994)State economic
Divided according to the level of state ownership:
(According to the Project on Government Restructuring, 2012)
Independent State companies
Bases established groups and corporation by Decision 90 and Decision 91 of the Prime Minister
“Group shall have seven members and more business and legal capital (the minimum required capital levels as prescribed by law to established enterprises) at least VND1,000 billion".
“The corporation is state-owned enterprises having at least 5 units... All corporations have legal capital of over VND 500 billion, for a number of corporations in specific sectors, the legal capital may be lower but not less than VND 100 billion"
The bases newly established groups by the Government's draft
Have a limited liability company or joint-stock company
The conditions listed in the draft of the Government dated November 15, 2011 on criteria for naming groups & corporations
Have a capital of 1,000 billion
VND or more and own more
than 50% of capital rate of at
least 5 other companies
To be Prime Minister allowed
2. SOEs in the context of the VN economy and world economy
Economic context of Vietnam
The context of the world and regional
a. State owned enterprises in the context of the economy of Vietnam
Attach to the reform process in Vietnam and international integration:Enterprises operate under the market-oriented mechanism, multi-sector economy is developed Non-state enterprises increased; FDI increased
VN’ economy integrate into the world economy
The economy was operating under the market
mechanism, had an autonomy in doing its own production and business activities, tied to market
VN’s economy was operating under the centralized mechanism. The majority was SOEs which had weak competitiveness and slow development
Table 1: The different types of enterprises from 2001 to 2009
Source: Statistical Yearbook of the General Department of Statistics
b. State owned enterprises in the context of the regional and world
Trends:- Number of SOEs decreased continuously reflects the growing trend of multi component economy.
- Reduction in number but high level of concentration, big business efficiency, holding the sectors key
Table 2: Change of SOEs in recent years
Source:Statistical Yearbook of the General Department of Statistics 2010 and 2011
Table 3: Number of 100% state capital SOEs (as of October 2011)
Source: Report of the Central Steering Committee for Innovation and Enterprise Development
Table 4:Centralization levelof 100% state capital SOEs compared to other types of businesses
Source: Report of the Ministry of Finance
In 2011, 18 SEGs and SCs, especially the Vietnam Oil and Gas, the Military Telecom, and Textile and Garment Group, gained over VND 128 thousand billion profit, paid VND 200 trillion on the state buget, increase of 20% over the previous year.
2. Investment is widespread and inefficient.
2. The limitations of the SOEs
3. Financial situation of the groups is weak, having potential risks and imbalances
5. A Number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves the practical requirements
4.The organizational structure of groups is cumbersome, the number of employees in the groups is high
1. The SEGs, SC’s competitiveness is not high, not in line with the resources and preferential advantages
6. - The implementation of the rights and obligations of the state for SOEs is still inadequate, awkward and inefficient.
Table 5: Investment outside of major business sector (billion VND)
Source: Ministy of Finance, 2011
Table 6: Compared by performance indicators with other enterprises (%)
Source: General Statistics Office. Enterprise survey data, 2008
SOEs had more efficiency than none-Ses but much less than FIEs
Table 7: The total outstanding debt of a large group in Vietnam (as of 9/2011)
Source: Ministry of Finance
CONSEQUENCES- Easily spiral out of control and management capacity of the SEGs and SC- Loose management, lack of unity and connection between the unit members in the economic groups and corporations
1. A number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves the practical requirements
Investment widespread outside and loss of VINASHIN and VINLINES have appeared in the early 2000's. However, due to the stagnation of the inspection and supervision of state agencies, especially slow implementation of the state auditor, the consequence is often serious and difficult to overcome
2. Inadequate, awkward, inefficient implementation of the rights and obligations of state owners in SOEs
The summary of the causes
6. Solutions to solve difficulties to implement SOEs’ restructuring
7. Considerations when restructuring SOEs
3. Contents of SOEs’s restructuring
4. Roadmap of SOEs’ restructuring
2.The goal of restructuring SOEs:
5. Difficulties and challenges of the process of restructuring SOEs
1. Legal basis for implementation of the SOEs’ restructuring
The Closing Speech delivered by Mr. Nguyen PhuTrong, General Secretary of the Vietnam’s Communist Party, at the 3rd Central Conference, Intake XI on 10th October 2011 on the Decision to restructure the economy
"Restructuring SOEs, focusing on SEGS and SCs 2011-2015," of the Prime Minister on 17 July 2012
The 5th Central Conference of the Party Central Committee, intake XI on 15 June 2012
The Directive No. 03 of the Prime Minister dated on 17 January 2012, on promoting the state owned enterprises’ restructuring
The Decree No. 101/2009 of the Government on trial establishment, organization and management of SEGs
The 5th Central Conference of the PCC
The Decree No. 01/2009 of the Gov.
The Project Restructuring SOEs, of the P.M
By early August, 7 out of 11 SEGs submit to the government a scheme to restructure their groups.
- Actual deployment of the main contents of the restructuring scheme in the economic groups and corporations:
During 8 recent months, 53 economic groups and state corporations have completed and submitted their scheme in which 9 were approved
(Source: Mr. Vo Tri Thanh, Deputy Director of CIEM , "Restructuring SOEs: A weighty achievement and casuistry project", Vietnam Economics Times, No. 194, 14 August 2012, p.5 )
Vietnam mainly ongoing passive restructuring
The national financial system is not strong enough to effectively support the restructuring of enterprises
It is not easy to have full recognition and unified action in the political system, especially the heads of SEGs and SCs, for restructuring
The difficulty and instability of the world economy in recent years
The settlemen and placement of employment and redundant labor within SOEs in the restructuring process
Group interests are interfered
According to the Minister of Finance Ministry, Mr. Vuong Dinh Hue, VND 55,000 billion to 65,000 billion (equivalent to USD 24 billion to USD 32 billion) are estimated to be needed to restructure SOE including debt restructuring, settlement of losses and redundant labor…This is a matter of concern because it will increase public debt, create a burden for the economybut according to Mr. Hue "we need to make a patient stronger prior to treat the diseases and it is the same in every country”
Is it more effective or should we treat the disease before taking a supplement?
“Group interest” means a group of people who have common interest affecting the agencies, who may make decisions in favor of themselves and those interests and decisions go against the interests of the collective. The groups interests cause disorder and economic losses of the country.
At the conference "SOEs’ Restructuring" organized by the Academy of Finance (MOF) in November 15, 2011, many argue that "The restructuring SOEs will be extremely difficult because it touchs the benefits of powerful groups”
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