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
SOE’
RESTRUCTURING,
FOCUSING ON STATE
GROUPS AND
CORPORATIONS IN
THE COMING TIME
THE CURRENT OPERATION OF STATE
OWNED ENTERPRISES
3.The limitations of the
current VN SOEs
1.
SOEs identification
Contents
2.SOEs in the context
of VN economy and
world economy
3
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
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) "
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
1. SOEs identification
Divided by size:
(As Decision 90, 91 of Gov.,
1994)
State economic
groups
Independent State
companies
State
Corporation
Divided according to the level
of state ownership:
(According to the Project on
Government Restructuring,
2012)
 Enterprises with 100%
state capital
 Equitized enterprises with:
- Over 75% of the state capital
- 65% of the state capital
- Over 50% of the state capital
 The SOEs which prolonge
losses and haven’t no
ability to fix
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
1.Shaping VN SOEs
State economic
groups (SEG)
State Corporation
(SC)
Decision
The basis of
established
Decision 91 Scale capital and
March 7, 1994 the minimum
of the Prime
number of unit
members
Minister
Decision 90 Scale capital and
March 7, 1994 the minimum
of the Prime
number of unit
members
Minister
Number
11
11 SC91
80 SC90
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
Bases established groups and corporation by Decision 90 and
Decision 91 of the Prime Minister
Article 2 of 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".
Article 5 of Decision 90/TTg of the Prime Minister:
“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 CURRENT OPERATION
OF STATE OWNED ENTERPRISES
The bases newly established groups by the Government's draft
Have a limited liability company
or joint-stock company
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
The conditions listed
in the draft of the
Government dated
November 15, 2011
on criteria for naming
groups
&
corporations
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
2. SOEs in the context of the VN economy and world economy
Economic
context of
Vietnam
The
context of
the world
and
regional
economy
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
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
From 1990
1986-1990
Before 1986
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
Table 1: The different types of enterprises from 2001 to 2009
100
80
60
SOE
NONE SOE
40
FDI
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: Statistical Yearbook of the General Department of Statistics
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
b. State owned enterprises in the context of the regional and world
economy
The late 2000
economic downturn
• Takes place in many countries and
regions around the world.
• Many Asian countries have reduced
growth, including Vietnam
The financial crisis of
2007 so far
• Impact on all countries at different
levels
• VN had capital growth rate of around
6% (in 2007 and 2008), but in 2009 only around 3%
The conflict between
the countries in the
world and in the
region
• Conclusion: In the context of Vietnam
and the world business activities of the
enterprises in general and SOEs in
particular are heavily affected
THE CURRENT OPERATION
OF STATE-OWNED ENTERPRISES
3. Current operation of SOEs and their limitation
a. Process of changes in SOEs
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
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
Table 2: Change of SOEs in recent years
2005
2006
2007
2008
2009
2010
4.086
3.706
3.494
3.328
3.364
3.283
3,62
2,82
2,24
1,61
1,35
1,12
Labor (1000 persons)
2.037
1.899
1.763
1.725
1.735
1.688
Average proportion of
business capital (%)
54,1
51,5
46,8
44,7
38,7
32,6
51,1
55,5
47,0
47,6
44,8
35,4
Number of SOEs
Share (%)
The proportion of fixed
assets and long-term
financial investments (%)
Source: Statistical Yearbook of the General Department of Statistics 2010 and 2011
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
Table 3: Number of 100% state capital SOEs (as of October 2011)
SOE (100% statecapital)
Divided by sector:
By industry:
Whole
country
Share
(%)
Security, Defense, Public utility
Company of agriculture, forestry
452
249
34,5
19,0
Business enterprises
608
497
46,5
38,3
341
26,0
471
35,7
Sector and industry
Industry, Construction, Transportation
Agriculture, Forestry, Water
Resources
Trade, Services and Tourism
Source: Report of the Central Steering Committee for Innovation and Enterprise Development
THE CURRENT OPERATION
OF STATE OWNED ENTERPRISES
Table 4: Centralization level of 100% state capital SOEs compared
to other types of businesses
Total assets Equity
100% state
capital SOEs
VND 1,800 VND 700
trillion
trillion
Of which 11
SEGs
30% of total 51% equity
assets
Investment
capital
70%
State
investment
capital
50%
Credit of
banks
60%
40% of employees of SOEs
Source: Report of the Ministry of Finance
CONTRIBUTION OF STATE OWNED ENTERPRISES
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.
19 of 21 SEGs and SCs audited
are still be profitable and had a
significant contribution to growth
and macro-economic stability
(Dao Van Dung, Director, State
Audit)
Not all groups, corporations
have a loss and are a burden
( Chairman of Government
Office Vu Duc Dam)
Can not
deny the
role and
contribution
of the SEGs
and SCs
•
A number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves t
CURRENT LIMITATIONS OF SOEs
6. - The implementation
of the rights and
obligations of the state
for SOEs is still
inadequate, awkward
and inefficient.
5. A Number of mechanisms
and policies is lately
promulgated and untimely
responses to the reality and
solves the practical
requirements
1. The SEGs, SC’s competitiveness is
not high, not in line with the
resources and preferential
advantages
2. Investment is
2. The
limitations
of the
SOEs
widespread and
inefficient.
3. Financial situation
of the groups is weak,
having potential risks
and imbalances
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
Indicators
Content
The figure compares
GDP
Contribution
Nearly 40%
Nearly 50% of the
contribution is from
exploiting national
resources (oil, coal,
minerals)
Economic
efficiency
ICOR and capital
turnover is low
Efficiency of
capital use
had to use up to
2.2
VND
of
capital to create
1
VND
of
revenue
Profits
Increased
105%
Reasons
SOE enjoy
many
advantages
but lacks
In comparison with the
the tight
non-state and FDI
control of
enterprises
the State;
hold the
industry
None-state enterprises
just use 1.2 VND and which is not
competitive
FIEs use 1.3 VND
with or
without
The equity increased
140%, assets -125%
2. Investment is widespread and inefficient.
Table 5: Investment outside of major business sector (billion VND)
Year
Total
2006
2007
2008
2009
2010
Total
77.200
6.114
14.441
19.840
14.991
21.814
Security
market
Insurance
8.294
707
1.328
1.697
986
3.576
10.234
758
2.655
3.007
1.578
2.235
Real Estate
12.305
211
1.431
2.285
2.999
5.379
Investment
budget
Bank
business
4.236
600
1.050
1.424
694
495
42.104
3.838
7.977
11.427
8.734
10.128
Fiels
Source: Ministy of Finance, 2011
Inefficient in comparision with none-SE and FIEs
Table 6: Compared by performance indicators with other enterprises (%)
Indicator
2000
SOE
The rate of
payment 6,92
of budget
revenues
Gross
profit /
2,35
capital
Dealers
The rate of
Profit in
3,95
Revenue
None
SE
2005
FIE
SOE
None
SE
2008
FIE
SOE
None
SE
FIE
2,98
14,77 7,88 3,49
12,74 5,93
3,04
11,95
1,80
8,79
3,21 1,49
11,24 2,77
1,34
9,66
1,00
13,3
5,4
11,8
1,23
10,57
1,21
5,18
Source: General Statistics Office. Enterprise survey data, 2008
SOEs had more efficiency than none-Ses but much less than FIEs
3. Financial situation of the groups is weak, having
potential risks and imbalance.
Table 7: The total outstanding debt of a large group in Vietnam (as of
9/2011)
Share (%)
Total debt (billion
VND)
Compared to total
Compared to total
loans of 12 groups
outstanding loans of SOEs
Petro Vietnam
72,300
33.05
17.41
EVN
62,800
28.71
15.12
TKV
20,500
9.37
4.94
Vinashin
19,600
8.96
4.72
218,738
100.00
52.66
415,378
-
100.00
Total outstanding debt
of 12 large corporations
Outstanding loans to
SOEs
Source: Ministry of Finance
4. The organizational structure of groups is cumbersome,
the number of employees in the groups is high
LIMITATIONS
- Cumbersome structure,
many affiliates
(example, EVN has 32 units,
39 subsidiaries, 14 affiliates,
and three business units;
PetroVietnam has 11 units, 4
corporations,19 ubsidiaries,
3 link units and 3 units of
scientific research)
- Concentration
employees
of
-Such, in EVN there are near
10 thousand workers, in
Vinchem - 2.7 thousand
workers
REASONS
- Do not have to
compete
- State-backed
- Impact of subsidy
management
mechanism in the past
- The lack of business
management
renovation
- The weakness of the
state agencies in the
management of SEGs
and SCs
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
WEAKNESS OF THE STATE MANAGEMENT
AGENCIES FOR SOEs
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
WEAKNESS OF THE GOVERNMENT BODIES IN
MANAGING SOEs
2. Inadequate, awkward, inefficient implementation of the
rights and obligations of state owners in SOEs
Consequences
SEGs, SCs are huge
organizations having a
wide areas of operation,
and operating in multisector and are newly
established in recent
years
The leaders of SEGs and
SCs are inexperienced;
and the State agencies
are
embarrassed
in
managing,
administerring
and
handling arised problems
Some SEGs and
SCs do not comply
with the provisions
of
the
Government;
leaders are less
concerned
about
contributing to the
State
budget;
activities
lack
transparency,
especially in the
financial sector
CAUSES OF THE LIMITATIONS
The summary of the causes
Objective
causes
Subjective
reasons
• The effects of financial crisis, the global economic
downturn and negative aspects of uncontrolled market
mechanisms
• High interest on bank loans, inflation, consumer price
index, consumption stagnation of state corporations …
• Increase of a firm size while the level and capacity of the
management have not kept pace.
• Incentives for the SEGs and SEs are too much
• Supervisory capacity and mechanisms of the State management
agencies for the operation of SOEs are limited
• The legal documents specified activities of SOEs are inconsistent
and insufficient
IMPLEMENTATION OF STATE-OWNED ENTERPRISES’
RESTRUCTURING, FOCUSING ON SEGs AND SCs
1. Legal basis for implementation of the SOEs’ restructuring
2. The goal of restructuring SOEs:
3. Contents of SOEs’s restructuring
4. Roadmap of SOEs’ restructuring
5. Difficulties and challenges of the process of restructuring SOEs
6. Solutions to solve difficulties to implement SOEs’ restructuring
7. Considerations when restructuring SOEs
Legal basis for implementation of the SOEs’ restructuring
1
The Closing Speech delivered by Mr.
Nguyen Phu Trong, 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
2
The 5th Central
Conference
of
the Party Central
3
Committee,
intake XI on 15
June 2012
The Decree No. 101/2009 of
the Government on trial
establishment, organization
and management of SEGs
5
4
"Restructuring
SOEs,
focusing on SEGS and
SCs 2011-2015," of the
Prime Minister on 17 July
2012
The Directive No. 03 of the Prime
Minister dated on 17 January
2012, on promoting the state
owned enterprises’ restructuring
MAIN CONTENTS OF THE DOCUMENTS
The
Central
Conference of
the PCC
Improving the management of
SOEs; promoting implementation
of
state
owner,
conducting
transparent auditing and financial
disclosure
The Decree
No. 01/2009
of the Gov.
Regulating
operation
and
management SEGs and 11 major
businesses of the SEGs
The
Project
Restructuring
SOEs, of the
P.M
Grouping of SOEs and solutions for each
group,
specifying
content
and
requirements SOE restructuring
5th
The goal of restructuring state-owned enterprises
Strengthen the
economic leading
role of SOEs
Improving business
performance of SOEs
Formed SOEs strong
enough to compete
in the context of
international
integration
According to the Minister of Finance Vuong Dinh Hue ("The key
measures to restructure SOEs focusing on SEgs, SCs". Posted on the
portal Ministry of Finance December 17, 2011)
The goal of restructuring state-owned enterprises
Under the project
"Restructuring of SOEs,
focusing on SEGs, SCs
2011-2015" of the Prime
Minister
SOE has a more reasonable
structure, focusing on sectors,
key areas, providing products,
essential public services to
society and national defense and
security, as the core to the
implementation of the state’s
economic leading role, ...
Improving the competitiveness,
the profit equity capital ratio of
business enterprises, fulfilling
production
tasks,
providing
products,
essential
public
services to society, national
defense and security security
Contents of SOEs’s restructuring
1
2
3
Review and respecify the tasks of the business
and main business
Develop strategy to 2015, Vision to 2020 which are
in line with the strategy of the industry, market
demand, the ability of capital and managerial
capacity
Develop plans to reorganize
restructuring of membership units
business,
and
Contents of SOEs’s restructuring
4
5
6
Develop a financial plan to implement the main
assigned tasks, give up an investment outside the
industry
Promote the link among the member enterprises: the
parent company focuses to develop a development
strategy, renew the organization, management,
technology and product, develop market
Apply the principles of corporate governance in
accordance with the international corporate
governance convention; improve internal audit
controls mechanism, improve the management
Contents of SOEs’s restructuring
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:
-Business management model
- Finance investment
- Corporate governance system
- Human Resource Development
During 8 recent months, 53 economic groups and state corporations
have completed and submitted their scheme in which 9 were
approved
The limitations in the construction of the scheme
of SEGs and SCs
 Inconsistency of basic topics related to restructuring content
 Serious about assessing the situation; restructuring the content is simple,
asynchronous
 Scheme write very detailed full, the Viet Nam Oil and Gas Corporation: page 155,
but the group write very short, only chemicals group summary with 31 pages
 Lack of detail on some of the content, such as finance, corporate governance, human
resource development
 "If SOEs in general and SEGs in particular have not yet trully perceived about the
restructuring and restructuring has not yet their demand, they still use casuistry”
(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 )
Contents of direction of the Government
for SOE restructuring
Develop and regularly update the criteria for the formation and
operation of SEGs and SCs
Complete the mechanism perform the rights and obligations of
state owner
Innovate implementation mechanism of state ownership for SEGs
and SCs and mechanism represent owners of the State at SOEs
Accelerate the SOEs’ equitization process, focusing on the SEGs
and SCs towards reducing the state capital in the enterprises
Examine and supervise the operation of SOEs, especially that of
the SEGs and SCs in the financial sector
Expand the autonomous rights and enhance self responsibility of
SCs, do not give preferences to SEGs and SCs
Roadmap of SOEs’ restructuring
Restructur
-ing of the
economy
Restructuring
public
investment
Restructuring
SOEs
Restructuring
enterprises
Restructuring
SEGs and SCs
Bank
restructuring
Roadmap of SOEs’ restructuring
• Evaluate their activities and
formulate restructuring plans
to the Government.
• improve equitization plan,
institutionalized management
and supervision, corporate
governance, conduct staff
training.
• by 2015, there are 44
corporations with more than
600 SOEs left, in which the
State holds 100% of the
capital
From now to
2015
From 2016 to
2020
• To
further
improve
the
institutional
restructuring,
equitization of SEGs and SCs
and SOEs of the ministries,
branches, localities.
• It is expected that in 2020,
there will be 17 corporations,
in which the State holds 100%
of the charter capital.
Roadmap of SOEs’ restructuring
Prof. Douglas Coulter from Harvard University
Business said that there are basically two types
of restructuring
Passive restructuring: is that the corporations
keep waiting, when the crisis begins, the
corporation will reform to survive
Active restructuring: is that the companies
actively cope with the challenges in the future for
further development
Vietnam mainly ongoing passive restructuring
The difficulties and challenges facing the process of
restructuring SOEs
The national financial system is
not strong enough to effectively
support the restructuring of
enterprises
2
The difficulty and
instability of the
world economy in
recent years
1
3
Difficulties
The
settlemen
and
placement of employment
and
redundant
labor
within SOEs in the
restructuring process
5
4
It is not easy to
have
full
recognition
and
unified action in
the
political
system, especially
the heads of SEGs
and
SCs,
for
restructuring
Group interests are
interfered
The national financial system is not strong enough
to effectively support the restructuring
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 economy but 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 interests are interfered
“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”
42www.themeg
Difficulties in dealing with employment and
redundant labor
Organizational restructuring and staff will narrow the
production and focus on major business; organizational
structure more compact and human resources will reduce, so
redundant capacity to work will be happen
The Challenge
- Policy regime for workers is inadequate
- Unemployment rate is high and Unemployment is great
- Life of workers is difficult
For every SEGs and SCs:
- Limited awareness of leaders as well as the employees on
the benefits of the restructuring
- Psychology afraid to change
- Weak management capacity of leades,
- Capital shortage.
Some solutions to solve difficulties to implement
SOEs’ restructuring
Reduce debt,
rescheduling and
delay repayment for
businesses in trouble
Reduce public
investment
spending
Implement
Government's
proposal on
restructuring SOEs
Reduce interest
rate of banks
Improve operational
efficiency of banks,
minimize bad debts
Considerations when restructuring SOEs
The Government
should resolutely
eliminate subsidies
and incentives for
SOEs
The formation of
SEGs should follow
the principles of
voluntariness,
autonomy and
intrinsic needs of
the enterprise
The strict control of
the State
management
agencies and serious
implementation for
each SOE
Restructuring can
cause huge financial
pressure
The equitization can
lead to a section of
SOE assets is
passed into the
hands of private
shareholders
Losses and debts can
be shared and
validated after the
restructuring process
Implement a
comprehensive
study of the
typical models of
SEG in the world
Develop training
programs for
managers of
SEGs
C l i c k
t o
e d i t
c o m p a n y
s l o g a n