Solutions to Develop Economic Groups Discussed

Economic groups always play key driving roles in national economic development. The Ministry of Planning and Investment has recently been assigned by the Government to submit a policy on developing the network of Vietnamese economic groups. But in reality, when it starts the job, it will encounter many challenges in synchronizing policy and actual conditions.

Effective or not?

At present, Vietnamese economic groups are being granted certain business monopolies like telecommunications, petroleum, oil and gas, electricity, coal and mining. However, with the growing international economic integration and economic reform policy, the monopolies of these state-owned concerns have been gradually trimmed down. Many have been transformed into holding corporations or gone public, and this approach has brought effective business results. With this policy, many private economic groups have been established, like PG Group in Haiphong, Viet A, Sunfat, Hoa Phat and Nam Cuong, and they are outperforming the competition. Besides, State-owned economic groups operating in finance-banking have grown strongly and brought in much greater incomes after going public, exemplified by the State Insurance Corporation, the Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank) and the Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank). Following transformations, these business entities have expanded more quickly in terms of capital and made bigger profits, and their salaries for employees jumped.

However, many economic experts still warn of the low investment effectiveness of economic groups in developing markets. In reality, State-owned enterprises used to be given green lights and large capital sources to invest in projects. But this proved ineffective and wasteful for the national economy. State-owned enterprises invested in financial and stock markets and ignored their key manufacturing operations. According to experts, Vietnam needs to regain the economic rebalance by tightening control over economic groups’ investments in noncore operating fields.

Some other experts point out that in the context of volatile regional and global economies, state-owned economic groups will become an instrument for the state to stabilise the market when necessary. Regarding state management, it is rational to grant a large source of preferential capital to invest in production because key economic sectors will ensure the vitality of the economy. However, in several models of economic groups, despite being granted large investments, they fail to complete assigned tasks. As a result, the economy still lacks many input materials for production such as electricity, cement and salt.

In addition, the formation of economic groups is also a measure for the state to respond or stabilise markets in case foreign firms corner the market. But in fact, Vietnamese economic groups can only compete with each other or small companies in the country, not foreign enterprises.

Long term solution

It is time Vietnam develops powerful economic groups to cope with the dramatic changes of the economy and play core roles in promoting development, as well as limiting difficulties, as Vietnam integrates deeper into the global economy. When the Government forms new economic groups as well as continues to support old economic group forms, according to experts, it should anticipate both potential opportunities and risks.

According to many experts, one solution is for the state to have clearly defined policies and mechanisms on economic groups, making a level playing field for both state-funded entities and private-run or non-state-funded ones, and clearing monopolies of state-owned enterprises that distort fair market competition.

In addition, equality and justice factors need to be taken into account. According to incomplete statistics, state-owned economic groups account for approximately 70-80 % of credit capital and nearly 100 % of resources, but their workforce is half that of the private sector. In fact, old policies cause inequality and reduce the development of economic groups.

Another way to power up economic groups is the merger and acquisition of small businesses.

Besides, depending on practicalities, ministries and localities should send proposals to the Government for establishment of the state economic groups on the basis of merger or acquisition of state-owned enterprises or joint stock companies with controlling state equity.

VCCI

Tags: Vietnam companies, Vietnam economic groups, Vietnam enterprises