Time to restructure State enterprises

The ineffective use of capital, natural resources and personnel has made the restructure of State-owned enterprises (SOEs) imperative, warns Institute for Business Development President Dr Dang Duc Dam.

The economist, who was speaking at a forum in Ha Noi to discuss the management of SoEs, reminded his audience that restructure of the economy was the focus of the National Economic Development Strategy for the 2011-20 period.

The restructure of enterprises, especially SoEs, was crucial to the plan’s success, he said.

The economist used Viet Nam’s Incremental Capital-Output Ratio (ICOR), the ratio of investment to growth , as proof of his argument.

“The country’s ICOR was 3.5 in 1991-95 and jumped to 6.6 in 2008 and 8 in 2009,” he said.

“In other words, Viet Nam has to spend VND8 worth of capital investment to generate VND1 worth of growth.”

Financial institutions such as the World Bank say that an ICOR of three indicates effective investment and sustainable development.

“This shows Viet Nam’s investment capital is not used effectively to serve growth,” Dr Dam said.

The economist said it was accepted that national economic growth had followed investment and the exploitation of natural resources.

But the ineffective use of capital and natural resources now made it necessary to quickly change management methods.

The economist provided figures that showed investment as a percentage of Gross Domestic Product jumped to more than 46 per cent in 2007 from 18 per cent in 1990.

Government measures to control inflation had reduced it to about 41 per cent but the gross rate still averaged almost 43 per cent of GDP between 2006-10.

The figures were much higher than those of the newly-industrialised economies and territories of 1960-80, Dr Dam said.

“The investment as per cent of GDP in South Korea was 23.3 per cent and Taiwan 26.2 per cent but they still gained economic growth of 7.9 and 9.7 per cent.

“It’s a worry that the more we invest, the less the investment efficiency is,” he said.

Dr Dam also warned that the exploitation rate of natural resources; waste and yearly demand growing at 8 per cent, put Viet Nam at risk of having to rely upon imports.

“Viet Nam has focused on accelerated energy generation rather on energy saving,” he said.

Industry and Trade Ministry figures show that saving 1kWh of electricity costs much less than the production of 1kWh.

The ministry had also found that industries such as civic engineering and transport could reduce yearly energy waste by 30 per cent.

Dr Dam said that although productivity had reportedly grown rapidly since the introduction of Doi moi, or renewal, labour skills were poor when measured against other regional countries.

Income trap

The Central Institute for Economic Management (CIEM)’s Enterprise Reform and Development Department director Dr Tran Tien Cuong warned that Viet Nam was likely to fall into the average-income trap if it failed to raise the quality of growth.

“Too much attention has been given to the increase of investment rather than that of quality, productivity, efficiency and competitiveness,” he said.

“Therefore, it is crucial to restructure enterprises, especially the SoEs.”

CIEM president Le Xuan Ba said SoEs consumed vast amounts of State capital – more than any other business sector – but their operation remained unsatisfactory.

“Many of them are making loss with shipbuilder Vinashin a typical example and ineffective corporate management is a major cause,” he said.

The forum, Restructuring and Innovating the Management Regime of the State-owned Enterprises towards the Model for Efficient Economic Development, was held on Wednesday. — VNS

Tags: Vietnam companies, Vietnam enterprises, Vietnam SOEs