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RESTRUCTURING VIETNAM’S STATE –
OWNED ENTERPRISE IN THE
CONTEXT OF MARKET ECONOMY AND
INTERNATIONAL INTEGRATION
RESTRUCTURING VIETNAM’S STATE –
OWNED ENTERPRISE IN THE
CONTEXT OF MARKET ECONOMY AND
INTERNATIONAL INTEGRATION
Presenter A.Prof., Dr. Tran Xuan Cau
PRESENTATION CONTENTS
1. CURRENT OPERATION OF
THE STATE OWNED
ENTERPRISES (SOE)
CONTENTS
2. EXECUTION OF SOE’
RESTRUCTURING, FOCUSING ON STATE
GROUPS AND CORPORATIONS IN THE COMING TIME
THE CURRENT OPERATION OF STATE OWNED ENTERPRISES
Contents
3.The limitations of the current VN SOEs
1. SOEs identification
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
Independent State companies
State Corporation
Divided by size:(As Decision 90, 91 of Gov.,
1994)State economic
groups
1. SOEs identification
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 DecisionThe basis of established
Number
State economic
groups (SEG)
Decision 91 March 7, 1994 of the Prime
Minister
Scale capital and the minimum
number of unit members
11
State Corporation
(SC)
Decision 90 March 7, 1994 of the Prime
Minister
Scale capital and the minimum
number of unit members
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
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 bases newly established groups by the Government's draft
THE CURRENT OPERATION OF STATE OWNED ENTERPRISES
Economic context
of Vietnam
The context of the world and
regional
economy
2. SOEs in the context of the VN economy and world economy
THE CURRENT OPERATION OF STATE OWNED ENTERPRISES
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 increasedVN’ 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
a. State owned enterprises in the context of the economy of Vietnam
THE CURRENT OPERATION OF STATE OWNED ENTERPRISES
0
20
40
60
80
100
2001 2002 2003 2004 2005 2006 2007 2008 2009
SOE
NONE SOE
FDI
Source: Statistical Yearbook of the General Department of Statistics
Table 1: The different types of enterprises from 2001 to 2009
THE CURRENT OPERATION OF STATE OWNED ENTERPRISES
b. State owned enterprises in the context of the regional and world economy
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
2005 2006 2007 2008 2009 2010
Number of SOEs 4.086 3.706 3.494 3.328 3.364 3.283
Share (%) 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
The proportion of fixed assets and long-term financial investments (%)
51,1 55,5 47,0 47,6 44,8 35,4
Table 2: Change of SOEs in recent years
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)
Source: Report of the Central Steering Committee for Innovation and Enterprise Development
SOE (100% state-capital)
Sector and industry Whole country
Share (%)
Divided by sector: Security, Defense, Public utility 452 34,5Company of agriculture, forestry 249 19,0Business enterprises 608 46,5
By industry: Industry, Construction, Transportation 497 38,3
Agriculture, Forestry, Water Resources
341 26,0
Trade, Services and Tourism 471 35,7
THE CURRENT OPERATION OF STATE OWNED ENTERPRISES
Table 4: Centralization level of 100% state capital SOEs compared to other types of businesses
Source: Report of the Ministry of Finance
Total assets Equity Investment capital
State investment capital
Credit of banks
100% state capital SOEs
VND 1,800 trillion
VND 700 trillion
70% 50% 60%
Of which 11 SEGs
30% of total assets
51% equity 40% of employees of SOEs
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.
CURRENT LIMITATIONS OF SOEs
3. Financial situation of the groups is weak, having potential risks
and imbalances
2. Investment is widespread and
inefficient.
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
2. 2. The limitations
of the SOEs
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.
•A number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves the practical requirements; the consequences of some state corporations are not completely resolved.
1. The SEGs, SC’s competitiveness is not high, not in line with the resources and preferential advantages
Indicators Content The figure compares Reasons
GDP Contribution
Nearly 40%
Nearly 50% of the contribution is from exploiting national resources (oil, coal,
minerals)
SOE enjoy many
advantages but lacks the tight control of the State; hold the industry
which is not competitive
with or without
Economic efficiency
ICOR and capital turnover is low
In comparison with the non-state and FDI
enterprises
Efficiency of capital use
had to use up to 2.2 VND of capital to create 1 VND of revenue
None-state enterprises just use 1.2 VND and
FIEs use 1.3 VND
Profits Increased 105%The equity increased 140%, assets -125%
2. Investment is widespread and inefficient.
Year
Fiels
Total 2006 2007 2008 2009 2010
Total 77.200 6.114 14.441 19.840 14.991 21.814
Security market
8.294 707 1.328 1.697 986 3.576
Insurance 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
4.236 600 1.050 1.424 694 495
Bank business
42.104 3.838 7.977 11.427 8.734 10.128
Table 5: Investment outside of major business sector (billion VND)
Source: Ministy of Finance, 2011
Inefficient in comparision with none-SE and FIEs
Indicator 2000 2005 2008
SOE None SE
FIE SOE None SE
FIE SOE None SE
FIE
The rate of payment of budget revenues
6,92 2,98 14,77 7,88 3,49 12,74 5,93 3,04 11,95
Gross profit / capital Dealers
2,35 1,80 8,79 3,21 1,49 11,24 2,77 1,34 9,66
The rate of Profit in Revenue
3,95 1,00 13,3 5,4 1,21 11,8 5,18 1,23 10,57
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
3. Financial situation of the groups is weak, having potential risks and imbalance.
Total debt (billion
VND)
Share (%)
Compared to total
loans of 12 groups
Compared to total
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
Total outstanding debt
of 12 large corporations 218,738 100.00 52.66
Outstanding loans to
SOEs 415,378 - 100.00
Table 7: The total outstanding debt of a large group in Vietnam (as of 9/2011)
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 of employees-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 subsidymanagement
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
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
1. A number of mechanisms and policies is lately promulgated and untimely responses to the reality and solves the practical requirements
WEAKNESS OF THE GOVERNMENT BODIES IN MANAGING SOEs
2. Inadequate, awkward, inefficient implementation of the rights and obligations of state owners in SOEs
1. Legal basis for implementation of the SOEs’ restructuring
2. The goal of restructuring SOEs:
3. Contents of SOEs’s restructuring
5. Difficulties and challenges of the process of restructuring SOEs
IMPLEMENTATION OF STATE-OWNED ENTERPRISES’ RESTRUCTURING, FOCUSING ON SEGs AND SCs
4. Roadmap of SOEs’ restructuring
6. Solutions to solve difficulties to implement SOEs’ restructuring
7. Considerations when restructuring SOEs
Legal basis for implementation of the SOEs’ restructuring
"Restructuring SOEs, focusing on SEGS and SCs 2011-2015," of the Prime Minister on 17 July 2012
1
3
4
5
The Decree No. 101/2009 of the Government on trial establishment, organization and management of SEGs
The Directive No. 03 of the Prime Minister dated on 17 January 2012, on promoting the state owned enterprises’ restructuring
2
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
The 5th Central Conference of the Party Central Committee, intake XI on 15 June 2012
MAIN CONTENTS OF THE DOCUMENTS
Improving the management of SOEs; promoting implementation of state owner, conducting transparent auditing and financial disclosure
The 5th Central Conference of
the PCC
Regulating operation and management SEGs and 11 major businesses of the SEGs
The Decree No. 01/2009 of the Gov.
The Project Restructuring SOEs, of the P.M
Grouping of SOEs and solutions for each group, specifying content and requirements SOE restructuring
Contents of SOEs’s restructuring
22
33
11Review 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 business, and restructuring of membership units
Contents of SOEs’s restructuring
55
66
44Develop 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 )
The difficulties and challenges facing the process of restructuring SOEs
Difficulties
22
55
33
44
11
The difficulty and instability of the world economy in recent years
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
Group interests are interfered
The settlemen and placement of employment and redundant labor within SOEs in the restructuring process
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.themegall
ery.com
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 happenThe 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.