Equitization of State-owned enterprises for 2011-2015: Efficiency is not commensurate the resources

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	Part 4: From the success of private enterprises, look at State-owned enterprises

The implementation of State capital withdrawal and recovery of state capital (2011-2015) has achieved certain results but there are many limitations and violations.

Operation based on plans

The supervision delegation of the National Assembly has reported the results of monitoring the implementation of policies and legislation on the management and use of State capital and assets at enterprises and the equitization of State-owned enterprises for 2011-2016. This report shows a fairly complete picture of this issue.

According to the report, in the period 2011-2015, Vietnam has withdrawn VND 26,232 billion from the State, collected VND 36,537 billion (by 1.4 times compared to the book value).

In particular, divestment outside the sector (securities, banking, insurance, real estate, investment funds) was VND 9,835 billion, collected VND 11,086 billion (equal to 1.1 times of the book value), 42% of plan. The transfer of State capital in enterprises without State management reached VND 16,387 billion, earned VND 25,451 billion (equal to 1.6 times of the book value).

As of 31 December 2015, SCIC has sold State capital to have the surplus of VND 4,404 billion, accounting for 2.6 times of the book value, by 1.4 times of the national average.

After 11 years of selling State capital, SCIC's sale has been standardized and professional. By 30 September 2017, the sale of capital was 3.4 times higher than the cost of goods sold.

On the positive side, this report said: The performance of state-owned enterprises has a tendency for stable growth and development. The total assets of joint-stock companies, limited liability companies with two or more members whose shares are contributed by the State in 2016 reached VND 495,126 billion, an increase of 3.8 times compared to 2011. The total equity was VND 167,701 billion, approximately 3 times higher than 2011; and total revenues reached VND 423,250 billion, an increase of 1.7 times compared to 2011.

The average revenue growth rate for 2011-2016 was 13%. The total profit before tax was VND 31,723 billion, an increase of 4.3 times compared to 2011. The average profit before tax / equity ratio in 2016 was 19% and the average for 2011-2016 was 15%. The profit before tax / total assets in 2016 was 6% and 5% on average in 2011-2016.

In 2016, State-owned enterprises contributed VND 62,967 billion to the State budget, an increase of 24% compared to 2015.

Many shortcomings

However, this report also pointed out many shortcomings and limitations in the implementation of policies and legislation on management and use of State capital and assets in enterprises.

According to the delegation, the performance of State-owned enterprises was not commensurate with their current holdings, total assets and capital (assets increased by 45.8%, equity increased by 92.2%) but revenues before tax and remittances to the State budget have slowed down (the rate of state budget contribution is only 18%, equal to 3% per year), the total debt is high, an increase of 26% over 2011 (from VND 1.292.400 billion to VND 1.628.649 billion).

At the same time, businesses have not really promoted the leading role in the economy as well as have not been able to lead the task, promote other economic sectors to develop, and create a driving force for economic development. Some companies have not strictly implemented the plans; so labor productivity and business performance are still low.

Profitability of State-owned enterprises was 2.1% in 2015, much lower than that of foreign-invested enterprises (5.5% in 2015).

Profit margin of State-owned enterprises is reduced for 2012-2016 (ROE decreased by 39% and ROA decreased by 30%).

The capital turnover ratio of State-owned enterprises is only 0.41 times in 2015, significantly lower than before and reached the lowest level in three sectors: such as non-state enterprises with 0.74 times, while the index of the FDI enterprises’ sectors are high and tend to increase, from 0.66 times in 2000 to 1.01 times in 2015.

The investment efficiency of State-owned enterprises is low compared to non-State enterprises and FDI enterprises. The ICOR of State-owned enterprises in 2011-2016 is much higher than the two remaining ones (1.58 times in 2016 compared to non-State enterprises, 1.86 times compared to FDI enterprises).

4 major violations

The reports of the delegation with the Government Inspectorate and the State Audit showed that violations in the management and use of State capital and assets in the past mainly focused on violation of the principle of law observance in business; violation of market principles; violation of the principles of corporate governance; and violation of financial management principles.

Specifically, most of the enterprises through inspections and audit are in violation of the law at many levels. A number of State-owned corporations have not yet seriously and inadequately followed the regime of reporting on the restructuring project as well as plans on arrangement, equitization and divestment.

A number of State enterprises carried out procedures for investment, bidding and procurement of assets in contravention of the State's regulations. The poor management of the enterprises led to the violation of the law on economic management.

Many projects are delayed and have to stop, causing waste of capital. A number of projects operated inefficiently and lost money after being put into operation, especially in 12 projectsof the Ministry of Industry and Trade.

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The heads of enterprises and managers in some enterprises are irresponsible, with signs of causing loss of State capital and assets. Some negative cases, even serious violations of the law in SOEs, have caused considerable economic consequences and affected the prestige of SOEs such as the incidents that occurred in the Vietnam Chemical Group, Vietnam Oil and Gas Group, and Southern Food Corporation.