Vietnam to retain state control of enterprises in national security and defense

By June 3, 2016 | 02:52 am PT

Vietnam is trying to accelerate share sales in state-owned enterprises (SOEs) that began in the 1990s as the government seeks to spur economic growth to 6.7 percent this year. However, it will retain control of critial lifeline industries including enterprises in national security and defense.

“State-owned firms that are too slow to privatize will be held accountable for their lack of action,” said Deputy Prime Minister Vuong Dinh Hue on Thursday.

Statistics show that SOEs make up nearly 40 percent of total investment in the country but contribute only a third of Vietnam’s gross domestic product.

More than 3,000 SOEs “continue to inhale too much oxygen out of the business environment, undermining economy-wide efficiency and crowding out the productive parts of the private sector,” the World Bank said in a report released earlier this year.

The World Bank suggested that because Vietnam has “too many” SOEs, the government should only retain its stake in about 20 “parent” companies before 2035.

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Deputy Prime Minister Vuong Dinh Hue at a meeting with Victoria Kwakwa, the World Bank’s Regional Vice President of East Asia and Pacific. Photo by VGP/ Nhat Bac

Vietnam is working on a plan to revise its Law on Public Debt Management to restructure state-owned firms whose borrowing has burdened the banking system and state budget with bad debt.

SOEs have been accused of taking out too many loans to make non-core investments which put these companies at very high risk of incurring losses. As a result, many of them have high levels of non-performing loans as well as low profits.

To speed up the process, Vietnam plans to expand the stock market. The deputy prime minister said the stock market's capitalization is projected to double, but without mentioning a specific timeframe.

“More companies will be listed on the stock market. This will clearly be positive to market accessibility," said Hue. “This could lead to a significant increase in foreign ownership [in Vietnamese companies] through mergers and acquisitions."

The government also aims to simplify privatization procedures as current complexities have dampened the overhaul of inefficient state companies. So far, 90 percent of state-owned companies have sold off part of their stakes.

Although the Vietnamese government is encouraging more private participation in state-owned enterprises, it will retain control of critical industries, including enterprises related to national security and defense and key economic sectors.

Deputy Prime Minister Hue also stressed the importance of a fully-developed bond market as bonds have been a key source of funding for government spending on infrastructure and economic growth.

Following a series of free trade agreements including the much-anticipated Trans-Pacific Partnership (TPP), Vietnam is feeling the need to shift its economic growth model towards sustainable and efficiency-driven development.

As Vietnam is integrating at speed into the global market where tariff barriers will be removed, Vietnam is under mounting pressure to enhance its competitiveness, Deputy Prime Minister Hue said.

“Vietnam has to depend on itself to eliminate bottlenecks in our economic development, but we also consider advice from our partners important, including the World Bank,” said Hue.

Victoria Kwakwa, the World Bank’s Regional Vice President of East Asia and Pacific, said Vietnam is on the right track by maintaining high economic growth rate while keeping inflation under control.

“Vietnam has radically shifted its way of thinking towards long-term development,” said Kwakwa.