Vietnamese SOEs losing millions from foreign investment projects

A series of outward investment projects launched by Vietnam’s state-owned enterprises (SOEs) have resulted in losses in recent years due to poor market selection and risk assessment, according to experts.

29 percent of Vietnam’s state-owned overseas projects had accumulated losses by the end of 2016, according to a recent government report on the use of state capital and assets acquired by Thanh Nien newspaper.

Of the $7 billion invested offshore by Vietnam’s SOEs, $5.5 billion had not been recovered as of the end of 2016, the report said.

One of the most notable losses in a foreign country was suffered by the Vietnam National Chemical Group (Vinachem) last year. The company wanted to construct a mine to exploit potash in Laos which was scheduled to start operation in 2020. However, Vinachem decided to cancel the project in 2017 after two years, saying that it needed to “ask for directions from authorities on further deployment”, and failed to recover over $500 million. 

The Vietnam National Coal and Mineral Industries Group also made a loss from an outward investment project in 2007. According to a report by the Government Inspectorate released in December last year, it had lost VND380 billion ($16.6 million) from investments in Cambodia and Laos due to substandard investment efficiency assessment.

One of the main reasons for these losses is that they’ve made mistakes in selecting which markets to invest in, according to Dr. Nguyen Duc Thanh, president of the Vietnam Institute for Economic and Policy Research.

“SOEs tend to choose markets that have a good relationship with Vietnam at a state level in the hope that this will give them an advantage, which is not true,” Thanh told VnExpress International.

“They often aim for the world’s least developed countries such as Laos or Cambodia, or politically or economically unstable markets such as Venezuela or Africa, but it's very difficult to make a profit in these markets,” he added.

Thanh said that poor risk assessment and management skills is another reason for SOEs' ineffectiveness in foreign markets.

One example was the oil and gas giant PetroVietnam. In 2010, the company signed a contract to start a heavy oil exploitation project in Venezuela, which is said to have one of the largest oil reserves in the world.

However, in 2013, the SOE decided to abandon its operations in Venezuela due to “political instability and high inflation from 30 to 60 percent each year.” Despite having been warned of the risks by different government bodies, PetroVietnam pressed on with the investment, which resulted in a loss of $532 million. 

“It is always more difficult to win a battle in a foreign land,” said Luu Duc Ho, former director of the Development Strategy Institute under the Ministry of Planning and Investment.

Vietnam still has a low number of outward investment projects, and SOEs need to reach out even more to foreign countries, Ho told VnExpress International. However, they need to invest with sufficient understanding of their own abilities and the legal frameworks in their target markets to ensure they make a profit, he added.

According to government statistics, Vietnam had 110 outward investment projects being run by 18 SOEs in 2016. PetroVietnam led the list of SOEs with registered investment capital of $6.68 billion, which accounted for 53 percent of the total. Viettel Telecoms ranked second with $2.13 billion.