Levelling the playing field to raise business competition

Vietnam is boosting the reform of its state-owned enterprises (SOEs) in order to make them more competitive. Raymond Mallon, an economist based in Hanoi since 1991, discusses the need for SOE reforms to focus on the national benefit, with some references to international experiences.

soes, State-owned enterprises (SOEs), Vietnam, Business, SOEs, state-owned enterprises (SOEs), Vietnam, business
Raymond Mallon - an economist

SOEs are major providers of essential public services, such as water, electricity, transport infrastructure, and communications and financial services in Vietnam. Government policy (No.58/2016/QD-TTg released in 2016 on criteria for classification of state enterprises and SOEs) is to retain 100 per cent ownership in SOEs which conduct business in “important and sensitive sectors” including: electricity distribution, aeronautical traffic and information services, search and rescue, postal services, lotteries, printing and manufacturing of notes and gold bullion, finance for socio-economic development, and banking system services.

The 2020 Law on Enterprises has broadened the definition of SOEs to include all enterprises with more than 50 per cent state ownership. Importantly for future equitisation, the new law also provides greater protection for minority shareholders.

Most Organisation for Economic Co-operation and Development (OECD) governments control SOEs that undertake commercial activities in energy, rail transport, finance, and telecoms sectors. A 2020 OECD study found that SOEs have been among the largest and fastest expanding multinational companies in the past two decades. The International Monetary Fund last year reported that about 20 per cent of the largest globally listed firms are SOEs (up from about 10 per cent in 2011).

The OECD also notes that, despite risks, this trend may accelerate as governments, in response to the COVID-19 crisis, introduce a mix of policy measures to support businesses, including buying equity in distressed private companies. In contrast, the share of SOEs in the Vietnamese economy has declined in recent years as domestic private enterprises and foreign-invested enterprises have expanded rapidly.

The role of SOEs in Vietnam differs from many OECD countries in that SOEs also play significant roles in some real estate, construction, and manufacturing subsectors. While over 96 per cent of all enterprises in Vietnam are domestic private firms, seven out of the top 10 largest companies are majority state owned. Thus, ensuring these SOEs are competitive and efficient will be increasingly critical in ensuring the delivery of quality public services in Vietnam, as well as for broader economic competitiveness and development.

Global experience has shown that, while it is possible to manage SOEs efficiently, both developed and developing countries have been struggling to effectively manage SOEs. And preferential treatment of SOEs, such as preferential access to capital and land, have often constrained private sector development.

If not managed well, SOEs can waste public resources, divert funds away from productive activities, and hinder socioeconomic development. This can undermine economic performance and public confidence in the state sector.

Studies from the Vietnamese National Assembly and the government have found that Vietnam has not been immune from challenges in SOE management and authorities have taken steps to formulate and implement reforms to improve performance.

Serving the public interests

The overarching questions in determining SOE policy should be: “Does state ownership advance the national interest, or could national interests be better served via alternative policy measures?”

The OECD argues that in countries where SOEs are subject to the same market pressures as their competitors and are insulated from political interference, SOEs can perform as well as private firms. OECD argues that, when governed transparently and efficiently, SOEs can correct market failures and improve public service delivery. It further notes, “in economies with less developed private sectors, SOEs can be an important source of employment and job training”.

The OECD Guidelines on Corporate Governance of SOEs (2015) stress that governments should exercise the ownership of SOEs in the interest of the general public. The guidelines aim to ensure that SOEs and privately-owned firms operate on a level playing field, to ensure that they are insulated from political pressures and are subject to the same market discipline faced by private companies.

The OECD recommends that governments should disclose the policy objectives that justify state ownership, and that SOEs should be subject to the same high-quality accounting, disclosure, compliance, and auditing standards as companies listed on the stock market, and that state and non-state shareholders should be treated equally. Boards of the SOEs should have the authority, competencies, and objectivity to provide strategic guidance and monitoring of management, and that the state should not interfere with day-to-day SOE management.

SOEs should also not be exempt from the application of laws (especially those on companies, competition, and bankruptcy) and regulations that apply to private firms, and should not receive preferential treatment (for example, preferences in public procurement, access to finance, land, technology or other resources at preferential terms, or more advantageous tax regimes). SOEs should also enforce a clear separation between commercial and non-commercial activities and be guaranteed adequate and transparent compensation for their public service objectives.

In line with good practices, the Vietnamese government has acted to separate its ownership and regulatory functions, establishing the Commission for the Management of State Capital at Enterprises (CMSC) at the end of 2018 to exercise ownership of major SOE groups (the 19 large SOE groups including State Capital Investment Corporation, PetroVietnam, Vietnam Electricity, and Petrolimex). This is a step towards reducing potential conflicts of interest in sectors where the government is both an owner and a regulator of enterprises.

Separating ownership and regulation responsibilities can help level the playing field and enhance competition between enterprises, regardless of their ownership. The establishment of a dedicated ownership agency, empowered to monitor and dismiss chairpersons and/or directors who fail to perform, regardless of their status can help provide greater incentives for SOE management to act in the national interest.

The establishment of the CMSC is in line with other successful regional efforts to strengthen the corporate governance of other SOEs. Singapore’s Temasek was established to exercise ownership of SOEs. Temasek is incorporated as a holding company for Singaporean sovereign investments in commercial enterprises and functions as a commercial investment company paying taxes and dividends to the Singaporean government (its sole owner).

Key policy challenges

The ongoing challenge for the CMSC is to continue to strengthen its capacity with sufficient numbers of suitably qualified and professional independent experts to work with the ownership agency to professionally manage its assets to maximise performance and returns and to manage financial and other risks. Systems and personnel need to be developed to provide more transparent reporting, benchmarking, and other accountability mechanisms.

The CMSC also needs to be able to mobilise professionals to serve on the SOE boards. More broadly, there is a need to accelerate efforts to train corporate governance experts and to build a corporate governance profession in Vietnam.

Vietnam’s Institute of Directors (VIOD) was established in 2018 as a professional organisation to promote corporate governance standards and best practices in the Vietnamese corporate sector. This is a potentially important step towards building the national capacity needed to strengthen corporate governance in Vietnam.

In Australia, the Australian Institute for Company Directors play a critical role in this area. Cooperation between VIOD and similar regional director training and advisory institutes will be one approach to building national capacity.

Another key policy challenge is to promote competitive neutrality to ensure that SOEs compete on equal footing with private enterprises. The principle of competitive neutrality has been a cornerstone of Australian SOE and competition policy reforms. Many of Vietnam’s recent economic reforms have been moving in this direction.

SOEs are now governed subject to the same Law on Enterprises and must comply with the Law on Competition and other legislation aimed at promoting the development of competitive markets. In this respect, Vietnam has moved further towards good practice than some OECD countries. Roughly a quarter of OECD countries still have SOEs with a legal status that shield them from the full application of private company laws.

Vietnam’s telecommunication sector provides an example of how well-regulated competitive markets can foster innovation and improvements in the quality of public services, even when the competition is mainly between different SOEs. While remaining largely state owned, Vietnam’s telecommunications sector has transformed from one of the most rudimentary systems in Southeast Asia in the mid-1980s to one of the more dynamic sectors with comparatively high levels of access to quality low-cost telecommunications and internet services.

News Related


Experts suggest issuing gov’t bonds on international capital market

The issuance of government bonds in international capital market is an option to mobilize funds for socio-economic investment projects in the coming time.  Since 2005 to date, Vietnam has issued government bonds in… Read more »

Phu Yen emerges as attractive market for tourism and property investment

The central province of Phu Yen is emerging as an attractive market for real estate investment, especially in large-scale hospitality projects.   Two luxury resort complexes of Xuan Dai Bay and Crystal Holidays Marina… Read more »

Cooperation crucial to build competent auto industry

Local automobile businesses are dependent on major foreign car manufacturers and their core technologies, a sticking point for true progress, photo Le Toan Vietnam has received praise for its control of the pandemic,… Read more »

Stock market has been ‘out of position’?

The market liquidity suddenly went down, the VN-Index still recorded increasing sessions but the “bounce” was getting worse. This seems to be a reflection of investors’ expectations that are not as much as… Read more »

New feed groups attempt to outmuscle top performers

Feed group sales are rising, but the competition is fierce with more farms outsourcing for husbandry companies. Photo: Le Toan As the largest animal feed production country in Southeast Asia, the sector in… Read more »

GDVC licenses Hateco Group’s customs clearance site for post and courier items

From April 29, the customs clearance site of Hateco Group (operated by Hateco Fulfillment) is allowed to receive post and courier items. They will be transported independently from international land border gates, international… Read more »

Actual FDI to Vietnam rises nearly 7% in four-month period

Disbursement of foreign direct investment (FDI) to Vietnam rose by 6.8% year-on-year in the first four months of this year to US$5.5 billion, a report of the Foreign Investment Agency (FIA) under the… Read more »

Chinese growth offering regional food for thought

Global economic performance post-pandemic will, for better or worse, be affected by the success or otherwise of China. Photo: Le Toan Ballooning exports have helped China’s GDP grow a record 18.3 per cent… Read more »

New wave of high-tech ventures await entry

Director general of the Ministry of Planning and Investment’s (MPI) Foreign Investment Agency (FIA) Do Nhat Hoang confirmed that the number of South Korean investors setting eyes on Vietnam has been increasing, even… Read more »

Crafting specific measures to ensure top-quality growth

Jonathan Ostry, deputy director of the International Monetary Fund’s Asia and Pacific Department The Vietnamese economy grew 2.91 per cent in 2020 and 4.48 per cent in the first quarter of 2021. How… Read more »

DDCI complements PCI findings to improve business environment

Dr. Le Duy Binh, managing director of management consultants Economica Vietnam The PCI is fairly popular in Vietnam as a means of assessing innovation and competitiveness among localities. Why is an additional DDCI… Read more »

Dragon Capital-related fund prepares to ‘pour’ over VND 1,000 billion into Vietnam’s stock market through VFMVSF

At the end of the first quarter, VFMVFS had 24 stocks, of which HPG was the largest share with 12.52%. Vietnam DC25 is holding 83.42 million VFMVSF fund certificates. Vietnam DC25 Ltd., a… Read more »

Stock judgment April 29: Hope is only rekindled

Final structure date for domestic ETFs (Neutral) Vn-Index is forecasted to struggle with fluctuations in the next session. The index might challenge resistant level of 1.235-1.248 points. Tomorrow, investment funds according to the… Read more »

Many large stocks increased strongly, VN-Index increased nearly 9 points

15:00 At the end of the session, the demand increased again and helped pull many key stocks to increase, so the indices also extended the green color. In which, VPB increased 3.4%, VRE… Read more »

Digital transformation of technology stocks

Digital transformation will boost the growth of the information technology industry in the period 2021-2025, along with the growth of the broadband segment will open up investment opportunities in this group of stocks.… Read more »

SABECO tries its best to usher a brighter 2021 despite challenges ahead

SABECO tries its best to usher a brighter 2021 despite challenges ahead Vietnam’s biggest brewer has set a target revenue of VND 33.49 trillion ($1.33 billion) and net profits of VND5.2 trillion ($208… Read more »

Amazon announced to strengthen collaboration with iDEA

The two parties will jointly support Vietnamese sellers with cross-border e-commerce workshops and training series, aiming to provide them with skills and knowledge to capture global opportunities of transforming online. Simultaneously, Amazon Global… Read more »

Local steelmakers red hot on investment

Vietnam’s steel industry is now ranked in the top 15 biggest worldwide, photo Le Toan In particular, locally-invested steelmaker Hoa Phat Group surpassed Taiwan’s Hung Nghiep Formosa Ha Tinh to become Vietnam’s largest… Read more »

Uphill prospects in M&A activity through to 2022

Uphill prospects in M&A activity through to 2022 According to partner from Mazars Jack Nguyen, mergers and acquisitions (M&A) will be active for the remainder of 2021 as the Vietnamese market prepares itself… Read more »

The keys to M&A attraction

Pham Duy Khuong Managing director ASL LAW Besides, it is also one of the countries that have been able to control the COVID-19 epidemic, creating a safer environment for foreign investors. This encourages… Read more »

Index results spark reforms in Vietnamese metropolises

While some provinces have become shining examples in Vietnam’s PCI, its metropolises are lagging behind. Photo: Le Toan According to the Korea Chamber of Business in Vietnam (KorCham), Hanoi is planning to organise… Read more »

New General Director takes the lead of Shinhan Finance

Having been working for Shinhan Card (Korea), the parent company of Shinhan Vietnam Finance Company (Shinhan Finance), for more than 26 years, Oh Taejoon has a wealth of experience in risk management, business… Read more »

ADB forcasts Vietnam’s economic growth to rebound to 6.7 per cent this year

ADB highlighted bright prospects for the Vietnamese economy  “Stagnant domestic consumption and weak external demand caused by the COVID-19 pandemic slowed down Vietnam’s economy last year, but the growth momentum remains strong this… Read more »

Japfa inaugurates pig farm with 10,000 sows in Binh Phuoc province

The launching ceremony of Japfa Vietnam’s pig farm with 10,000 sows in Binh Phuoc  The 22-hectare farm is aimed to supply breeding piglets of the best quality for the domestic market and for… Read more »

Creaking infrastructure bites into rail network’s potential

There are complexities in funnelling through funding in a timely manner so that the railway sector can modernise itself Leaders of Petrolimex Hanoi – a unit of Vietnam National Petroleum Group (Petrolimex) –… Read more »

Safety on the line for railway system in stagnation crisis

Vu Anh Minh, chairman of Vietnam Railways There are different ideas in Vietnam about how much state funding should be allocated for railway maintenance this year, which is causing difficulties for the industry… Read more »

Foreign companies ramp up investment in tyre production

Foreign investors are increasing tyre production capacity in Vietnam  Kumho Tire, one of the world’s leading tyre manufacturers, has today that they will be investing $305 million to expand upon their Vietnam tyre plant… Read more »

UNDP urges better business practices

Businesses in Vietnam need to go beyond the bare minimum laid out in regulations. Photo: Shutterstock At last week’s launch of a study on corporate awareness and implementation of responsible business practices (RBP)… Read more »

Indian investors seek investment opportunities in Vietnam

Indian authorities and businesses wish to have a greater presence in Vietnam by cooperating with local enterprises in the southern Vietnam in diverse aspects such as agriculture, industry, machinery and equipment, healthcare, education,… Read more »

Risks at the fore in global wood trade

The wood industry has to take into account developments in US-China trade as well as South Korean anti-dumping probes. Photo: Le Toan “The Ministry of Agriculture and Rural Development has received documents from… Read more »

Demand surged, VN-Index recovered

11:30 Pausing the morning session, the VN-Index decreased by 0.05 points to 1,215.72 points. There were 142 gainers, 248 losers and 49 unchanged stocks. The HNX-Index fell 1.47 points (-0.52%) to 279.21 points.… Read more »

Refining the implementation of ESG at Vietnamese corporates

Nick Ainsworth, chief marketing officer at Dragon Capital Group How do you assess the potential of Vietnam-based firms to successfully embed environmental, social, and corporate governance (ESG) criteria into their investment portfolios and… Read more »

Vietnam’s potential to drive agri-food recovery ranks second highest in the region

The agri-food sector could play a major role in Vietnam’s recovery Commissioned by the Food Industry Asia (FIA) to better understand the challenges and economic impact of the agri-food sector faced in 2020,… Read more »

Phu Quoc turns into Southeast Asia’s must-go destination of tourists and investors

The establishment of a super tourism complex is expected to turn the southern province of Kien Giang, where is home to famous tourism island of Phu Quoc, into a hub of tourism and… Read more »

Fund movement week April 19-25: Dragon Capital bought ACB, sold CII and KDH

Two more related funds, Dragon Capital, bought nearly 9 million ACB shares. Dragon Capital sold more than 3.2 million shares of CII and also holds a 9.33% stake. Dragon Capital also net sold… Read more »

Fubon FTSE Vietnam ETF increased to 270 million USD after 1 month of IPO

According to information from Fubon FTSE Vietnam ETF, as of April 23, 2021, the size of the fund portfolio is now up to 7.5 billion Taiwan dollars (about 270 million USD, equivalent to… Read more »

Newly-registered FDI capital in first four months up 25 per cent on-year

Newly-registered FDI in the first four months increased significantly overyear The total newly-registered and added capital, as well as capital contributions and share purchases in the first four months of the year amounted to… Read more »

Sanofi’s ambition to empower lives

Sanofi Vietnam and Ho Chi Minh Oncology Hospital signed a new cooperation agreement Sanofi is planning to convene a shareholders’ meeting on April 30 to discuss the current health crisis and Sanofi’s commitment… Read more »

Practical outings for the summer break

Trekking in the fresh nature of Binh Dinh province Summer camps are a great way to ensure children have well-supervised experiences while learning to socialise and also make new friends. They are also… Read more »

27 years of contribution to Vietnam’s healthcare

Nitin Kapoor, chairman and general director of AstraZeneca Vietnam AstraZeneca Vietnam has won the “Great Contribution to Healthcare” award by the British Chamber of Commerce Vietnam, presented by British Ambassador Gareth Ward. Could… Read more »

Smart education management app PHX Smart School wins Sao Khue Award 2021

Le Thi Minh Thao, deputy director-general of Phenikaa Group, receiving the Sao Khue Award 2021 The Sao Khue Awards was first initiated by the Vietnam Software and IT Services Association in 2003 to… Read more »

Danang parades investing advantages

Danang High-tech Park welcomes many investors to set up business According to the latest figures from the Provincial Competitiveness Index (PCI) 2020 offered by the Vietnam Chamber of Commerce and Industry, Danang sits… Read more »

Bamboo Airways embraces PIA Group as strategic partner in aerospace engineering

According to the agreement, as a strategic partner of Bamboo Airways, PIA Engineering under PIA Group will provide the airline with maintenance, repair, and guarantee services for aircraft components such as maintenance, repair,… Read more »

Carlsberg’s community contributions

Carlsberg Vietnam’s initiatives are not only bringing fresh water to the central region, but also smiles COVID-19 has left its mark on almost every aspect of life and became one of the biggest… Read more »

Millennium Energy Vietnam proposes to develop $15 billion LNG project in Soc Trang

Millennium Energy Vietnam has proposed another LNG project doubling its capacity in Vietnam (Illustration photo) Having total investment capital of $15 billion, the LNG project has a designed capacity of 9,600MW. The investor… Read more »

Working with a smile at SABECO

SABECO is a trusted brand for domestic consumers and a company of international stature. It has also set sights on endeavouring to become the country’s leading beverage company by 2025. What kind of… Read more »

Quang Ninh retains mantle in latest PCI evaluation

Quang Ninh province has yet again topped the PCI rankings, for the fourth year in a row The Provincial Competitiveness Index (PCI) 2020 was announced on April 15, with Quang Ninh marking a… Read more »

Nestlé Vietnam takes award for bettering lives across Vietnam

Representatives of Nestlé received the Vietnam National Quality Gold Award 2019-2020 Nestlé Vietnam is one of 116 winners of this prestigious award for the two years. The Vietnam National Quality Awards include seven… Read more »

Capital poured into Vietnamese technology startups fell sharply during the ‘storm’ Covid-19

This is a remarkable figure recently announced by Singapore-based venture fund Cento Ventures. This development is quite surprising because overall, Southeast Asia still attracts the same amount of capital as in 2019, but… Read more »

Market commentary April 26: ‘Retest the 1,260 point level’

Securities companies Positive Neutral Negative AseanSC X BSC X BVSC X MBS X SHS X VDSC YSVN X Large-cap stocks can continue to lead the market to rise (Asean Securities Company – AseanSC)… Read more »