Capital divestiture – an immediate task for State groups

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VOV News English - 35 month(s) ago 7 readings

Capital divestiture – an immediate task for State groups

(VOV) - Inefficient investment in non-core areas is dealing a major blow to business plans of State economic groups and corporations. Capital divestiture is an effective solution to remedy the situation.

In a regular Cabinet meeting for September, the Prime Minister asked State economic groups and corporations to stop investing in areas beyond their purview and to divest from these areas in order to increase operational efficiency.

Party General Secretary Nguyen Phu Trong, in his closing speech at a recent key Party conference, also requested that these designated organisations do their divestment before 2015.

Although capital divestiture is a must to help optimize business operations, it is not easy to complete this task.

Inefficient investment

2007-2008 was considered a peak time for State economic groups and corporations to invest in various areas in the hope of becoming Cheabol-type giants. Cheabol is a form of business conglomerate in the Republic of Korean that owns numerous enterprises.

Many, including the Vietnam Shipbuilding Industry Group (Vinashin), established affiliated companies and invested in non-core businesses. Due to loose control and scattered investments, their ambitious plans fell to pieces, having an adverse impact on the macro-economic stability.

A Finance Ministry report shows that State economic groups have poured nearly VND22 trillion into non-core businesses, including banking, real estate, securities, insurance and investment funds.

These are sensitive and highly risky areas, said Deputy Minister of Planning and Investment Dang Huy Dong in an interview granted to VOV Online.

It was reported that the Electricity of Vietnam (EVN) Group has invested VND2.1 trillion in non-traditional businesses, of which 99.8 percent was injected into insurance, securities, banking, and investment funds.

The Vietnam National Oil and Gas Group (Petrovietnam) has funneled approximately VND5.64 trillion into these areas, making up 84 percent of its investment in non-core businesses.

Consequences

It is a fact that these groups and corporations have made use of their reputation and state resources to expand their operations into areas that the private sector can manage.

There is no doubt that these organizations have deprived private businesses of the chance to invest in areas under their control, said Dong.

“These investments have proved inefficient, and some groups have taken losses. This has a negative impact on their core area operations and on the groups as a whole,” said Dong.

Vinashin is paying a high price for lax management and inefficient operation which cannot be addressed overnight.

Risks are high from some groups with limited financial capacity, and even lacking capital for their core businesses, but they have still sought to invest in other areas. Consequently, these groups are eventually unable to control resources for investment and management, even in their core areas.

A survey conducted by the Central Board for Renovating State-owned Enterprises shows that one fifth of the equitised enterprises are taking losses or just breaking even.

It is obvious that scattered investments, capital loss and bad debts are not only a waste of national resources, but also negatively impact the equality and transparency of the business environment. This also raises great concerns about the leading role of the State-owned economic sector in the national economy.

Although the idea of restructuring SOEs was put forward after the Doi Moi (Renewal) policy was initiated in 1986, the process has not lived up to expectations. The root cause lies in individual and “group” interests.

To restructure SOEs, especially State economic groups and corporations, it is time to speed up capital divestiture from non-core businesses and identify these organizations’ specific roles in the national economy to optimize their operations.

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