beyondbrics

Vietnam’s Communist rulers have finally accepted, at least rhetorically, the need to restructure the large, inefficient state-owned enterprises (SOEs) that many economists believe are largely to blame for recent economic turbulence.

Now there are tentative signs that the government may be starting to walk the talk, trying to ensure that SOEs stop wasteful spending on karaoke bars, taxi companies and grandiose building projects.

Last month PetroVietnam – ostensibly the country’s upstream oil and gas monopoly but in reality a group with fingers in many pies – said it was pulling out of a $1.2bn project to build what would have been Vietnam’s tallest building. The company said it was following a government directive to divest from non-core areas.

Over the weekend, the government revealed that it had dismissed the chairman of Electricity of Vietnam (EVN), the cash-strapped state electricity monopoly, because of wasteful non-core investments, including in the telecoms sector.

With the Vietnamese press suggesting that the EVN chairman is likely to be given a job at the trade and industry ministry, it seems that he has got off relatively lightly. Nine executives from Vinashin, a state-owned shipbuilder that collapsed in 2010 after amassing more than $4bn of debt from investments in everything from motorbike production to finance, are facing prosecution for economic mismanagement.

By the end of 2010, EVN’s total non-core investment was more than 50tn dong ($2.4bn), according to one state-run newspaper, with interests in banking and real estate as well as telecoms.

With Vietnam’s electricity tariffs much lower than neighbours such as Cambodia and China, EVN has struggled to make any profits. Last year, it made a loss of 3.5tn dong as the company scrambled to upgrade the country’s ailing power grid and build the new power stations necessary to meet rapidly rising demand.

Some observers said the decision to oust the EVN boss would send a clear and powerful message to other SOEs that their heads will be for the block if they fail to streamline their investments and renew their focus on efficiency.

But others argued that it was a distraction from the real challenge, which is to reform a nominally-Socialist political and economic system that increasingly resembles the crony capitalism found in Indonesia, Malaysia and the Philippines.

Critics say that while SOEs tend to pay much higher wages than government departments, salaries still pale in comparison to what’s on offer in the private sector. As a result, many SOE employees attempt to supplement their pay packets with kick-backs and unofficial commissions from deals.

“The government is sending the worst message possible that the problem is with the people and not the system,” said one member of the foreign investment community in Vietnam. “But the main problem is with the system, which seems set up to allow those at the top to enrich themselves.”

Related Reading:
Vietnam: a question of balance, FT
Vietnam: EVN mulls $1bn corporate bond, beyondbrics
How to restructure Vietnam’s economy, beyondbrics guest post