MPI says SOEs make heavy, but ineffective investments

The Ministry of Planning and Investment (MPI), which is drafting the plan on improving the efficiency of SOEs’ operation to be submitted to the Prime Minister, has pointed out that the biggest problem of SOEs now is that they are wasting the resources.

SOEs’ investments don’t have high efficiency…

The MPI’s report has pointed out that SOEs have been using more resources than private enterprises, but the values of the products made by SOEs are lower.

In 2009, SOEs had 37.2 percent of the total capital, 44.8 percent of fixed assets and long term investment, but they only created 25 percent of the total revenue, 37 percent of pre-tax profit and 20 percent of industrial value.

According to the General Statistics Office, in 2009, SOEs had to use 2.2 dong in capital to create 1 dong of revenue. Meanwhile, non-state owned enterprises only needed 1.2 dong in capital to create one dong of revenue, and foreign invested enterprises needed 1.3 dong.

“It is clear that the investment efficiency of SOEs is much lower than that of other economic sectors,” MPI said.

The checking over the investments by SOEs carried out in 2008 and 2011 found out that SOEs, especially economic and general corporations, have been made “overly hot investments.”

In 2008, state owned economic groups and general corporations built the investment and development plans with the capital equal to 24.8 percent of the total assets’ value and 89.5 percent of the total chartered capital. Meanwhile, the figures were 26 and 72 percent in 2011, respectively. Especially, some of them planned the investment projects with the capital 1.5-3.1 times higher than their chartered capital.

MPI believes that the enterprises decided to make investment even when there were not enough conditions to implement projects, when the projects were not necessary or not urgent, or when enterprises met difficulties.

“The low investment efficiency of SOEs has badly affected the investment efficiency of public investments and of the whole national economy,” MPI has concluded.

Finally, when the government decided to cut public investments in an effort to curb inflation, 1445 projects of state owned economic groups and general corporations, accounting for 12.7 percent of the planned investment capital, were canceled in 2008. Meanwhile, 31 percent of projects and 10.72 percent of the planned total investment capital were canceled in 2011

The overly hot investment by SOEs has been attributed to the current mechanism which gives high power to the board of directors and general directors.

…and bring high risks

Statistics show that 12 percent of SOEs make losses every year, while the average proportion of enterprises in the national economy is 25 percent. However, the average loss incurred by an SOE is much higher than that of non-state owned enterprise.

The Electricity of Vietnam, for example, reported the loss of 8500 billion don gin 2010. The audited finance report of the Post Corporation showed the loss of 1026 billion dong. Meanwhile, the Song Hong Construction Corporation lost 20 billion dong in the same year.

Comparing the figures of the last 10 years, MPI has found out that the ratio of pre-tax profit on capital of SOEs never exceeded the 6 percent threshold, while the figure of foreign invested enterprises is about 10 percent.

Meanwhile, the report by the Committee on Enterprise Renovation and Development shows that in 2010, the ROE (return on equity) of SOEs was only 13.1 percent, much lower than the interest rates of commercial loans at the same time.

According to the General Statistics Office, at the beginning of 2010, a Vietnamese enterprise had the accounts payable higher by 2.1 times than its stockholder equity, while the ratio of SOEs was 3.09.