Monday, May 29 2017

VietNamNews

Mismanagement harms equitised firms

Update: December, 05/2016 - 09:00

by Thuy Anh

One of the most important purposes of the equitisation of State-owned enterprises is to improve their management, and thus their performance.

But not many SOE-turned-joint stock companies manage to achieve this goal after failing to switch to a new management model.

At a recent National Assembly session, Minister of Industry and Trade Trần Tuấn Anh agreed that serious governance problems had caused losses at five businesses including the Dung Quất Bio-Ethanol and Ninh Bình Fertilizer Plant, in which companies run by his ministry hold large stakes.

One of the problems is the legal provisions related to the responsibility for the State capital management and effective use.

A survey by the Central Institute for Economic Management found that the State acts as an administrative body rather than an investor in the equitised SOEs.

The companies have to seek approval from the Government prior to signing contracts or making decisions that should be taken by the executive board or general director.

According to Đậu Anh Tuấn, head of the Vietnam Chamber of Commerce and Industry’s legal department, there is a risk that the Government could use its dominant stakes to push its social goals like job creation rather than focus on profits.

Vũ Thị Thuận, chairwoman of pharmaceutical firm Traphaco, said effective growth requires equitised companies to change their management models.

The change has to be in line with legal regulations, directed towards the application of international standards, and flexible and creative to be effective, she said.

“The change in the management model after equitisation must satisfy the requirements of strengthening governance in line with the laws and international economic development, and that means sustainable growth and business effectiveness linked with social responsibility and environmental preservation.

“(Corporate) internal relationship consolidation will be done firstly by working out operational regulations.”

Improvement in management would have a positive impact on the business performance, including turnover and profits, she said.

Thanks to this, the growth of her company, which changed from State-owned to joint stock 17 years ago, has been sustainable. Its market capitalisation has increased by 6.5 times since its listing on the HCM Stock Exchange in late 2008.

The State Capital Investment Corporation (SCIC), Việt Nam’s sovereign fund, is focusing on a project to enhance the financial management capacity of SoEs to facilitate their restructure.

It, together with two consultants, the Japan International Cooperation Agency and auditing firm PricewaterhouseCoopers, is working out  a corporate governance code for the companies in SCIC’s portfolio.

The code, expected to be implemented from January, covers issues like the equal status of shareholders and their rights.

This is a positive development in improving corporate governance, an important requirement in the project to restructure the economy between 2016 and 2020 recently approved by the NA.

VN awaits clarity as Trump win muddies trade waters

Việt Nam is one of the most trade-reliant economies in the region, with a big share of its exports going to China (10 per cent) and the US (21 per cent). The election of Donald Trump as American president is raising the spectre of trade protectionism.

Though it is too early to know about the specific policies the Trump Administration will pursue, for Asia the TPP (Trans-Pacific Partnership, a trade deal with the US and 11 Pacific Rim countries, excluding China) provides a raft of opportunities.

However, after President-elect Donald Trump signalled his administration would shelve the agreement, Việt Nam chose not to ratify the deal, though the country was deemed to be the biggest beneficiary from it.

But not all is lost, says a recent HSBC report titled Vietnam at a Glance.

The prospects are still bright for the country’s exports.

With its rising costs, China is no longer the most attractive investment destination for many businesses, and Việt Nam has come up as a serious contender.

Its geographical location is of strategic importance for foreign companies with operations throughout Southeast Asia.

Thus, it is an ideal export hub to reach other ASEAN markets. The other advantage in its favour is a young, inexpensive and increasingly skilled workforce.

Beyond the TPP, Việt Nam is already a part of the ASEAN Economic Community (AEC) that aims to drive the 10 member states towards a single market and production base with free movement of goods, services, labour, and capital.

However, the member states can strive towards the objective only at the behest of respective national governments, and with every ASEAN country being so different, a common vision can be very hard to arrive at.

But then the existence of the AEC is not meant to be an end in itself; it is merely a stepping stone.

Nevertheless, a joint study by the International Labour Organization and Asian Development Bank has assessed that if the agreement is well managed over the next decade, the AEC can boost the region’s economies by 7.1 per cent between now and 2025 and generate 14 million additional jobs.

Then there is also the Asian Regional Comprehensive Economic Partnership (RCEP), whose 15th round of negotiations was concluded in October.

Though far narrower in scope than the TPP, the RCEP will link the world’s three most populous markets: China, India and ASEAN.

It covers the usual components of a free trade deal, such as trade in goods, services, investment, and intellectual property rights protection.

However, there are already warning signs that the final treaty will be watered down due to country-specific exemptions and many tariff lines that are likely to remain intact.

Despite drawbacks, the RCEP should help boost trade across Asia and spur investment in new supply chains.

In addition, the deal effectively allows for convergence of   existing agreements, and thereby does away with the “noodle bowl” effect.

“Noodle bowl” refers to the existence of multiple bilateral agreements that make the rules of origin, tariff rates, standards and others so tangled and inter-twined that firms find it difficult to utilise the free trade agreements in place. — VNS

 

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