Interest groups may resort to contrasting measures to maximise and sustain their interests, regardless of whether the process harms the socio-economic development of the country.
In recent years in Vietnam, several interest groups have seriously hindered or hurt national interests. Proof can be seen in the shortage of electricity, the expansion of many economic groups beyond their traditional business areas, continued pressure on the government to prolong trade protection and the fact that a number of local governments or ministries abuse their mandated powers to issue unjudicial decisions.

Electricity shortages are an obvious case, as the sector was a state monopoly without competition. It is a typical interest group that is strongly affecting investment, production and other business activities.
On September 3, 1997, the government approved the sector’s forecasts for 1996-2000 with targets that by 2010 Vietnam will reach a total power capacity of 19,000 megawatts, an additional capacity of 15,260MW. In fact, after nearly 12 years the additional capacity is 8,000MW, or 60 per cent of the planned increase, according to news at www.vnn.vn #on July 7, 2007.

To address the lack of electricity, the Vietnam Electricity Group (EVN) proposed that the government allow electricity prices to be raised in order to gain more capital for investment and power-saving measures. The latter won widespread support but the for mer did not because there is great scope for electricity prices to be cut. At the same time, the economy needs stable electricity prices to prevent a domino-effect on commodity prices. Furthermore, EVN is using large amounts of capital to invest in non-power fields such as building hotels.
The group’s monopoly also slows the construction of new power-plants. EVN urged the government not to encourage foreign investment in these plants in a build-operate-transfer (BOT) form, yet international practices have proved that this is the most suitable method to invest in the sector.

In 1998, a giant power group from the US obtained the then prime minister’s nod to its proposal to build a 600MW thermal power-plant using the BOT form. However, the project could not be realised because a coal sector interest group demanded that it buy coal at an above market price, while EVN committed to buy the produced electricity at a low price.

At present many foreign investors are waiting to implement electricity projects worth billions of dollars. To reach a gross domestic product growth rate higher than 2007’s 8.48 per cent as the government expects, possibly double-digit growth, the solution to the power problem is clear. Break EVN’s monopoly and restructure it as an electricity trading firm without the rights to determine the development of power sources as well as the electricity market.

At the same time, the government should further encourage foreign investment in the sector through preferences, deciding the framework for input and output prices for BOT projects and others. EVN should be ranked equally with other investors.

Late in 2007, PetroVietnam announced its plan to build a five-star hotel and apartment complex with a total investment capital exceeding $500 million. This was announced at the same time as the news that that Dung Quat Economic Zone’s number one refinery was six months behind the latest amended schedule. This situation is typical of state-owned economic groups. While key projects in their fields are delayed, they are ready to invest abundant capital into other sectors.

Another example is Vinashin. After being allocated $750 million by the government from international bonds, it has invested in large scale projects in the shipbuilding sector and other sectors as well and many experts showed concern that there was too short a time to evaluate the efficiency of these projects. David Dapice, an American economist highly-informed about Vietnam’s economy, warned Vinashin that while a modern workshop for building 120,000-tonne ships was being constructed in India with a total investment of $90 million, Vinashin had allocated only $150 million for the same project.

In 2003, the government approved a seven year zoning plan for the coal sector. Accordingly, the annual exploitation capacity by 2020 is 29-30 million tonnes and given the limited reserves, coal should focus on serving the local market and only a small part of the exploited coal should be exported.
In fact, last year saw this capacity reach 40 million tonnes nearly doubling the 2010 planned figure and over one half was exported. Though this export brought in $800 million, the country was forced to import electricity which could have been produced with Vietnam’s existing coal supplies. Thankfully, the government has limited this export.

The government aims to build up strong groups so as to keep the leading roles in economic sectors but some presidents or general directors of these groups do not pay attention to mapping out a strategy in line with domestic and international markets. Instead they appear to be fixated on investing in other fields like banking and insurance, despite a shortage of capital and manpower and the absence of medium and long-term visions.
Interest groups are also reflected in the fact that enterprises, including those in the foreign-invested sector, exert influence on State agencies to maintain trade protection, even in the post WTO era. One key case is the automobile industry. While Vietnamese are among the lowest-income-earners in the world, they have to pay the highest prices for cars. The government should consider this contradiction, instead of imposing lower tariffs on imported cars in the hope that more pressure will be placed on the automobile industry. Lessons from South Korea and Taiwan can be learnt. The market should be opened, not protected in order to raise the local content rate in the vehicles while the producers make or assemble a few hundred or thousand cars per year.
Vietnam needs to join the international automobile manufacturing chain by producing components on a scale big enough to provide for international makers. When the local market is developed enough, Vietnam can shift towards producing the end products.

First and foremost, policies and laws must be designed on the basis of national interests. Interest groups should be prevented from over-participating in the building, approval and implementation of these policies and laws. Special attention needs to be given to legal policies which affect the interests of these groups. Businesses should join the policy making process, but the state is the decision maker so as to ensure objectivity of policy and law.
Second, sectoral zoning plans should be in the hands of institutions and think-tanks, instead of state economic groups and corporations. It is an enduring legacy of the former centrally-planned and subsidised economy, two decades after Vietnam joined the market economy. State economic groups and corporations should be equal players in the market.

International experience shows that large-scale groups usually create monopolies in various forms like mergers and acquisitions, and many governments intervene to prevent a lack of competition in the market. In Vietnam, some newly-established economic groups have been shown to be using their position of “playing the leading role” to polish their trademarks and create monopolies.
Projects using state-allocated capital should be implemented in line with procurement regulations to ensure transparency.

No preferences should be given to state-owned enterprises in this regard. At the same time, supervision by inspection agencies and grass roots-level organisations should be strengthened. The government has committed itself to the WTO regulations on government spending, so it is important to review, amend and adjust the existing regulations. Interest groups emerge naturally of their own accord in the market economy. The more developed the economy is, the more active they are. The government needs to use laws and mechanisms to direct them towards national interests, and prevent them from hurting public interests.

By Dr. Nguyen Mai

Source: VIR