On November 25, 2009, VietNamNet newspaper, in cooperation with Vietnam Report Company, released the 2009 VNR 500 report, ranking the top Vietnamese 500 enterprises.

SOEs still have low efficiency level

Vietnam had 5,600 SOEs in 1998, a number that has dropped to 1,700 ten years later to 1,500 SOEs. Despite the decrease and many weaknesses, SOEs still have the leading role in the national economy.

The ICOR (Incremental Capital Output Ratio), the net turnover and the number of jobs created by SOEs are all much lower than that of the private businesses and foreign-invested enterprises (FIEs), even with many preferences available. For example, SOEs must invest 708 million dong to create a job, while private businesses only need 463 million dong and FIEs 505 million dong.

A lot of SOEs have been enjoying financial incentives that have high risks. According to the Credit Information Centre (CIC) under the State Bank of Vietnam (SBV), by the end of June 2009, four state-owned corporations and economic groups had had outstanding loans higher than 15 percent of credit institutions’ capital.

Vinalines’s debt is equivalent to 15.33 percent of the capital of a state-owned bank. The ratio is 18.90 percent for Post and Telecommunication Group. The Vietnam National Oil and Gas Group (PetroVietnam) owed state-owned banks 71.97 percent and 22.49 percent of capital of the banks.

Regarding investment efficiency, the ICOR of SOEs is always higher than the private sector’s, but for 2009 it is alarming high at 12x, much higher than the average ratio of 8x of the national economy.

SOEs have also reportedly witnessed increasingly high trade deficits between 1995 to 2008 that contributed greatly to the trade imbalance of the entire economy.

Private businesses numerous and small

Private businesses have made a big leap since the Enterprise Law took effect in 1999. According to the Ministry of Planning and Investment, by the end of June 2008, Vietnam had had 349,309 enterprises registering their business with the total capital of 1,389,000 billion dong, or $84 billion, 87 percent of which are small and medium enterprises (small and medium enterprises in Vietnam mean the ones which have the registered capital of no more than 10 billion dong and have no more than 300 workers).

The other 13 percent of businesses are considered big, but in the world they are considered small to medium (under the US standards, small businesses mean the ones with less than 500 workers).

Though the number of private businesses has grown rapidly, their production scale remains small. A private business has 31 workers on average and four billion dong in capital, much lower than 421 workers and 167 billion dong in capital of SOEs, and 299 workers and 134 billion dong in capital of FIEs.

As the result, the average investment on fixed assets per worker at private businesses is 43 million dong, while the figures are 137 million dong for SOEs and 247 million dong for FIEs.

The small scale of private businesses demonstrates that the business environment, policies and supporting measures are not attractive enough to encourage large private investments.

In recent years, the private sector has been an important factor in Vietnam’s economic growth. In 2008, the private sector made up some 10 percent of the GDP and has relatively high efficiency. The net revenue created by every one dong of capital is triple than that of SOEs and 2.9 times higher than FIEs.

FIEs – masters of using workers

Despite the global economic crisis, FIEs still exported $13.6 billion in products during the first six months of 2009, equal to 81 percent of the export revenue in the same period of 2008. This is equivalent to 49.3 percent of total exports, which shows that export decreases of FIEs was lower than that of the domestic sector.

FIEs do not use many skilled workers like SOEs, but their business efficiency is by far higher than SOEs, according to a recent survey on wages conducted by the Ministry of Labour, War Invalids and Social Affairs.

The survey shows that FIEs can use workers in the most effective ways. One dong of salary can create 1.1 dong of profit at FIEs, while one dong can create 0.5 dong at private businesses and 0.3 dong at SOEs.

Despite the highest productivity level, FIEs hire skilled laborers at 41.7 percent of total workers who have worked for one year and more. Meanwhile, SOEs are the ones which have the highest percentage of trained workers, 66.2 percent, followed by private businesses with 46.9 percent.

Source: Vietnamnet