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Caught between a rock and a hard place
Prime Minister Nguyen Tan Dung in March convoked state-owned corporations and groups to find measures to control inflation, which has been threatening the economy. So, how effective have state-owned corporations and groups been in contributing to the economy's stability?
During a press conference held in Hanoi early this month, Electricity of Vietnam general director Pham Le Thanh announced the group would maintain its current electricity selling price till the year’s end. He said the group had also cut VND1,802 billion ($107 million) from its total investment capital to rein in inflation.
Electricity of Vietnam’s (EVN) delayed investment projects mainly focus on real estate and financial sectors, which are not ENV’s core businesses. Furthermore, Thanh stressed that EVN would boost the construction of new power projects to increase electricity supply.
EVN is not alone when announcing investment cutback and expenditure reduction. Other state-owned enterprises (SOEs) and powerful economic groups like Vietnam Shipbuilding Industry Group (Vinashin), Vietnam National Oil and Gas Group (PetroVietnam) and Vietnam National Shipping Lines (Vinalines) also announced they would actively take part in tackling the economy’s most concerning issue as required by the government.
Unlike private and foreign-invested companies, which have to struggle by themselves, SOEs and groups get a lot of incentives from the government. They were established to be leading companies in important sectors and help the government to run and ensure stability of the economy.
Now is the time for them to prove their economic worth. But, what have these SOEs and groups done?
Indeed, SOEs and groups have notably contributed to push down inflation over the past months, especially in maintaining the price stability of 10 essential goods and services as required by the prime minister.
PetroVietnam, Vietnam Coal and Mineral Industries Group (Vinacomin), Vietnam Steel Corporation and Vietnam National Railway Corporation have struggle to stabilis electricity, coal, petroleum, cement, fertiliser, clean water, medicine, and rail and air ticket prices, school and hospital fees since late last February. In fact, the stability of prices of the 10 essential goods and services played an important role in slowing down the inflation.
“We cannot deny the role of SOEs and groups during the past months. If they did not hold down the prices of essential goods and services, the inflation rate would be very, very high now,” said Nguyen Minh Phong, head of Hanoi Institute for Socio-Economic Development Studies’ Economic Development Studies Department.
The state-owned mammoth businesses’ delay of many investment projects also helps the government fight against inflation more effectively.
Statistics from the National Steering Committee for Enterprises Reform and Development show that SOEs and groups delayed 609 investment projects worth VND34,190 billion (some $2 billion) this year. Vinashin cut 49 projects worth $386 million. Vinalines shaved off $367 million and PetroVietnam $357 million in projects.
Nguyen Quang A, chairman of Institute of Development Studies, said the investment cutback were a good sign for the economy. “$2 billion is indeed not a small amount of money. Imagine, if SOEs and groups pumped $2 billion into a market already full of money, what would happen?,” he said.
“Stop disbursing this amount of money would be very significant for controlling inflation,” he added.
In a recent report, Goldman Sachs also observed the cut in investment projects notably contributed to tackle the trade deficit in June. Phong said the delay in non-imperative investment projects would be effective in the long term. “We cannot see the effectiveness of investment cuts immediately. But, the more important thing is enhancing construction projects’ effectiveness,” he said.
Trapped in a dilemma
Despite reportedly being responsible for 40 per cent of the country’s gross domestic product (GDP) and playing the dominant role in crucial commodity market, SOEs and groups are not always able to effectively function as market regulators. On one hand, the largest market share a state-owned economic group holds does not always means it can help control the whole market place.
Vietnam Cement Corporation, for instance, claims a 40 per cent market share and takes the responsibility for stabilising the domestic cement prices. However, it had to see a cement price fever in southern provinces in May.
“It was very hard to stabilise the price of cement when we hold only 40 per cent of market share. In fact, our selling price has not been increased for a long time, even before last February, but we still saw the increase of cement price,” said Vu Van Hiep, vice general director of Vietnam Cement Corporation.
The problem also lies in distribution networks, which SOEs and groups cannot take a full control, observers have said. The rice price fever seen in late April could be considered another example, they said. On the other hand, like other businesses, SOEs and groups also natively have to struggle to beat the bottom line. And this has increasingly been a hard work to be done given that input material costs are rising so fast while they can not increase output prices correspondingly.
Meanwhile, Tran Xuan Ha, Vice Minister of Finance, in a recent press conference announced that the government would not subsidise state-owned corporations and groups, except some operating in the fuel supply field.
Most SOEs and groups are complaining about skyrocketing global prices of oil, clinker, billets and other raw materials.
“Actually, I do not know how long we can maintain this situation, the imported price of raw materials is climbing sharply but we cannot increase our selling price,” said Hiep. The Vietnam Steel Corporation and Vietnam Cement Corporation recently warned of steel and cement shortages because many factories would slow production due to low selling prices.
Bui Ngoc Bao, Petrolimex general director, said imported petrol prices had increased by 46 per cent in the first six months of the year. Vinacomin general director Tran Xuan Hoa said coal prices on the domestic market was equivalent to just 40-60 per cent of exported coal prices, which was illogical and further encouraged illegal exports.
Speaking at a recent meeting with government officials and the Ministry of Industry and Trade, representatives from electricity, coal, steel and petrol corporations and groups said a permission for increases in their product prices would help them better deal with business woes. And climbing input materials prices are not the biggest problem for these businesses.
Due to the government’s tightened monetary measures, local banks have had to raise mobilisation interest rates, leading to respective higher lending interest rates. “With current lending interest rates of local banks, raising capital for productions is [our] biggest issue,” said Vinacomin chairman Doan Van Kien.
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