Addressing SOEs, the private sector, and innovation

19:47 | 13/04/2021
The government has a plan to invest nearly $1 billion in seven state-owned enterprises (SOEs), with the purpose to “pave the way” to develop technology, connect with the private sector, and form “innovation chains” in order to accelerate development.
1539 p16 addressing soes the private sector and innovation
By Sesto E Vecchi - Partner, Russin & Vecchi

There are three telecoms companies (Viettel, VNPT, and MobiFone); two in renewable energy (Vietnam Electricity and PetroVietnam); one involved in seaports and logistics (Saigon Newport), and one in banking (Vietcombank). Investment in these companies is expected to have a positive spillover effect into the economy. We do not know the rationale behind the choice of these particular sectors, and it has not yet been explained how the companies will create innovation chains.

The reason to give special benefits to a handful of SOEs is the belief that they will lead the country to growth and greater economic expansion. The government established some basic criteria when selecting companies: a certain minimum capital, a minimum market share, adherence to competition rules, and the like.

The idea gives some pause. Firstly, the sums are not small. The companies are all state-owned in one or another sense, although several have some private ownership, which raises another issue – should private investors benefit from government grants?

At the state-owned level, the pressure on managers is more likely to be directed to safe outcomes than innovative ones. Is this the right mindset in a bold, new programme?

Details are not publicly available. Indeed, details may not yet have been fully developed. But it remains to be seen if seeking to fund seven companies all at one time, and in very different and diverse industries, is a sound idea. Each company and each industry, it seems, provides a different path, from banking to telecoms, to energy and more. How are innovation chains with beneficial spillover intended to work? Are SOEs intended to link to the private sector, and how? Is it a loan with a clear repayment plan? Is it capital? Is there a time schedule or are there milestones or is the process open-ended? There are many queries yet to be answered.

There are other questions: on measuring payments tied to a specific programme; on how infusion is expected to help and what each company is expected to do; how technology growth is enhanced; if there will be budgets, oversight, accountability, and public disclosure; how success, failure, and usage of funds be measured; and if assessment of the plans’ success be carried out independently.

Also, is it preferable to start with seven SOEs, each providing a different path, when as yet there is no apparent experience on such a large scale – or would it be better to have an experimental beginning and see if the plan achieves its objective, then tweak as required before moving to a higher level and to other opportunities?

Such a plan is a clear opportunity for the government to demonstrate transparency – which is needed as it is an important element to build confidence and also creates important opportunities – and to build on the reputation it has created by its almost flawless management of the pandemic, achieved with limited resources and overcoming huge challenges.

It is laudable that the plan has been publicly announced. The plan has lofty, if still vague, goals, but the outcomes may well be mixed. I would urge caution – with transparency and full details at the outset and public information and accountability provided along the way. Until there is a measure of success and confidence that the idea is working, the initial plan should be smaller, focused, and with clear and measurable goals.

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