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Perestroika and Pandemic: Privatization Slows in Communist Vietnam  

FILE - An investor looks at a stock market screen at a securities company in Hanoi, Vietnam, July 20, 2015.
FILE - An investor looks at a stock market screen at a securities company in Hanoi, Vietnam, July 20, 2015.

Vietnam says the coronavirus pandemic appears to be slowing its progress in achieving a key goal, privatization of state-owned enterprises.

Some of these SOEs, as they are often called, slated for privatization this year are the major telecommunications firms Mobifone and Vietnam Posts and Telecommunications Group, as well as the Vietnam Bank for Agriculture and Rural Development and Vinacomin, a coal mining company.

In its transition to a market economy, Vietnam already had not been pulling out of these enterprises as quickly as desired by party officials, who at the same time want to avoid the privatization mistakes of China and the former Soviet Union.

It now appears that COVID-19 is slowing down the transition even more. The Finance Ministry said this month that Vietnam is now having a harder time privatizing dozens of companies because the pandemic has hurt the economy.

The economic downturn makes it a less favorable time to list on the stock market, and it also means the state companies’ financial results look less attractive as they prepare to offer shares to investors.

“One of the reasons for the slowdown in the progress of equitization and divestment is that the outbreak of the COVID-19 epidemic has comprehensively affected all aspects of socio-economic life, domestic and international,” the ministry said in a post on its site. Vietnam refers to privatization as equitization.

The SOEs are struggling with the complexity of assessing their land values and financial assets, as well, according to the ministry. It was also blunt in urging local authorities and SOE officials to be more “serious and drastic” in the drive to privatize.

By the end of this year Vietnam is supposed to have pulled out of 128 state enterprises but has done so for just 37, the ministry said. The government’s exit from these enterprises is part of a high-stakes process of privatizing hundreds of SOEs that has gone on for years.

Even before COVID-19, the process faced challenges.

On one hand, Vietnam does not want to face the same issues as did China, where 40% of SOEs are losing money for the state, according to estimates from Nicholas Lardy, a fellow at the Peterson Institute for International Economics in Washington. On the other, it does not want the fate of the Soviet Union, where the selloff bonanza of the 1990s left state assets in the hands of oligarchs after perestroika, or restructuring.

Perestroika in Vietnam

In its own perestroika process, Vietnam is looking for SOE darlings such as Vinamilk, a dairy company, which generated cash for the state when it listed on the stock market and private investors eagerly bought up shares.

Those responsible for preparing SOEs for private investment walk on eggshells as they try to avoid mistakes such as miscalculating assets, which can constitute poor “management and use of state assets, causing loss and waste,” a prosecutable offense. They also must meet new transparency standards and other rules requiring that the process “ensures maximum benefit to the state,” the finance ministry said.

Now the pandemic makes it even harder to sell SOE shares, according to Nguyen Duc Chi, the chair of the board of the State Capital Investment Corp., which manages privatization.

“The market is even more difficult this year because the COVID-19 epidemic has negatively affected all production and business activities as well as people's lives, and the stock market has been heavily affected,” he said in a post on the SCIC site.

“Therefore, even though we continued to announce the sale of capital and implemented transparent and public capital sale processes in accordance with the law, many were not successful due to the lack of interest from investors,” he said.

Despite the slowdown, Vietnam still seems "committed to divesting and furthering its economy," said Pritesh Samuel, senior editor at Asia Briefing, a publication of Dezan Shira & Associates, a consulting firm. As evidence of the commitment, Samuel pointed to the prime minister's decision in June to publish a list highlighting SOEs for divestment.

The process ultimately benefits the enterprises, too, Samuel told VOA.

"Former SOEs that were sold off show improved financial performance after two to three years on average," he said.