The state-owned enterprise reform in Vietnam: process and achievements

The importance of the industrial State Owned Enterprise (SOE) sector in the Vietnamese economy makes it the central focus of economic reforms, and particularly so since SOEs are perceived to be relatively inefficient. The Vietnamese government is confronted with the challenge of how best to continue with the SOE reform process. The objective of this paper is to review and empirically assess the SOE reform process along with the general economic reform in Vietnam for the 1976- 98 period.

The paper focuses on the reform of the SOE sector in Vietnam at different stages of its development and provides an empirical assessment of the whole reform process. The paper begins with an overview of the reform process of SOEs in Vietnam followed by a presentation of the data used for an empirical assessment of the reform process and its results and sensitivity tests. The author then attempts to estimate the general impact of reform measures in the SOE sector on the change in total factor productivity (TFP) growth of the sector over the reform period with the use of variables like the share of capital, labour and intermediate inputs in gross output.

The findings of the paper show that the process of reforming industrial SOEs in Vietnam, aimed at liberalizing SOEs and enhancing the incentive system, seems to have had positive effects on enhancing their economic performance. More particularly, the results show that:

• the TFP growth rate, varies from time to time and is quite distinct in the three sub-periods
• over the entire study period, annual average TFP growth rate is positive at around 3.05 per cent
• the upward trend in the total factor productivity (TFP) growth coincided with the reform periods in the early 1980s and 1990s where all reform measures were seen to be pro productivity enhancing
• the downtrend in the TFP growth rate during the 1987-89 period can be attributed to the economic crisis after the failure of the price, wage and money reform in late 1985

However, the author concludes by pointing out that, in spite of these achievements, there are still many problems remaining that need to be addressed for the ongoing SOE reform process in Vietnam. Challenges that need to be dealt with are:

• SOEs behaviour that has not been effectively controlled, in spite of greater autonomy
• the weak management and controlling mechanism which enables SOEs to appropriate the public property
• the SOE sector which is still seen to be less competitive and inefficient relative to private enterprises