LookAtVietnam Bridge – Vu Viet Ngoan, Deputy Chairman of the National Assembly’s Economics Committee, former General Director of Vietcombank, has warned that economic groups are exposing themselves to high risks by making investments in foreign fields.

Law-makers consider delay on new economic groups

Vu Viet Ngoan, Deputy Chairman of the National Assembly’s Economics Committee

At the ongoing 12^th National Assembly third plenum, the massive investments of state owned economic groups are of great interest to National Assembly deputies. 50% of deputies asked the government to reconsider the investments by the groups.

What do you think about the so-called ‘massive investments’ by state owned conglomerates?

I agree with the experts who have warned that there are problems with massive investments by state owned economic groups. The groups should concentrate their labour force and financial strength on their main business operations to promote their competitive edges. However, they are running after short-term profit, jumping into non-forte business fields, which is leading to strength dilution and low investment efficiency.

Moreover, they are exposing themselves to very high risks as they are injecting money in unfamiliar fields. They wrongly think that securities and banking can bring fat and quick profit.

Could you please elaborate on these high risks?

When you make investment in a bank, you should consider the profit you can get tens of years later. For example, if you lend VND100, you will get the profit of 1.5-2%, but you must have the capital of VND100 to lend, for you will not get it back until many years later.

Investment in the banking sector must be long-term investment, 10, 15, or even 20 years later. It would be a blunder for someone to think of making investment just for six months or one year. Maybe the economic groups have been dazzled by the super-profit of 25-30% gained by banks, and they have decided to jump onto the bandwagon.

In general, economic groups now have two problems. First, as they are investing in too many fields, they cannot get high efficiency on their investments. Secondly, they are making mistakes in administration as they are investing in unfamiliar fields, with which they are facing high risks.

It is true that in other countries, groups always try to diversify their investments and expand business scope by making capital contributions into other corporations. Meanwhile, Vietnamese economic groups have not diversified investments this way, but they have set up banks and finance companies belonging to themselves and serving themselves, which is taboo in business administration.

Do you think that state management agencies should take responsibility for the massive investments?

I have to say that we don’t have experience. Until now, there has been no legal document clearly governing the issue. The government has allowed economic groups to take shape on a trial basis.

Do you think that we need to restrain or forbid massive investments by economic groups?

I think that in the immediate time, we need to reconsider and review the investments to learn lessons from them. I have to say that it is a good policy to diversify investments, and we need the economic groups strong enough to compete in the world’s market. However, we still need to discuss how the groups should be, how the management system should work and how the groups should be structured.

(Source: TBKTVN)