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Privatized firms with minority ethnic ownership face barriers to growth expansion

Private enterprises, possessing less than a third of State ownership, still encounter significant government influence in major decision-making areas, such as capital expansions, infrastructure investments, and structural reorganizations, despite having no dominant control.

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Minimized ownership of businesses by ethnic minority groups in the equitized sector is hampering...
Minimized ownership of businesses by ethnic minority groups in the equitized sector is hampering expansion

Privatized firms with minority ethnic ownership face barriers to growth expansion

In the dynamic business landscape of Vietnam, the issue of State minority shareholding in equitised enterprises has emerged as a significant concern, impacting business development, capital raising, and long-term growth.

**Effects on Business Development, Capital Raising, and Growth**

Equitised firms with State ownership, typically under 36%, still find government-appointed representatives deeply involved in strategic decisions. This arrangement often slows growth, as it introduces conflicts between commercial objectives and political or non-commercial interests, reducing operational flexibility and efficiency.

The presence of a State minority shareholder can also deter private and foreign investors, limiting the company’s ability to attract capital from diverse sources, hampering expansion and innovation. Moreover, the governance challenges associated with State minority ownership can result in inadequate minority shareholder protection, undermining investor confidence and reducing incentives for long-term investments.

**Recommendations to Address the Issue**

To unlock the full potential of equitised enterprises for long-term development, several recommendations have been proposed. Strengthening corporate governance by aligning with international standards, setting clearer regulatory frameworks, enhancing monitoring and accountability, and restructuring and divesting State capital from enterprises where it hinders growth are key strategies.

The Young Entrepreneurs Association, a prominent voice in the business community, has been advocating for these changes. They call for regulatory improvements to clarify roles and limitations of minority State shareholders, reinvesting divestment proceeds into national priorities such as infrastructure and innovation projects.

One notable case study is the Đàm Sen Cultural Park, operated by Phu Tho Tourist Service JSC, which has struggled for years to execute renovation and development plans due to State minority shareholding. The association recommends mandating at least three independent valuations for State divestment price setting and accelerating State divestment, especially in enterprises where Government equity is not pivotal to strategic interests.

A transparent framework would not only reduce arbitrary interference in management, allowing enterprise leadership to execute independently and swiftly, but also ensure transparency, avoid undervaluation, and increase investor confidence.

Removing barriers related to non-controlling State capital is crucial for fostering a favorable investment climate and a sustainable future for the nation. The Young Entrepreneurs Association is committed to acting as a bridge to relevant authorities, voicing concerns, proposing recommendations, and promoting substantial reforms in this area.

The Đàm Sen Cultural Park, located in HCM City, has a recognized brand and unused land reserves, offering promising potential for growth once State capital is fully withdrawn, allowing management to make market-based decisions. The association's recommendations, if implemented, could pave the way for a more vibrant and dynamic business environment in Vietnam.

  1. The continued presence of government-appointed representatives in strategic decisions of equitised firms, even with minority shareholding, can hinder business growth by introducing conflicts between commercial objectives and political or non-commercial interests.
  2. The State's involvement as a minority shareholder can dissuade private and foreign investors, hindering a company's ability to secure capital from various sources, thereby restricting expansion and innovation.
  3. The governance challenges associated with State minority ownership can lead to inadequate protection for minority shareholders, undermining investor confidence and lowering incentives for long-term investments.
  4. To unleash the full potential of equitised enterprises for long-term development, improved corporate governance is needed, aligning with international standards, setting clearer regulatory frameworks, enhancing monitoring and accountability, and restructuring and divesting State capital from enterprises where it hinders growth.
  5. The Young Entrepreneurs Association is advocating for regulatory improvements to clarify the roles and limitations of minority State shareholders and reinvest divestment proceeds into national priorities, such as infrastructure and innovation projects.
  6. The Đàm Sen Cultural Park, which has struggled to execute renovation and development plans due to State minority shareholding, could see promising growth once State capital is fully withdrawn, allowing management to make market-based decisions.
  7. Removing barriers related to non-controlling State capital is essential for fostering a favorable investment climate, promoting a sustainable future for the nation, and building a more vibrant and dynamic business environment in Vietnam.

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