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2021 | Buch

Reforming State-Owned Enterprises in Asia

Challenges and Solutions

herausgegeben von: Assoc. Prof. Farhad Taghizadeh-Hesary, Prof. Naoyuki Yoshino, Chul Ju Kim, Kunmin Kim

Verlag: Springer Singapore

Buchreihe : ADB Institute Series on Development Economics

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Über dieses Buch

This book analyzes state-owned enterprises (SOEs), which are still significant players in many Asian economies. They provide essential public services, build and operate key infrastructure, and are often reservoirs of public employment. Their characteristics and inherent competitive advantages as publicly owned enterprises allow them to play these critical roles. Their weaknesses in governance and inefficiencies in incentive structures, however, also often lead to poor performance.

SOEs must be efficient, transparent, and accountable to level the playing field for private companies, secure the growth of a vibrant private sector, and achieve sustained and inclusive economic growth. This book analyzes the reform of SOEs in Asia, the results of which are mixed.

The volume concludes that some key conditions generally need to be met for SOE reforms to be successful: national bureaucracies must have the capacity to implement the reforms, and adverse impacts on international trade and investment must be avoided.

Inhaltsverzeichnis

Frontmatter

Corporate Governance, Strategy and the Legal Framework

Frontmatter
Chapter 1. Strategy, Independence, and Governance of State-Owned Enterprises in Asia
Abstract
State-owned enterprises (SOEs)—refer to Sect. 1.2.1 below for a definition—are important, especially in an Asian context. According to Fortune Magazine’s (2018) 500 list, three out of the world’s top-10 largest companies by revenues were Chinese SOEs: State Grid (rank 2), Sinopec (rank 3), and China National Petroleum (rank 4). Depending on the degree of direct and indirect government support, the next five ranks contain at least a group of near-state enterprises—near-state meaning companies in which the state either is a minor shareholder or has an institutionalized stake: Royal Dutch Shell, Toyota Motor, Volkswagen, BP, and Exxon Mobil. This only leaves two of the world’s ten largest companies neither belonging to nor being backed by the state, Walmart (rank 1) and Berkshire Hathaway (rank 10).
Henrique Schneider
Chapter 2. Enhancing the Transparency and Accountability of State-Owned Enterprises
Abstract
This paper provides an overview of national practices for improving the accountability of SOEs by examining relevant legislation, policies, and practices in Asian economies. It assesses these against internationally agreed good practices exemplified by the OECD Guidelines on Corporate Governance of State-Owned Enterprises. Nine Asian countries reviewed in this report demonstrate varying degrees of effort and progress in developing and putting in place a legal and regulatory framework for SOE disclosure and transparency. Some have made significant progress in terms of improving information disclosure by SOEs with an accelerated process of corporatization of SOEs and adoption of adequate accounting standards. More and more governments are establishing information reporting systems and performance evaluation systems through which they acquire financial and nonfinancial information from their SOEs. However, some of the reviewed countries lack comprehensive systems for detecting fiscal risk linked to SOEs. A number of SOEs lack an internal audit function for SOEs and/or their financial statements are not systematically subject to independent external audits. At the level of the state, a majority of the countries do not publish aggregate ownership reports, which could potentially limit accountability and restrict the public from overseeing SOE performance. Establishing comprehensive legal and regulatory frameworks for public disclosure of financial and nonfinancial information about the activities of SOEs is critical.
Chung-a Park
Chapter 3. Regulatory Frameworks for Reforms of State-Owned Enterprises in Thailand and Malaysia
Abstract
State-owned enterprises (SOEs) play a significant role in providing public goods and services such as utilities and infrastructures. They also play a considerable role in promoting a country’s national agenda, such as providing employment opportunities, promoting national corporates and implementing socioeconomic and industrial policy. Since the state is a significant owner of SOEs, the latter enjoy a monopolistic position in the market and have a competitive advantage vis-à-vis other private enterprises. This creates many unintended market consequences such as inefficiency, nontransparency, and weak governance. Various regulatory and institutional frameworks for reforming SOEs have been adopted by countries around the world in order to stimulate competition, increase efficiency, and improve the level of their performance. However, the outcomes of these reforms are rather mixed. In Asia, for example, many SOEs are still operating less efficiently due to their complacent position in the market leading to poor performance. Against this backdrop, this paper aims to explore the experience of regulatory reform of SOEs in Thailand and Malaysia and the challenges that the countries are or have been facing in undertaking such reform. The paper will be divided into five main parts. The second part explores the international perspective of regulatory frameworks, designed to incentivize reforms of SOEs. The third part explores the experience of Thailand and Malaysia in constituting their regulatory frameworks for the reform of SOEs. The fourth part discusses and analyzes the approach of Thailand and Malaysia toward the reform of SOEs as well as issues and challenges associated with such reform. The fifth part concludes the paper and provides some recommendations regarding better regulatory frameworks for the reform of SOEs.
Pornchai Wisuttisak, Nasarudin Bin Abdul Rahman
Chapter 4. Reforming SOEs in Asia: Lessons from Competition Law and Policy in India
Abstract
State-owned enterprises (SOEs) or public sector enterprises/undertakings (PSE/Us) form an inherent part of the growth story of countries around the world. As the name suggests, these entities are owned and/or controlled by the state and the very nature of their ownership structure differentiates them from private enterprises. Backing from the government gives them a unique positioning in the market, both on the demand side and on the supply side. While, on the one hand, these entities enjoy a special advantage in terms of confidence/trust from the consumers, on the other hand, being publicly owned, expectations are also high from these SOEs. For example, in India, the Life Insurance Corporation (LIC) enjoys dominance in the life insurance sector and is perceived as the preferred insurer, particularly in rural areas, over the private players. While this is good for the LIC, the Supreme Court of India has declared it as ‘state’ under the Constitution and hence subject to the writ jurisdiction of the country with stricter scrutiny than private enterprises. The philosophy behind this approach is that the government or its instrumentalities may not be allowed to act arbitrarily and have to confer benefits/largesse in accordance with the established norms and policies, which is primarily driven by the ‘socialistic’ approach of the Constitution.
Vijay Kumar Singh
Chapter 5. State-Owned Enterprises in Uzbekistan: Taking Stock and Some Reform Priorities
Abstract
Starting from end-2016, Uzbekistan embarked on a wide set of comprehensive structural reforms aimed at revitalizing key sectors, liberalizing its markets, and introducing market mechanisms in the economy. Given the still important role of state-owned enterprises (SOEs) across a number of sectors in the country, any package of economic reforms will necessarily have to take into account the high dominance of these enterprises across multiple sectors and address issues specifically related to, or stemming from, the dominance of SOEs in the economy.
Umidjon Abdullaev

Privatization: Challenges and Solutions

Frontmatter
Chapter 6. The Effects of Privatization and Corporate Governance of SOEs in Transition Economies: The Case of Kazakhstan
Abstract
This paper focuses on the relationship between corporate governance structure and privatized state-owned enterprises (SOEs) as a way to reform SOEs in a transition economy, using the experience of Central Asia as a case study.
Keun Jung Lee
Chapter 7. The Privatization of Japan Railways and Japan Post: Why, How, and Now
Abstract
Privatization of state-owned enterprises (SOEs) has been globally prevalent since the 1980s with a primary objective of improving their performance in profitability and provision of better service through the ownership change. Privatization led the transition to a market economy in the Soviet socialist countries, and became a critical aspect of reform packages to enhance public sector management in the 1990s both in developed and developing countries (Tamamura 2004). However, privatization has different nuances depending on the specific country circumstances. In the case of Japan, it was closely related to the process whereby entities called “special public corporations” were converted into regular joint stock companies so that their shares could be offered to the public, while they were still used to deliver government services or operate a monopoly in certain cases like post networks.
Chul Ju Kim, Michael C. Huang
Chapter 8. Reform and Privatization of State-Owned Enterprises in India
Abstract
Privatization is a broad concept in economics. It comprises various operations, such as the introduction of private capital, the selling of government-owned assets, and transition to a private economy. Consequently, three major attributes of privatization are as follows: (1) ownership measures, (2) organizational measures, and (3) operational measures. Ownership measures refer to the transformation of the ownership of public enterprises to private owners. Organizational measures relate to the limitation of the state control in public companies. These involve the employment of methods for the leasing and restructuring of the enterprises. Operational measures concern the way to improve the profitability and efficiency of public enterprises.
Kunmin Kim, N. Panchanatham
Chapter 9. Privatization of Iranian State-Owned Enterprises: Barriers and Policy Recommendations
Abstract
The Iranian government faces two significant challenges in the last decades, namely high current budget spending and low export income due to international sanctions. Low productivity of State-Owned Enterprises (SOEs) and low transparency of budget spending are among the major causes of the high budget deficit. Although Iran started privatization of the public companies a few years back, privatization has not achieved the pre-determined goals so far. This chapter has tried to review the possibility of privatizing the SOEs in Iran as the enterprises are vital in managing the country in the mid-term and long-term. Also, we discuss the process of privatization in Iran, its challenges, and possible solutions. In this regard, we have reviewed the experiences of the first wave of privatization in Iran and provided possible approaches to increase the chance of successful privatization of the SOEs and their productivity in the form of policy recommendations.
Mohsen Fazelian, Hooman Peimani, Farhad Taghizadeh-Hesary

Evaluation of Performance and Country Studies

Frontmatter
Chapter 10. Necessity of Developing a Comprehensive Evaluation Framework for State-owned enterprises
Abstract
State-owned enterprises (SOEs) are usually thought to be in charge of increasing social welfare. At the same time, their relatively low performance poses several problems, including slowing down economic growth. Therefore, it is crucial for central governments to implement a comprehensive evaluation method to assess the performance of SOEs. Previous studies have offered many ways to evaluate their performance. By employing the principal component analysis technique and using data of 1148 SOEs, mostly from European countries, our study aims at providing a more comprehensive framework for assessing SOE performance that includes various factors. We selected five factors: profitability, per capita productivity, per capita costs, debt due days, and solvency. The results of our empirical study show that solvency, per capita costs, and per employee productivity have more deterministic power over the success or failure of SOEs, compared to profitability. While profit-making of SOEs is essential, focusing on profitability as the solve assessment criterion will mislead policymakers, keeping in mind that the nature of many SOEs is to generate social welfare and not profit. The chapter provides practical policy recommendations based on an empirical analysis.
Farhad Taghizadeh-Hesary, Naoyuki Yoshino, Chul Ju Kim, Aline Mortha
Chapter 11. Is the Management Evaluation System of State-Owned Enterprises in the Republic of Korea a Good Tool for Better Performance?
Abstract
State-owned enterprises (SOEs) in the Republic of Korea played a leading role in the post-war economic development process, but their role has been gradually reduced as the role of the government in the economic development process is replaced by the private sector (Park 2009). In the early 1960s, government-led development resulted in the government directly substituting the private sector to manage SOEs and organize private enterprises by effectively directing large-scale labor and capital. From the 1980s to the 1997 pre-International Monetary Fund (IMF) period, this method of government intervention in economic development became more indirect. As the industry and the private sector grew, various businesses were created outside government control, and the role of the government in economic development was gradually diminished as concerns over excessive government intervention and government failures were raised. From 1999 to 2017, after the economic crisis, restructuring and reforms took place throughout the entire government structure and the economy due to the global trend of neoliberalism and growing concerns about government failure. During the period from 1998 to 2003, large-scale privatization of public enterprises led to significant development of the market economy. In 2007, the law on the operation of public institutions was introduced to organize the governance structure for public institutions. As a result, the government’s role in the economy as a whole has become smaller, and various private sectors, including financial and network businesses, have grown significantly. In the process, the role of public enterprises in the Republic of Korea has also changed. In the early stage of economic development, the government did not have sufficient resources for the private sector, and it operated a public corporation to carry out large-scale social overhead capital (SOC) and investment projects centered on public corporations and to prevent monopolization of electricity, gas, communications, and networks. However, as the economy grew and matured, most of these public enterprises were privatized, and the role of public corporations as a major policy tool for economic development was reduced.
Jhungsoo Park, Jina Kim, Chul Ju Kim
Chapter 12. State-Owned Enterprise Reform in Viet Nam: Progress and Challenges
Abstract
The state-owned-enterprise (SOE) sector is one of pillars in Vietnamese economy. It accounts for 28% of GDP, contributes nearly 30% of the state budget (General Statistics Office 2018), comprises 17% bank credit, and at the same time this sector is responsible for 60% of non-performing loans in the economy (Phang 2013). In order to achieve the goal of being a market-based economy with a socialist orientation, the Government of Viet Nam has encouraged the active participation from the private sector in coupling with SOE reform to enhance their effectiveness and efficiency since the 1980s. Over the past 30 years, SOEs have contributed noticeably to the achievements of the “Doi Moi” which lifted the country out of socioeconomic crisis to move to the era of industrialization and modernization under the socialist orientation. However, this transition has posed enormous challenges to SOEs that adversely impact on the sustainability of economic development due to the low speed of their reforming and restructuring. Through the 30-year SOE privatization, the number of SOEs has declined significantly and they now tend to focus on crucial and core sectors of the economy, including electricity, minerals, petroleum, finance, food and telecommunications. There are successful cases of post-privatized SOEs, with improvement in enterprises’ profitability and competitiveness; expanded production capacity; raised expertise and management competency; and some new industries and enterprises have been gradually formed with modern technology and advanced management. At the same time, the privatization process has encountered a number of impediments from the complexity of enterprise valuation, a lack of stringent regulations in information dissemination, a defective and deficient performance evaluation system and a lack of enabling stock market. This paper evaluates the performance of SOE reform in Viet Nam, clarifying its hindrances and drawbacks, and then proposes possible solutions to foster the SOE privatization process, replace the ownership capital of government effectively, and to shift to a more efficient and diversified economic system.
Le Ngoc Dang, Dinh Dung Nguyen, Farhad Taghizadeh-Hesary
Chapter 13. State-Owned Enterprises and Cluster-Based Industrialization: Evidence from Bangladesh
Abstract
Like other developing countries, despite various problems, state-owned enterprises (SOEs) play an important role in the economic development of Bangladesh through creating employment and providing value added services to the economy. A total of 146 SOEs, of which 49 are non-financial, are now operational in Bangladesh, with an overwhelmed burden of debt that has ben posing potential risks for country's fiscal management. The government has to provide a large amount of subsidies to these SoEs every year and often convert their debt into equity. Even the revenue earnings (mainly non-tax revenue) from these SoEs are not consistent over time. Inefficient management and corruption are largely responsible for the poor performance of SoEs in Bangladesh. This poor financial performances of SoEs are attributed to the fact that some SoEs have been incurring losses over a long period of time, and some SOEs are not profit making but providing social services. Given the fact, this chapter takes one SOE into consideration, namely Bangladesh Small and Cottage Industries Corporation (BSCIC), to assess its performances, and within that context, provides some insights into the reforms that are necessary to improve the performance of SOEs in Bangladesh.
Monzur Hossain
Chapter 14. State-Owned Enterprises in Singapore: Performance and Policy Recommendations
Abstract
The Singapore economy is characterised by a strong interventionist government and planning. It showed ‘plan and market’ in a creative partnership in which government control, export-oriented manufacturing, government direction of the labor market, state-owned enterprises and government-forced saving co-exist and help the economy excel and prosper. A supply-side analysis showed that foreign talent through employment passes and work permits were an integral building block for the economic success and contributed 41% of GDP in the 1990s (Ministry of Trade and Industry 2001).
Dawn Chow Yi Lin, Youngho Chang
Chapter 15. Obstacles to Doing Business in Asia: Cross-Country Analysis for State-Owned Enterprises and Private Firms
Abstract
This study examines a number of factors that are essential in doing business across selected emerging countries in Asia. The analysis compares the order ranking of obstacles between state-owned enterprises (SOEs) and privately held enterprises. In this study, we define a state-owned enterprise as a business enterprise where the state has, directly or indirectly, significant control through majority ownership (at least 50.01%).
Thai-Ha Le, Farhad Taghizadeh-Hesary, Canh Phuc Nguyen
Chapter 16. Nationalization and the Role of National Oil Companies: The Case of Kazakhstan
Abstract
Over the last four decades a number of state-owned enterprises (SOEs) have been declining dramatically in most industries. However, state-owned national oil companies (NOCs) continue to secure dominant positions in most energy-producing countries. In some instances, energy-exporting countries conducted full nationalisation of their resources, while in other cases partial nationalisation took place with governments tightening control over privately owned firms. This chapter begins with general questions on why countries choose to have state-owned enterprises and why countries prefer to nationalize their oil and gas industries. Next, we explore a case of nationalization policies in Kazakhstan’s oil industry in the post-Soviet period. Although there was no full nationalization of the energy sector, the government’s intervention in the industry had become more pervasive. As a result, multinationals in major oil and gas projects were forced to form partnerships with the domestic national oil company (NOC), KazMunaiGas. We then further explore the role of KazMunaiGas NOC in the country’s hydrocarbon sector as the government was determined to ensure more active participation of the domestic NOC in a bigscale energy projects. Despite a special status and a preferential treatment conditions created for the company, KazMunaiGas has to deal with similar challenges that many NOCs face globally. These challenges include improving technological capabilities, access to capital and financial independence, as well as strategic human resource management.
Serik Orazgaliyev
Metadaten
Titel
Reforming State-Owned Enterprises in Asia
herausgegeben von
Assoc. Prof. Farhad Taghizadeh-Hesary
Prof. Naoyuki Yoshino
Chul Ju Kim
Kunmin Kim
Copyright-Jahr
2021
Verlag
Springer Singapore
Electronic ISBN
978-981-15-8574-6
Print ISBN
978-981-15-8573-9
DOI
https://doi.org/10.1007/978-981-15-8574-6