State Capital Investment Corporation (SCIC)

What Is the State Capital Investment Corporation (SCIC)?

The State Capital Investment Corporation (SCIC) is a government-owned investment fund formed by the Communist Party of Vietnam in 2005 to invest in the country's state-owned enterprises (SOEs).

SCIC's stated goals as a sovereign wealth fund are to be an active shareholder in state enterprises, to be a professional financial consultant, and to earn returns that can be reinvested in the government and public services. According to its mission, the SCIC’s primary values are dynamism, efficiency, and sustainability.

Vietnam, also referred to as the Socialist Republic of Vietnam, is a communist state with a centrally planned economy, but it has implemented economic reforms to introduce elements of the free market. The Vietnamese government created the SCIC at the height of these reforms to introduce market efficiencies to state-owned companies. The SCIC is one of several state economic groups through which the Vietnamese government executes economic planning and directs the socialist market economy.

Understanding the State Capital Investment Corporation (SCIC)

The State Capital Investment Corporation is one of several economic groups that oversee the country's state-owned enterprises. Although Vietnam has implemented some market-oriented reforms, SOEs still account for around 33% of the country's GDP. Many of these companies operate in key economic sectors such as financial services, energy, manufacturing, telecommunications, transportation, consumer products, health care, and information technology.

SCIC has some $2.4 billion in assets, according to the Sovereign Wealth Fund Institute. In 2020, the SCIC reported estimated revenues of VND 7.9 trillion, an amount approximately equal to $346 million dollars, After taxes, the net profit was VND 6.2 trillion ($270 million).

The SCIC has a broad mandate to improve management and capital allocation in SOEs that have been equitized or partially privatized. It represents the government as a shareholder, providing management and capital in these companies while following market rules. By making the state’s financial dealings more efficient, the SCIC aims to strengthen the role of the public sector in Vietnam.

Fast Fact

33% of Vietnam's GDP comes from state-owned enterprises.

SCIC Divestment and Reform

In 2017, the Vietnamese government approved a list of 406 state-owned companies for divestment, in order to raise revenue and improve efficiency in the state sector. This decision continues a gradual trend towards privatization, whereby SOEs are converted to joint or private ownership. Under this plan, there would be only 103 wholly-owned SOEs by 2020.

In 2014, the SCIC began to divest from some of its holdings. It sold its stake in 253 companies between 2015 and 2020, raising 42 billion VND ($1.8 billion) from the sales. 145 enterprises remain under SCIC control.

In accord with the new direction of economic planning, the SCIC is expected to reposition itself from capital management to a new role as a strategic investor in key industries. By 2025, it is expected to transition from its current role to a government-owned investment fund, similar to Singapore's Temasek.

Other Sovereign Wealth Funds

Sovereign wealth funds (SWFs) are pools of reserved money that governments set aside to be invested for the benefit of their citizens and economy. The money in SWFs may come from central bank reserves, trade surpluses, or other public resources.

Each SWF has different regulations on allowable types of investments. Countries concerned about liquidity often limit their SWF’s investments to public debt instruments with high liquidity.

Countries sometimes create SWFs when they need to diversify their revenue streams. For example, the United Arab Emirates (UAE), relies heavily on oil exports for revenue. If the global oil market suffers, the UAE’s economy will be extremely vulnerable, since it has so little diversity. To prevent this vulnerability, the UAE devotes a portion of its reserves to a SWF. This SWF then invests those reserves in assets unrelated to the oil market.