Situation and Effectiveness of Public Investment in

Vietnam

Dr. Pham Lan Huong

Presented at the Workshop on

Capacity Building to Improve Appraisal of Public Investment Projects in Vietnam

DaLat City, April 22-24, 2013

Outline

• Definition and roles of public investment in Vietnam• Public investment situation in Vietnam• Pulic investment performance in Vietnam• Issues of public investment in Vietnam

Public Investment

• Definition: investment project that use state capital• Roles:

– To realize targets of socio-economic development• The most important tool of the Government to promote

growth and poverty reduction• To direct and mobilize other sources of capital for investment

– To overcome market failures• Create public goods (infrastructure)• Ensure social equality• Some key areas that require large investment cost and take

long time to regain funds so that other parties do not want or are incapable to invest

Public Investment: Classification

• By capital source– State budget

– Borrowings

– Capital from state-owned enterprises and other sources

• By management level– Central

– Local

• By sector

PUBLIC INVESTMENT SITUATION IN VIETNAM

Role of Investment in GDP growth:Investment-led growth

Role of Public Investment: The most importance source

State investment by management level (%)

State Investment by capital source

State investment by economic sector (%) 2005 2007 2008 2009 2010 2011

Agriculture, Forestry and Fishery 7,1 6,7 7,2 5,9 5,9 5,6

Mining and quarrying 8,4 7,7 7,8 6,7 6,5 6,3

Manufacturing 8,4 12,2 5,9 8,6 9,5 9,8 Electricity, gas, stream and air conditioning supply 14,6 13,2 12,6 16,8 15,0 14,7 Water supply; sewerage, waste management and remediation activities 4,1 3,7 3,6 3,9 3,9 3,7

Construction 4,2 4,5 4,8 4,6 5,1 5,3 Whole sales and retails; repair of motor vehicles and motorcycles 1,3 1,2 1,6 2,2 2,4 2,5

Transportation and storage 20,7 18,3 22,5 18,1 18,1 17,6 Accommodation and food service activities 0,4 0,4 0,5 1,2 1,2 1,4

Information and communication 5,6 5,6 5,5 5,6 5,6 5,4 Financial, banking and insurance services 0,4 0,8 1,0 1,5 1,5 1,7

Real estate activities 1,0 1,6 1,6 2,1 2,2 2,4 Professional, scientific and technical activities 1,3 1,9 2,1 2,0 1,9 2,0 Administrative and support service activities 1,6 1,5 1,6 1,6 1,7 1,7 Activities of Communist party; social-political organizations; public administration and defence; compulsory security 6,7 7,4 8,6 7,4 8,0 8,0

Education and training 5,4 5,3 5,2 3,5 3,9 4,1 Human health and social work activities 3,4 3,3 3,3 2,9 2,7 2,9

Arts, entertainment and recreation 2,1 2,7 2,6 2,5 2,4 2,6

Other activities 3,2 2,0 2,2 2,9 2,5 2,3

Total 100,0 100,0 100,0 100,0 100,0 100,0

Gross Domestic Capital Formation (% GDP) Selected ADB members 1995 2000 2005 2006 2007 2008 2009 2010 2011

Central and West Asia

Armenia 18.4 18.6 30.5 35.9 37.8 40.9 34.7 32.9 27.9

Azerbaijan 23.8 20.7 41.5 29.9 21.5 18.7 18.9 18.1 19.9

Tajikistan 28.7 9.4 11.6 16.0 24.6 26.5 24.8 23.8 ...

Turkmenistan 33.6 34.7 22.9 19.5 18.2 13.5 11.4 14.4 ...

East Asia

China, People's Rep. of 41.9 35.1 42.1 43.0 41.7 44.0 48.3 48.2 48.6

Hong Kong, China 34.1 27.5 20.6 21.7 20.9 20.4 21.3 23.4 22.9

Korea, Rep. of 36.9 30.6 29.7 29.6 29.4 31.2 26.3 29.5 29.5

Mongolia 31.7 36.2 37.0 35.9 38.7 43.6 34.4 40.8 58.5

South Asia

Bhutan 45.4 48.2 50.8 46.1 36.9 39.8 41.2 52.3 ...

India 26.2 24.3 34.3 35.9 38.0 35.5 36.1 35.8 35.5

Southeast Asia

Cambodia 14.3 16.9 18.5 22.5 21.2 18.6 21.4 17.4 17.1

Indonesia 31.9 22.2 25.1 25.4 24.9 27.8 31.0 32.6 32.8

Malaysia 43.6 26.9 22.4 22.7 23.4 21.5 17.8 23.1 23.6

Myanmar 14.2 12.4 13.2 13.7 14.8 15.6 18.9 22.7 ...

Philippines 22.5 18.4 21.6 18.0 17.3 19.3 16.6 20.5 21.7

Singapore 33.3 33.2 20.0 21.2 22.3 29.4 25.5 22.1 22.4

Thailand 42.9 22.3 30.5 27.1 25.6 28.4 20.6 24.9 ...

Viet Nam 27.1 29.6 35.6 36.8 43.1 39.7 38.1 38.9 32.6

VN’s ranking in ADB 14 8 5 3 1 5 3 4 6

PUBLIC INVESTMENT PERFORMANCE IN VIETNAM

Contribution to economic growth in 1990-2010 (percentage point)

Capital formation and social investment(1994 prices, bil. VND)

ICOR by economic sector

Map of deep-water seaports

Map of airport system in Vietnam

Economic Zones in Vietnam

Approved EZs in development plan by 2020

Issues of public investment in Vietnam: Inefficiency

• Excessive investment, too many projects are carried out at a same time; investment demand exceeds capital supply capacity– Invest in such areas that may be funded from other

sources of investment

– Accumulated debts on capital construction tends to reincrease

• Loss and wastage• Unable to bring impetus for the improvement of

comparative advantage of each sector, each area and the economy as a whole

Underlying causes of inefficient public investment

• Non-transparency and low accountability• Disciplines/regulations are not strictly obeyed• Development thinking is slowly innovated

– By term of office

– By geographic boundaries

• Investment decentralization– Capacity to appraise and assess investment projects in

many provinces is still limited

– Capacity to manage, inspect and monitor investment and construction projects at different industries and levels is inadequate and insufficient

– Competitiveness in infrastructure construction

Underlying causes of inefficient public investment

• Planning – Unconnected plans while the State lacks of effective tools

and policies to manage and monitor the implementation of plans.

– Low quality plans, which are unable to be foundation for investment development plan, which in turns leads to wrong investment decisions or adjustment of projects

– The existence of „hung“ plans

– Unprompted investment without any plan

• Shortcomings of bidding mechanism– Incapability of management authorities and implemented

bodies

– Violation of bidding regulations on purpose for self-interests

Thank you for your attention