INTERNATION INVESTMENT SITUATION ANALYSIS AND IMPLICATIONS FOR VIETNAM

FOREIGN TRADE UNIVERSITY HO CHI MINH CITY CAMPUS    MID-TERM ASSIGNMENT Subject: International Economics INTERNATION INVESTMENT: SITUATION ANALYSIS AND IMPLICATIONS FOR VIETNAM Group - Class: K56CLC4 Lecturer: Mrs Trần Nguyên Chất Group members: Nguyễn Thị Ngọc Phượng Huỳnh Nhật Quang Đỗ Thị Hoàng Quyên Trương Trần Nhật Quỳnh Ho Chi Minh, January 2019 Table of Contents I An overview of international investment The concepts of investment, foreign investment, international investment 1.1 Investment .3 1.2 Foreign investment 1.3 International investment Taxonomy of international financial flows II Official Development Assistance - the case of Viet Nam .4 The historical framework of ODA Definition of ODA ODA activities & management and the impacts on Viet Nam 3.1 An overview of ODA activities in Viet Nam .6 3.2 The impacts of ODA on Viet Nam .8 III ODA graduation and the impact to Viet Nam economy 10 ODA graduation of Viet Nam 10 Analyze the impact of ODA graduation in Viet Nam: .11 2.1 SWOT model: 11 2.2 Negative effects of ODA graduation .12 2.3 Positive effect of ODA graduation: 14 IV Major problems about ODA in Vietnam 15 ODA disbursement in Vietnam 15 1.1 Slow capital disbursement .15 1.2 Reasons for the slow disbursement process 16 The management and using of ODA in Vietnam .17 2.1 Shortcomings in ODA use and management 17 2.2 Corruption in economic infrastructure projects using ODA capital V Solution for Viet Nam about ODA problems 19 General orientations for solution 20 1.1 ODA management 20 1.2 Attracting and speeding up ODA disbursement rate 21 1.3 Enhance capacity of implementing projects by ODA .21 Specific policies and plans to improve the effectiveness of ODA investment are being implemented in future: Public private partnership (PPP) 22 INTRODUCTION This report was presented by group at the subject International Economics, with a fundamental aim to have some situation analysis and implications for international investment in the case of Viet Nam The term “international investment” also refers to the international flows of financial resources, which are divided into two flows: Official flow (Foreign Aid) and Private flow Our report would pay more attention in the Foreign Aid, which mainly focuses on the realistic activities and management of Official Development Assistance (ODA) in Vietnam In recent years, ODA has been an effective source of support for Vietnam’s development in terms of economic goals, the processes of innovation, industrialization and modernization; however; the movement of Vietnam into “lower income country” and the problem of inefficient ODA utilization have been notably taken into account by the Government The report would concentrate on analyzing these situations and expecting certain implications for the case of Vietnam I An overview of international investment The concepts of international investment investment, foreign investment, 1.1 Investment In a broad sense, investment is usually understood as a sum of money or other resources (including, eg knowledge or time) spent with the expectation of getting a future return from it (1) There are three main approaches to the concept of investment based on the context and purpose: a In macro-economic and national accounts: investment means expenditure on new capital goods (goods that are not consumed but instead used in future production) Such investment is the source of new employment and economic growth b In finance: Investment refers to the purchase or ownership of a financial asset with the expectation of a future return either as income (such as dividends), or as capital gain (such as a rise in the value of the stock) c Legal definitions of investment: Found in law and legal agreement, focus on the issue of property, notwithstanding the productive or financial nature of the investment, unless specific limitations are made 1.2 Foreign investment Foreign investment involves capital flows from the border of one country to another, granting extensive ownership stakes in domestic companies and assets Foreign investment denotes that foreigners have an active role in management as a part of their investment A modern trend leans toward globalization, where multinational firms have investments in a variety of countries 1.3 International investment International investment is investing via a wide range of potential strategies, to capitalise on advantages offered outside your home country and investment create capital approach that movement increasing across numbers borders of It’s an international professionals and expatriates are exploring, particularly since it has become far easier to so with the emergence of index trackers and exchange-traded funds (ETFs) Taxonomy of international financial flows II Official Development Assistance - the case of Viet Nam The historical framework of ODA After the Second World War, the world economy fell into a serious crisis In order to revive the world economy, many international financial institutions were established at this time One of the plans for economic reconstruction at the time was the Marshall Plan, a precursor of a form of official development assistance, intended to assist European countries in restoring a war-torn economy devastated factor of science and technology and the ability to absorb the advanced scientific achievements of the labor force Through ODA projects, there are activities to help Vietnam improve its science, technology and human resource development such as: - Advanced management skills and experience are transferred to agencies, research centers as well as ministries, sectors and localities with the support of high-tech ODA programs and projects in the areas of information technology, biotechnology, materials technology, construction technology, etc…; - Providing technical documentation; - Holding workshops with the participation of foreign experts; - Sending Vietnamese staff to study abroad; - Organizing study tours to study experiences in developed countries; - Directing experts to Vietnam to support the project and directly provide modern technical equipment and lines for programs and projects Through these activities, donors will significantly contribute to improving Vietnam's science, technology and human resource development, and this is a fundamental, long-term benefit for Vietnam 3.2.3 ODA helps to adjust the economic structure ODA projects donated to Vietnam often give priority to the development of economic and technical infrastructures and human resource development, facilitating the balanced development of different sectors and regions in the whole country In addition, there are a number of projects to help Vietnam implement administrative reform to improve the performance of state management agencies All that contributes to the adjustment of economic structure in Vietnam 11 and spending norms have not met the requirements in the context of changing market prices The requirements are complex, demanding for each donor's different types of documents and approval has to go through many steps, while donors' representative offices in Vietnam have little authority, so regularly consult with higher authorities In addition, there are projects funded by many donors, so procedures often overlap, causing difficulties for project owners during the implementation process 1.2.3 The complex process of site clearance In reality, there are many difficulties and shortcomings in compensation and site clearance in localities across the coutry Many projects, works of construction, lasted for years due to the stage of clearance with dull, slow progress Firstly, the price of land compensation is inappropriate for there is inconsistency not only between the market price and the price set by the People’s Committee but also between the prices of different localities More over, the process of resettlement is stagnant and the work of granting land use right certificates is still inadequate In particular, the larger the land use project is, the more complex and time-consuming the defense work is Therefore, clearance work takes a lot of time for disbursement The capital assignment 1.2.4 Capital allocation is also one of the reasons for the limited disbursement of capital Objectively, the allocation of capital depends on the legal regulations, the project assigned capital must have enough documents which includes the decision to approve the project to allocate capital In order to issue this decision, it must go through a very long process in which the investor must hire a consultant, prepare a feasible advisory report, and after completing the feasibility report, 20 the appraisal report must be completed This partly causes the slow allocation of capital The management and using of ODA in Vietnam 1.3 1.3.1 Shortcomings in ODA use and management 1.3.1.1 The legal framework for ODA management and use is not synchronized with international practice The State has issued and supplemented many legal documents, clearly defined functions and duties of government agencies in coordinating, managing and using loans and international funding Functional ministries and branches also issued specific guiding circulars for inter-ministerial activities related to ODA implementation process However, the promulgated legal documents system is still inconsistent and there are many points that are inconsistent with international practices, leading to a lack of matching between domestic processes and procedures prescribed by foreign countries (tax policies, compensation and clearance policies, resettlement ) At the same time, there is no uniform implementation guideline for all ODA-funded projects Therefore, in the process of implementation, investors often have to ask for guidance from the Government, line ministries, departments and agencies for each specific case In particular, this causes problems and slows down the progress of the project 1.3.1.2 Inconsistency in the plan and process of project formulation and approval Many projects, after being approved, still have to adjust and supplement many components during the implementation process This entails very troublesome licensing procedures that slow down the progress 21 The process of decision-making is cumbersome, complicated, going through many steps, requiring approval at many levels, including minor changes in the contract Regulations, guidelines of donors and guidelines of some ministries and sectors are still inconsistent and unclear, lack of coordination and exchange of information internally and between government agencies as well as among ODA sponsor agencies 1.3.1.3 Shortcomings in bidding work The weakness of Vietnam's bidding is currently the limitation in legal framework and staff capacity Due to inadequate preparation, the quality of some pre-bidding operations is also unsatisfactory (such as procurement plans, bidding documents, bid evaluation criteria), making bidding pointless, causing bad consequences In addition, other violations still occur frequently and quite commonly such as: bidding, sale by tender, fake bidding (making fake bidding documents), discriminating between state-owned contractors with contractors who are private enterprises, biased in considering and evaluating bids, not closely monitoring and handling seriously not with contractors in the process of implementing contracts for personal motivation This situation has caused losses and waste of 30-35% of total investment Moreover, there is still a situation where the competent person "bid evaluation" is also the immediate superior of the contractors and have the right to issue administrative orders to select contractors or to settle complaints and denunciations and handle violations in bidding This situation does not ensure the openness and transparency in bidding, making low-efficiency ODA projects 22 1.3.1.4 Project monitoring and management are hardly strict The monitoring of the project implementation process and the quality control of the project are mainly monitored through the report of the investor or project management board, very little direct observation Although there are regulations on quality standards for construction works, monitoring and supervision to ensure the right quality during and after the implementation of the project has not been strictly implemented ODA project management is usually only set during project construction and capital disbursement, not yet formed a apparatus and a force of qualified staff to manage after the project 1.3.2 Corruption in economic infrastructure projects using ODA capital The fact that many of the economic infrastructure projects using ODA are of low quality and poor efficiency can be explained by some reasons However, the actual survey results show that most of the projects remain in low quality in recent years is mainly because of corruption and waste of ODA taking place seriously in this area Corruption has caused a huge loss of investment projects on economic infrastructure development in Vietnam over the years, but its consequences have been the quality of projects and projects using ODA capital was not guaranteed Moreover, this could lead to overspending and increasing capital compared to estimates which in turn cause damage to the State budget and affect the social benefits as well as the image of Vietnam to the donors This situation is really a risk for the country because the responsibility to repay ODA is quite heavy for a country like ours Therefore, we must consider prevention of ODA capital losses and 23 frauds as a leading mission in ODA-funded projects, to reduce the debt repayment burden for future generations V Solution for Viet Nam about ODA problems ODA has had a positive effect on socio-economic development in cities and the regions It has helped to attract further foreign and domestic investment and ease the wealth gap between cities and rural areas It has also helped support poverty reduction and improved the living standards of the poor However, ODA is used ineffectively in a number aspects The measures or policies to address the issues that using ODA is facing is in need to improve the effectiveness of ODA’s attraction and the use of ODA in Vietnam General orientations for solution The MPI has proposed attracting ODA to key areas and highly important projects It is necessary to factor in public investment sources, the borrowing limit and debt servicing coverage when attracting and using ODA It should be guaranteed that ODA is only used for development and not for recurrent spending In order to improve efficiency in attracting ODA and foreign investment capital, Vietnam needs to solve well the following issues: 1.1 ODA management Completing legal documents and innovations in ODA project management procedures and procedures on the basis of combining reference procedures; with donors' standards, compensation, migration especially and for procurement resettlement; financial management of programs and projects ODA should be exploited in terms of providing policy consulting for the government by donors such as how to write polices, decentralize power, reform the economy and 24 allocate budgets prudently It is a useful tool for Vietnam’s development in the long term Vietnam should narrow the gap between donors and Vietnam in order to attract more capital Though the main target of international assistance is hunger elimination and poverty alleviation, most donors and the Vietnamese government emphasize on the sustainability of such capital as well as the quality of economic growth Foreign donors are often very interested in Vietnam’s effort in reforming the economy, particularly in state-owned companies and the banking system Plans and strategies to gradually reduce ODA capital should be studied, especially conditional ODA, and at the same time, to attract other foreign investment sources such as FDI With this approach, Vietnam not only maintains the increase in total investment but also improves the efficiency of all capital sources, including ODA It is necessary to carefully assess the impacts of ODA loans on the economy before accepting them As the borrower, Vietnam still can negotiate on the loan conditions In the credit market, borrowers previously went to banks to apply for loans but now banks need to look for well-performing enterprises and feasible projects and offer to lend to them ODA should be made available to private businesses, NGOs and community organizations This is because these groups are in real need of capital This also contributes to the anti-corruption process and the removal of red tape from the administrative system 1.2 Attracting and speeding up ODA disbursement rate Promptly prepare reciprocal capital sources for ODA programs and projects so that these projects can reach the highest and fastest disbursement rates 25 Investment priorities should be determined when using ODA capital and improving project supervision, monitoring and evaluation At the same time, improve the capacity and awareness for the staff involved in managing and using ODA The nature of ODA is still a loan and is obliged to repay, so it is necessary to eliminate the idea of "asking for ODA" in a part of officials at all levels, leading to inadequate attention to effective use This source of capital 1.3 Enhance capacity of implementing projects by ODA Enhance capacity includes interpersonal skills, the ability to work with agencies, social organizations, awareness and building skills To improve these kind of capacity, there should be a comprehensive environment in which everybody has a chance to show their skills and their ability to apply them under pressure This environment should also create favorable conditions for the process of capacity transfer between individuals in the community/organizations It will motivate everyone to improve themselves constantly based on essential skills they have been trained in directly or indirectly In order to level up the effectiveness of improvements in capacity of ODA projects, organizations that take over the projects need to decide on the key element to focus on (with respect to the subject of improvement) Focusing on improving key units and staff does not mean ignoring other elements, but concentrating on maximizing the usage of resources Therefore, when carrying out projects, organizations need to analyze the capabilities of the whole system to highlight the strongest and weakest aspects Strengthen capacity and drastically improve the implementation of ODA projects, use more focused to invest in building large-scale socio-economic infrastructure and create spillover effects on the overall development of country 26 It is necessary to have appropriate policies and institutions to create an environment for new aid models In particular, encouraging the participation of private and non-governmental organizations In addition, close cooperation with donors to access new aid models is needed, to improve efficiency, reduce procedures and contribute to improving management systems according to international standards Specific policies and plans to improve the effectiveness of ODA investment are being implemented in future: Public private partnership (PPP)  Public private partnership: A long-term contract between a private party and a government entity, for providing a public asset or service, in management which the private responsibility, party bears significant risk and remuneration is linked and to performance" PPPs typically not include service contracts or turnkey construction contracts, which are categorized as public procurement projects, or the privatization of utilities where there is a limited ongoing role for the public sector The proposal allows private enterprises to access and use concessional ODA loans and preferential capital was provided by the Ministry of Planning and Investment in the Draft Decree on management and use of official development assistance (ODA) and concessional loans from foreign donors Article of the draft Decree regulates the forms of access and use of ODA and concessional loans for the private sector, including:  Access to and use of ODA and concessional loans within the credit limit for domestic financial and credit institutions to carry out activities in accordance with international treaties and agreements on capital ODA, concessional loans and 27 compliance with lending procedures of financial and credit institutions;  ODA and concessional loans join as a capital contributor in investment projects in the form of public-private partnerships (PPP) using ODA and preferential loans as investment capital of the State;  Re-borrowing ODA and concessional loans through the commercial bank system under the commercial bank method of credit risks; participating in the implementation of the program of private sector support programs and projects Along with that, participation as a capital contributor in investment projects in the form of public-private partnerships (PPP) using ODA and concessional loans as investment capital of the State; re-borrowing ODA capital through the commercial banking system by the mode of commercial banks subject to credit risks; participating in the implementation of the program of private sector support programs and projects The process of managing and using ODA and concessional loans for proposed programs and projects is:  Mobilizing ODA and concessional loans; develop and select proposals for programs and projects;  Making, appraising, deciding the policy of program and project investment;  Making, appraising, deciding investment programs and projects;  Negotiating and signing international treaties and agreements on ODA and concessional loans;  Managing program and project implementation; complete and transfer the results of program or project implementation 28 This policies show the specific action of government in opening access to ODA organizations 29 for private businesses, NGOs and community CONCLUSION So far, in this report, we collected data about the using of ODA in Vietnam recent years ODA has greatly contributed to Vietnamese economic development However, Vietnam is still at the bottom of poverty line and has to deal with many challenges in developing the economy It is hoped that Vietnam can improve the ability to take full advantage of the Foreign Aid in the future 30 REFERENCES UNCTAD, Virtual institute teaching Material on ECONOMICS AND LEGAL ASPECTS OF FOREIGN DIRECT INVESTMENT, United Nations: New York and Geneva, 2010 OECD, Glossary of Statistical Terms Impact of Japan’s official development assistance on Vietnam’s socio-economic development, Ph.D Nguyen Xuan Thien*, MA Nguyen Viet Khoi, Faculty of International Business and Economics,University of Economics and Business, Vietnam National University, Hanoi, Received September 7th, 2010 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[https://english.vietnamnet.vn/fms/business/153026/odadisbursement-in-vietnam-to-change-after-years-of-inefficientuse.html] Tạp chí Tài số kỳ 2-2015 | Nâng cao hiệu thu hút sử dụng vốn ODA [http://tapchitaichinh.vn/nghien-cuu trao-doi/trao-doi-binhluan/nang-cao-hieu-qua-thu-hut-va-su-dung-von-oda99449.html] 17 Wake-up call in ODA use and management | Vo Tri Thanh (economist at the Central Institute for Economic Management (CIEM) and a member of the National Financial and Monetary Policy Advisory Council) [https://vietnamnews.vn/economy/465004/wake-up-call-inoda-use-and-management.html#ZsRhS6motTFUCxJJ.97] 18 Impact of Japan’s official development assistance on Vietnam’s socio-economic development | Ph.D Nguyen Xuan Thien* , MA Nguyen Viet Khoi [http://repository.vnu.edu.vn/bitstream/VNU_123/14159/1/Im pact%20of%20Japan%27s%20official%20development %20assistance%20on%20Vietnam%27s%20socio-economic %20development.pdf? fbclid=IwAR0t_QRL8ilLzX6v_YTTjQTlyvmS1kLol5red1mElpBN Ot59nN3Tji4ysg8] 19 Decree 132/2018 / ND-CP amending Decree 16/2016 / ND-CP on management and use of ODA and concessional loans [https://luatvietnam.vn/tai-chinh/nghi-dinh-132-2018-nd-cpve-quan-ly-su-dung-von-oda-va-von-vay-uu-dai-167566d1.html#noidung] 16 32 ... overview of international investment The concepts of investment, foreign investment, international investment 1.1 Investment .3 1.2 Foreign investment 1.3 International investment. .. analyzing these situations and expecting certain implications for the case of Vietnam 3 I An overview of international investment The concepts of international investment investment, foreign investment, ... subject International Economics, with a fundamental aim to have some situation analysis and implications for international investment in the case of Viet Nam The term “international investment? ??