Research objectives
This study is mainly aimed at analyzing and evaluating the current situations of
Vietna ’ ub i in e t ent an it e i ien y i ering t e rt ing an factors behind, thus, recommending feasible measures to enhance public investment efficiency in Vietnam.
Research questions
This research focuses on discussing the appropriate solutions to enhance public investment efficiency in Vietnam by answering the following questions:
1 W at are t e e i ting etba Vietna ’ public investment?
2 W at are t e ain rea n r t e rt ing in Vietna ’ ub i in e t ent?
3 What are the appropriate solutions to enhance public investment efficiency?
Significance of the study
Vietnam's public investment remains a critical and dynamic topic, necessitating comprehensive research to address its current weaknesses This article emphasizes the importance of exploring various aspects of public investment in Vietnam, both now and in the future Additionally, it offers valuable insights for policymakers, students, researchers, and other interested readers, contributing to a deeper understanding of the subject.
This study offers policymakers a clear reference, presenting the author's recommendations that can serve as valuable insights for improving policies, strategies, plans, and legal frameworks concerning public investment.
For students, this study provides them with practical knowledge and case study of Vietna ’ ub i in e t ent
For future researches, this study includes some information that could assist researchers in their study Moreover, this can also be use as a helpful reference
This study offers readers a comprehensive overview of public investment in Vietnam, highlighting its current status, achievements, and limitations, while also proposing effective solutions to enhance the efficiency of public investment.
Scope and limitations of research
Due to the constraint of time and the limited knowledge and experience of the writer, it is hardly possible to cover all aspects of public investment in details
Moreover, some policies and measures of the government have just gone into effect, so evaluating their impacts and efficiency is not really feasible
This article focuses on the current state and effectiveness of public investment in Vietnam, particularly regarding infrastructure projects It presents recommendations and identifies opportunities for further research while not examining the significant influence of international events on Vietnam's public investment landscape.
Research methodology
The research is mainly based on analytical, comparative and statistic methods, supported by the illustration of some tables and charts
To evaluate the efficiency of public investment in Vietnam, it is essential to consider globally recognized public investment management theories The research findings will propose actionable solutions, focusing on developing legal frameworks for public investment, enhancing the public investment management cycle, improving the quality of state officials and staff responsible for public investment, and establishing impartial regulators in key industries.
This study focuses on assessing Vietnam's public investment performance and aims to provide recommendations for improving its efficiency Utilizing secondary data sourced from reputable organizations, including the World Bank and the General Statistics Office, the research evaluates current conditions to enhance public investment strategies.
Ministry of Planning and Investment They may be separate figures, then being gathered to analyze and synthesize to give out some findings.
The organization of the thesis
The thesis is structured with an introduction followed by three main chapters The first chapter, titled "Theoretical Framework on Public Investment," outlines the concept and criteria for assessing public investment efficiency The second chapter, "Public Investment in Vietnam in Recent Years," analyzes the current state of public investment, highlighting its achievements, weaknesses, and underlying reasons for these shortcomings The final chapter proposes solutions to improve public investment efficiency Concluding remarks and recommendations are provided after the core content to summarize and reinforce the key points of the thesis.
THEORICAL FRAMEWORK OF PUBLIC INVESTMENT
The fundamental theory of public investment
1.1.1 Definition of investment, public investment
Understanding public investment requires clear definitions of the terms "investment" and "public investment." The term "investment" has been defined by numerous experts across various studies and literature In the work "Principles of Macroeconomics" by Gregory Mankiw, significant insights into these definitions can be found.
“in e t ent” a “ en ing n a ita equi ent in ent rie an tru ture in u ing u e ur a e ne u ing.” r ing t Cambridge Dictionary,
“in e t ent” refers to “the act of putting money, effort, time, etc into something to make a profit or get an advantage” t e e initi n “in e t ent” arie in ter e n i an inan e
Investment refers to the acquisition of goods that are not immediately consumed but are intended for future use to generate wealth In finance, it involves purchasing monetary assets with the expectation of future income or appreciation for resale at a higher value From an economic perspective, investment is a crucial variable, recognized as a key driver of economic growth.
Public expenditure, often referred to as "public investment," varies significantly among nations and researchers It generally encompasses government spending on essential services like education and healthcare According to the "OECD Regional Data on Public Investment 2011," public investment includes the total of gross fixed capital formation (GFCF) and capital transfers to businesses or households GFCF is calculated by assessing the total value of a producer's fixed asset acquisitions minus disposals during a specific accounting period, along with certain enhancements to non-produced assets, such as land improvements Capital transfers involve ownership transfers of fixed assets, fund transfers linked to asset acquisition or disposal, and the cancellation of liabilities by creditors without receiving anything in return.
In Vietnam, “public investment is widely understood as investments made from
State funding encompasses various financial resources, including government bonds, state credit, and development investments from state-owned enterprises (SOEs), as well as other capital sources from the government (CEM 2011).
1.1.2 Roles of public investment in socio-economic development
The United Nations (2009) highlights a renewed emphasis on public investment over the past decade, driven by lessons from Asia's investment-led growth, the urgent infrastructure demands of rapid urbanization, and advancements in technology Governments worldwide, regardless of their development stage, acknowledge the necessity of increasing public investment The recent financial crisis has amplified this focus, positioning public investment as a vital countercyclical policy tool to generate employment and establish a foundation for sustainable economic growth.
Public investment plays a crucial role in total social investment and is often viewed as a key driver of socio-economic development This significance is evident in several key areas.
First, public investment plays a crucial role in national infrastructure development
Infrastructure is fundamental to development, encompassing both human services like health, education, and nutrition, as well as physical structures such as transport, energy, and water systems Investing in infrastructure significantly influences the eradication of hunger, reduction of poverty, promotion of economic growth, and enhancement of living standards.
During economic downturns, public investment plays a crucial role in reducing unemployment, stabilizing domestic demand, and fostering growth across various sectors In response to the current financial challenges, many countries are leveraging public investment through stimulus packages to support aggregate demand, stimulate economic growth, and generate jobs This approach particularly targets industries hit hardest by recessions, such as construction and durable goods Countries like Australia, Canada, China, Germany, and Mexico are actively implementing these strategies to mitigate the effects of economic decline.
Poland and the United States – have incorporated public investments into their stimulus programs in varying degrees, with Australia and China being the most prominent
(reaching almost 3% of GDP) In order to cope with the international financial crisis,
China government introduced the 4-trillion-yuan stimulus package to expand domestic demand and investment in 10 major areas, such as low-income housing, rural infrastructure, water, electricity, transportation, the environment
Public investment, particularly in State-Owned Enterprises (SOEs), plays a vital role in economic development by targeting sectors that the private sector may overlook due to resource constraints or low profitability This investment is crucial for advancing high-tech industries and addressing essential needs, thereby fostering industrial and regional economic shifts, alleviating hunger and poverty, and generating revenue for local development Additionally, public investment enhances public services in healthcare, education, culture, science, technology, and social welfare A significant portion of state funding is allocated to programs aimed at supporting the poor, developing rural and remote areas, and mitigating disaster impacts.
Definition and criteria to determine public investment efficiency
1.2.1 Definition of public investment efficiency n O r Di ti nary “e i ien y” i e ine a t e qua ity ing et ing well with no waste of time or money Man i (2011) e ine “efficiency” as the property of society getting the most it can from its scare resources Therefore, public investment efficiency is used to show the quality of state money located in public projects with little waste of time and money In a more complex way, public investment efficiency means the use of the state money to maximize its benefits or to create benefits that are, at least bigger than the cost
A country with high public investment efficiency effectively allocates state capital to projects that align with the broader interests of its citizens, balancing economic, cultural, political, and environmental benefits Public investments should prioritize long-term advantages for the majority over short-term gains for specific interest groups Examples of such projects include those designed to stimulate economic growth, create jobs, eliminate hunger, reduce poverty, and enhance living standards.
1.2.2 Criteria to determine public investment efficiency
Assessing a country's public investment efficiency is challenging due to its complex nature and significant impacts In Vietnam, however, a combination of quantitative and qualitative metrics has been established to facilitate a more straightforward evaluation of public investment efficiency.
Total social investment includes contributions from state, non-state, and foreign-invested sectors Public investment is primarily funded through three key sources: the state budget, equity from state-owned enterprises (SOEs), and government credit.
The scale of public investment significantly influences its contribution to total social investment and identifies the primary funding sources It also assesses the suitability and impact of this investment scale To alleviate pressure on the state budget and boost economic competitiveness, it is essential that the main financing sources for total social investment come from the non-state and foreign-invested sectors.
This criterion evaluates how public investment is distributed across various regions and sectors, focusing on the rationality of the investment structure It assesses whether this allocation can help the government achieve specific goals, as increased funding in key industries or areas is likely to enhance their growth Ultimately, a well-structured public investment framework is essential for the effective utilization of state funds.
Incremental Capital Output Ratio (ICOR)
The incremental capital output ratio (ICOR), as defined by the World Bank, measures the relationship between past investment and subsequent output growth, using constant price data for its calculations.
Assuming a time lag between investment and related increase in output of one period, the incremental capital output ratio can be derived – for the total economy – as:
ICOR = I t-1 / (GDP t – GDP t-1 ) or for sector / industry ‘i’ as:
ICOR t = I t-1 / (Output t – Output t-1 ) where I t is (gross) investment in period t
Overall, a higher ICOR value is not preferred because it indicates that the entity's production is inefficient The measure is used predominantly in determining a country's level of production efficiency
The number and scale of state-funded projects
This criterion assesses the adequacy of existing infrastructure projects in relation to a country's financial capabilities and current development stage For underdeveloped or developing nations, investing heavily in multiple megaprojects that serve similar purposes is impractical and economically unfeasible, potentially leading to budget deficits and increased public debt.
Numerous countries including Vietnam have been pursuing the public investment management system as a means to safeguard the public investment efficiency
Public Investment Management (PIM) offers a pragmatic framework for evaluating the efficiency of public investments, especially as governments aim to mobilize additional fiscal resources This approach not only facilitates an objective assessment of investment quality but also identifies key weaknesses that need to be addressed to optimize the use of fiscal resources, ultimately enhancing public sector assets and fostering economic growth.
Figure 1.1: The Public investment management system
T e igure 1.1 i u trate t e eig t “Mu t- a e” eature r e i ient ub i investment management
(i) Guidance and preliminary project screening;
(ii) A formal project appraisal processes (with cost-benefit analysis being best practice);
(iii) Independent review of appraisals (e.g including consideration of alternatives);
(iv) Project selection and budgeting need to establish envelopes for public investment so that a sustainable investment program can be undertaken;
(v) Implementation plans need to be realistic;
(vi) Adjustment for changes in project circumstances;
(vii) Facility operation-asset registers need to be maintained and asset values recorded;
(viii) Evaluation-to ensure that there is some learning and feedback
This section will provide a comprehensive overview of public investment management (PIM), focusing on stakeholders, the legal framework, and the various stages of the PIM process Effective PIM performance is essential for ensuring the efficiency of public investments.
This article explores the accessibility of information regarding state-funded projects, focusing on the timeliness and accuracy of data disclosure It assesses the effectiveness of public investment information availability and its relevance to stakeholders seeking transparency in funding initiatives.
In addition, it observes the transparency of the government, state agencies, etc
A transparent public body is defined by its accessibility and visibility of information to the public This involves not only prompt responses to information requests but also the proactive publication of a significant amount of data on their website, in official journals, and through user-friendly leaflets and reports.
Quality of state-funded projects
Evaluating the quality and progress of both completed and ongoing projects is crucial, as substandard and delayed initiatives fail to meet the objectives established by state and local authorities Poorly executed state-funded projects can have severe consequences, depleting national resources and hindering economic development.
Achievements in public investment in some Asian countries and lessons for
Recent studies have confirmed the correlation between Vietnam's public investment efficiency and macroeconomic instability While improving public investment efficiency is a top priority for Vietnam, it remains a complex challenge Learning from countries that have successfully enhanced their public investment, such as Japan and China, can provide valuable insights This research aims to analyze the achievements of these countries and extract important lessons that could benefit Vietnam's investment strategies.
1.3.1 Achievements in public investment in Japan and China
The period between 1960s and 1980s has been widely recognized as the
Japan's post-war economic miracle is largely attributed to significant public investment, especially in infrastructure development, which has propelled the nation to become the most developed in Asia The government has undertaken various megaprojects aimed at stimulating economic growth and enhancing living standards, with the high-speed rail system serving as a prime example of this strategic investment.
Citizens across Japan heavily depend on efficient transit systems for commuting to work, shopping, and entertainment The country’s bullet train network spans over 1,500 miles, achieving speeds of nearly 200 miles per hour and serving over 353 million passengers annually.
Japan has made significant investments in education across all levels, emphasizing a comprehensive approach to human resource development This commitment includes the advancement of a standardized education system designed to cultivate high-quality human resources.
Japan has adopted a public investment management (PIM) approach, focusing on preliminary feasibility studies to improve investment effectiveness This commitment to adhering to PIM stages has significantly enhanced the quality of state-funded projects.
In Japan, investment decisions are primarily made by technocrats who operate with minimal political interference, promoting the prevention of losses and waste Additionally, well-defined responsibilities among stakeholders contribute to the overall efficiency of public investment.
By virtue of the effective allocation of public investment in essential areas,
China has miraculously transformed itself, which can provide Vietnam with precious lessons to enhance its development strategy, particularly public investment approach
Investment plays a crucial role in infrastructure development, which is vital for sustaining and enhancing China's remarkable economic growth From 2000 to 2005, the country's road network expanded significantly, increasing by 250,700 km and totaling 1,930,500 km by 2005.
Similarly, by the end of 2005, the length of running railways increased to 75,000 km
The electricity power industry has experienced significant growth, with electricity generation capacity rising from 1,368.5 billion kilowatts in 2000 to 2,497.5 billion kilowatts in 2005, reflecting an impressive annual growth rate of 12.8%.
China's state-funded projects are strategically designed to address long-term demand, with infrastructure investments often exceeding current needs In contrast, Vietnam faces a different scenario, where its infrastructure, particularly roads, requires frequent upgrades to keep pace with immediate demand.
Investment is strategically directed towards key industries and regions that possess distinct advantages for maximizing returns A prime example of this is the establishment of special economic zones (SEZs), which are specifically located in areas with significant benefits Notably, in the early 1980s, the Chinese government launched three SEZs in Guangdong, highlighting the focus on regions that can drive substantial economic growth.
Province: Shenzhen, Zhuhai and Shantou whose proximity to the coastal line and the city of Hong Kong and Macau is seen as a superior advantage By virtue of the move,
Shenzhen, once a small village prior to the 1980s, has transformed into China's most successful Special Economic Zone (SEZ) and is now recognized as one of the fastest-growing cities in the world.
From the experience of Japan, and China, the following critical points can be drawn to assist Vietnam in enhancing public investment efficiency
Public investment should focus on sectors that deliver significant, long-term advantages for the majority of residents, particularly in infrastructure, education, and science and technology For example, advancements in education will equip the nation with a skilled workforce essential for fostering a knowledge-based economy.
Decisions on investment should consider and meet the future demand to maximize the efficiency of the state money
To optimize the effectiveness of state-funded projects, it is essential to adhere strictly to the Public Investment Management (PIM) framework Establishing a public investment regime that delineates clear responsibilities and fosters cooperation between central and local authorities is crucial Furthermore, it is important to ensure that investment decisions remain insulated from political pressures and the influence of special interest groups.
Public investment plays a crucial role in driving a country's socio-economic development To improve the efficiency of public investment, it is essential to gain a comprehensive understanding of its dynamics and impacts.
Chapter1 focuses on the fundamental theory as follow:
First, the overview of public investment including its definition and its roles has been mentioned to become the theoretical framework for the study
Second, several quantitative and qualitative norms have been selected to be the fundamental background to determine the efficiency of public investment
The successful experiences of various countries in mobilizing and utilizing public investment have been analyzed to extract valuable insights for Vietnam's development strategy.
The content of chapter 1 will be the fundamental background for a re en i e a e ent t e urrent ituati n Vietna ’ ub i in e t ent in chapter 2.
PUBLIC INVESTMENT IN VIETNAM IN RECENT YEARS
Current situations of public investment in Vietnam
Vietnam's public investment, defined as state capital investment aimed at mutual benefit rather than commercial gain, was approximately 286 trillion VND from 2001 to 2005, representing 23% of total investment This figure rose to about 739 trillion VND during the 2006-2010 period, accounting for roughly 24% of total social investment.
Public investment encompasses all forms of investment made with state capital, including those aimed at commercial purposes In 2012, public investment accounted for 37.8% of total investment, a significant decline from 59.1% in 2000 Despite this decrease, public investment remained the largest segment of total investment, outpacing contributions from non-state and foreign-invested sectors.
The decline in the share of state investment within total social investment does not indicate a reduction in state funding; rather, it reflects significant growth in non-state and foreign investment sectors In reality, state investment has consistently risen over the past years, increasing from VND 89.4 trillion.
2.2.1.2 Sources of financing for public investment
From 2000 to 2011, Vietnam's public investment capital consisted of three main components: state budget, credit investment capital, and equity of state-owned enterprises (SOEs) The state budget consistently represented about 50% of total investment capital, peaking at 64.3% in 2009 before dropping to 44.8% in 2010 and recovering to 52.1% in 2011 Notably, the equity of SOEs saw a significant decline from 31.4% in 2006 to just 14.5% in 2011, while the proportion of loans increased from approximately 20% in 2005 to one-third by 2011.
Between 2005 and 2009, public investment from state credit increased from VND 30-40 trillion to VND 114-115 trillion in 2010-2011, reaching VND 169 trillion in 2012 This surge is primarily attributed to the economic recession, prompting financial institutions to invest in government bonds to mitigate risks, which has led to a growing dependence of public projects on government bond capital.
2.2.2.1 Sectoral allocations of public investment
Table 2.1: State investment by kinds of activities (%)
Electricity, gas and water supply, transportation, information and communication
Trade, service, banking, financial and insurance activities
Human health and social work activities 2.4 3.4 3.3 3.6 2.8
Public administration and defend, compulsory security
Arts, entertainment, recreation and others 6.7 8.9 5.7 5.6 7.3
Over the past years, infrastructure development has been given top priority
Over the last decade, more than 40% of public investment has focused on infrastructure development, including electricity, gas, water supply, transportation, and information and communication Conversely, state investment in agriculture has decreased from 12.2% in 2000 to 6.7% in 2009, while funding for science, education, and training also fell from 8.5% to 5.1% during the same period In contrast, public investment in administration, defense, and compulsory security rose significantly from 5.2% in 2000 to 7.7% in 2009, highlighting a concerning lack of emphasis on human development in recent years.
2.2.2.2 Regional allocations of public investment
Figure 2.3 highlights the distribution of state investment between central and local authorities, showing a trend towards equal allocation In 2000, the investment was divided with 60% going to central authorities and 40% to local ones However, since 2002, this distribution has stabilized at an equal 50% for both central and local authorities.
Since 2010, local government investment has consistently exceeded that of the central government, highlighting a trend where central efforts to reduce public investment have not been fully realized at the local level (Nguyen & Dinh, 2011).
Public investment has positively impacted all seven regions, though the degree of these benefits varies significantly This disparity is evident in the differing growth rates and levels of poverty reduction experienced across regions, particularly in the Northern Uplands.
The Central Highlands, South Central Coast, and Mekong Delta regions experience significantly lower growth rates and poverty reduction compared to other areas Additionally, these regions face challenges with social development indicators and access to infrastructure, highlighting the need for targeted improvements.
The Mekong Delta, a natural gem and the heart of Vietnam's agricultural output, contributes 90% of the country's rice and 70% of its fish exports Despite this abundance, nearly 50% of local farmers earn less than one dollar a day, with many communities still classified as impoverished The persistent poverty and re-poverty in the region are largely attributed to inadequate and ineffective public investment.
In 2010, despite the region's significant contributions to the country's economy, it received a mere 0.36% of the VND 16 trillion allocated for public investment The state of road transport remains inadequate, with many projects approved seven years ago still inactive Currently, 90% of the existing roads require widening or replacement, and there is an urgent need to replace hundreds of old temporary bridges with safe, permanent structures The region is served by only two major bridges, My Thuan and Can Tho, while waterways are frequently obstructed by silt that has not been dredged for years.
2.2.3 Incremental Capital Output Ratio (ICOR)
Table 2.2: ICOR of some regional countries
Nations period GDP growth rate Investment/GDP ICOR
Over the past two decades, Vietnam's incremental capital output ratio (ICOR), which assesses the productivity generated from additional capital, has consistently declined since the country adopted a socialist-oriented market economy in 1996.
2000, Vietnam’s ICOR stood at 4.7, before increasing to 5.1 the period 2001-2005 The
From 2006 to 2010, Vietnam's Incremental Capital-Output Ratio (ICOR) was 6.1, significantly higher than that of other countries at a similar development stage, as shown in Table 2.2 This elevated ICOR highlights the low efficiency of investment in Vietnam, suggesting that the country is not maximizing its investment returns compared to its regional counterparts.
A widely noted study carried out by researchers at Vietnam’s Central Institute for
Economic Management calculated ICOR for the Vietnam’s economy as a whole at
8.78 for the period 2001-2009 The measure indicated that it took nearly $9 of new investment to generate annually $1 of new wealth Remarkably, the state sector proved most inefficient with an ICOR for the period of 17.55 The ICOR for foreign-invested sector was better at 11.14 It was the Vietnam’s indigenous private sector that possessed the most impressive ICOR, which required only $4.62 of new investment to generate another one dollar of annual output
2.2.4 The number and scale of state-funded projects
Vietnam’s government has approved numerous large-scale projects, especially infrastructure ones with a view to upgrade and develop the country infrastructure to meet global standards
Assessment on achievements, limitations of public investment in Vietnam
Vietnam has been highly successful in mobilizing enormous investment to simultaneously achieve impressive growth and extraordinary poverty reduction
Over the past two decades, Vietnam has experienced remarkable economic growth, achieving an average annual rate of approximately 7.5%, positioning it among the fastest-growing nations globally Since 1990, the percentage of the population living in poverty, defined by the $1-a-day threshold, has dramatically decreased from 51% to just 8%.
The share of public investment in total social investment has declined due to the significant expansion of private and foreign investments This trend is encouraging, as the strengthening of non-state and foreign sectors leads to increased investment in essential industries and regions, ultimately reducing the financial burden on the state budget.
2.3.1.2 Number and scale of state-funded projects
Vietnam is actively enhancing its infrastructure to meet the increasing demands for transportation, telecommunications, energy, and water supply, as evidenced by a surge in large-scale projects A prime example of this development is Son La, which highlights the country's commitment to improving essential services and supporting economic growth.
The completion of Son La power station, three years ahead of schedule, will play a big r e in ett ing Vietna ’ e tre e rtage energy an benefits the country billions of dollars
Vietnam has made significant advancements in key sectors such as transportation, electricity, and water supply due to investments in national projects Notably, from 2000 to 2010, the country's paved road network expanded dramatically, increasing from 30,000 kilometers to nearly 120,000 kilometers.
Over a span of 120,000 km, infrastructure development has significantly linked farms and businesses to markets, effectively reducing transaction costs Additionally, the percentage of rural households with access to electricity rose dramatically from 14% in 1993 to nearly universal coverage by 2010 Electricity production experienced remarkable growth, increasing from 8.8 billion kilowatt hours in 1990 to an impressive 80 billion kilowatt hours.
2009, a remarkable annual average growth rate of 13% Similarly, the number of households with access to a piped water network rose from 12% in 2002 to 76% in
The government has drafted and promulgated a series of legal documents to regulate public investment in general, and public investment management in particular
Numerous industries, sectors, ministries, and regions are engaged in the Public Investment Management (PIM) cycle, prompting efforts to establish clear boundaries among participants and enhance collaboration among state agencies, line ministries, and local authorities These initiatives aim to facilitate the smooth and efficient functioning of the PIM cycle.
The allocation of public investment between regions and sectors is not suitable
Education, research and development (R&D), and advancements in science and technology are crucial for enhancing workforce quality and Vietnam's global economic integration Studies indicate that investing in R&D is essential for fostering advanced economic growth, particularly in agriculture, which is vital for ensuring food security A reduction in agricultural investment poses risks to rural development, poverty alleviation, and food stability Additionally, the growing decentralization of public investment may lead to overlapping responsibilities between central and local authorities, complicating effective governance.
Local authorities often mismanage financial resources, leading to excessive investments in projects that do not contribute meaningfully to local development.
2.3.2.2 Incremental Capital Output Ratio (ICOR)
Vietnam's notably high Incremental Capital-Output Ratio (ICOR) highlights the inefficiency of investment spending, particularly within the state sector, which shows a significantly higher ICOR compared to private and foreign-invested sectors This indicates that the state sector yields the least benefit per unit of investment To sustain previous economic growth rates, Vietnam must increase investment levels; however, this is challenging given the current high public debt and budget constraints.
2.3.2.3 Number and scale of state-funded projects
The proliferation of megaprojects highlights significant inefficiencies in their planning and execution, particularly in a developing country where the demand for such large-scale initiatives is far outstripped by supply This misallocation of resources represents a substantial waste, suggesting that government funds would be better invested in critical sectors like education, science, and technology.
The involvement of numerous state agencies, line ministries, and local authorities in the Public Investment Management (PIM) system often results in overlapping responsibilities and inefficiencies within the PIM cycle Despite the existence of various laws and regulations governing public investment, fragmentation among these legal frameworks and weak enforcement hinder effective policy and legal reforms, ultimately impacting the performance of the PIM cycle As a result, the stages of PIM have not been successfully executed.
The objectives in development strategies are often excessively broad and vague, which simplifies preliminary screening but significantly undermines its quality Additionally, both pre-screening and formal appraisal processes lack full independence Decentralization in Public Investment Management (PIM) has unintentionally weakened the central roles of the Ministry of Finance (MOF) and the Ministry of Planning and Investment (MPI), while also revealing the low capacity of appraisal agencies within line ministries and local governments Furthermore, there is a noticeable divergence between the legal framework and its actual application in PIM, leading to the selection of inefficient projects, as well as delays and incompletion of initiatives.
Monitoring and evaluation of projects, mandated by law, often lack adequate attention from responsible agencies, leading to delays in project adjustments Additionally, there is a notable absence of regulations that require independent reviews of appraisals and evaluations, hindering effective oversight and accountability in project management.
The lack of timely and effective information disclosure hinders public access to essential data needed to assess state-funded projects and agencies This information gap can lead to citizen indifference towards state initiatives and policies, diminishing their likelihood of actively monitoring, supervising, and providing feedback to improve these projects and policies.
2.3.2.6 Quality of state-funded projects
Many state-funded projects face delays and subpar quality, leading to significant losses and waste This issue arises partly because both domestic and foreign contractors supply equipment and materials that do not meet the required standards Additionally, some contractors lack the necessary financial stability, technical expertise, and appropriate technology Instead of addressing these shortcomings promptly, authorities often exhibit undue leniency towards contractors, overlooking their deficiencies and misconduct Consequently, the persistent low quality of state-funded projects remains an unresolved challenge.
Reasons for low public investment efficiency
Poor public investment efficiency is attributed to several factors, including a misguided focus on industrialization at any cost, arbitrary allocation of public funds, a tenure-oriented mindset, and competition among localities and organizations for benefits Additionally, a lack of skilled personnel and inadequate legal frameworks further exacerbate the issue The following sections will outline the key reasons behind the low efficiency of public investment.
First, the desire for fast development, the determination to pursue
"Public investment efficiency is significantly influenced by the principle of supply and demand, which has often been overlooked by authorities Instead, the focus has shifted towards industrialization, modernization, and the socialist-oriented market economy as justifications for increased public investment Consequently, nearly all coastal provinces are planning to construct seaports, while many border provinces aim to establish border economic zones."
Every province has developed industrial parks, economic zones, museums, and universities, with state-owned enterprises (SOEs) eager for government-funded projects However, a supply-driven approach that overlooks demand, along with neglecting essential factors like labor, management skills, and necessary infrastructure, has resulted in many abandoned projects and significant financial losses.
Localism, tenure-based policies, and achievement-driven activities, along with the equitable distribution of state funds, are driving the initiation of state-funded projects in regions like "r er t rai e ' r in ia GDP." However, weaknesses in planning and unclear responsibilities between the central government and local authorities have led to many newly-approved plans being misaligned with reality Industry master plans often do not correspond with regional plans, resulting in significant delays in project completion This poor planning and ambiguous task delegation have caused an oversupply of projects with similar functions, intensified unnecessary competition between the state and private sectors, wasted capital, and incurred substantial losses.
The shortage of skilled state officials responsible for public investment in Vietnam undermines the quality of project appraisal, planning, selection, implementation, and evaluation Consequently, local authorities often set unrealistic socio-economic targets that do not align with practical demands or local capacities This issue stems, in part, from a lack of capable policymakers who can create realistic and feasible plans to effectively drive the development of provinces and the nation as a whole.
Forth, the low public investment efficiency has been resulted from the in u i ien y Vietna ’ ega u ent It is said that the shortcomings of
Vietnam's public investment management faces significant challenges due to its legal framework, which is often seen as unfeasible, ambiguous, and inconsistent Current laws fail to clearly define the roles and responsibilities of stakeholders, leading to overlaps and confusion These legal loopholes can have detrimental effects on society and undermine the credibility of the state apparatus.
Based on the theoretical framework mentioned in chapter 1, the thesis n entrate n ana yzing an a e ing t e urrent ituati n Vietna ’ ub i investment The thesis draws some conclusions as follow
Vietnam has made significant progress, particularly in public investment allocation in critical sectors such as transport, telecommunications, energy, and water supply, effectively addressing the growing demands of its population.
The study not only highlights the achievements of public investment in Vietnam but also assesses its shortcomings and identifies factors that contribute to low efficiency This analysis lays the groundwork for practical solutions aimed at enhancing public investment efficiency, which will be discussed in Chapter 3.
SOLUTIONS TO ENHANCE PUBLIC INVESTMENT
Improving the legal framework of public investment
Vietnam has a multitude of legal documents governing public investment; however, these laws and by-laws, proposed by various institutions with sector-specific viewpoints, often lead to inconsistencies and a lack of a cohesive overall vision.
To improve the effectiveness of public investment, it is essential to strengthen the legal framework by addressing fragmentation, duplication, and inconsistencies in laws and regulations State agencies responsible for issuing legal documents must carefully consider the efficiency and feasibility of these laws, particularly those related to public investment management.
At the highest order of importance, the MPI is drafting the new Law on Public
The Investment Law serves as a comprehensive legal framework designed to address existing issues and promote a healthier public investment environment It mandates strict adherence to regulations by all participants in public investment, while clearly defining the responsibilities of governing bodies This clarity aims to minimize overlaps in rights and responsibilities, ultimately enhancing the efficiency of public investment.
The Law on Bidding requires urgent amendments due to its problematic provisions Currently, it states that the lowest bid wins among those meeting 70% of technological criteria, yet it prohibits specifying trademarks or the origin of goods in tender invitations This loophole allows contractors to use substandard materials, compromising project quality Additionally, the bidding process in Vietnam suffers from opaque and inconsistent procedures, leading to significant damage to the state budget and national economy Addressing these issues through legal reform is essential for improving the integrity of the bidding system.
The State Budget Law must be revised to enhance the regulations surrounding accounting, auditing, financial supervision, reporting, and the disclosure of financial-budget information, ensuring alignment with socio-economic development strategies It is essential to eliminate overlaps and inconsistencies in existing laws, particularly between the Construction Law and Investment Law.
Strengthening the public investment management cycle
Enhancing the public investment management (PIM) cycle in Vietnam, in alignment with the budget process, is essential for preventing the approval of inefficient and costly public investment projects However, the current performance of Vietnam's PIM system has fallen short of expectations, indicating a need for significant improvements across various stages.
There is a significant demand for improved Public Investment Management (PIM) from both citizens and the business community Key donors, especially the World Bank, are offering essential support for comprehensive PIM reforms In addition to strengthening the legal framework, several priorities must be addressed to achieve effective enhancement of PIM systems.
To enhance the effectiveness of Public Investment Management (PIM) in Vietnam, it is essential to deepen decentralization by increasing the responsibility and accountability of local governments and line ministries Improving appraisal and monitoring capabilities at all levels is crucial Additionally, establishing a framework for independent reviews of project appraisals will strengthen oversight in PIM The recent approval of the Charter for the Association of Independent Reviewers marks a significant step in this direction.
Evaluators is the first step in this direction
Monitoring and evaluation require increased focus, as evidenced by successful initiatives like Program No 135 These programs highlight the importance of adopting a results-based approach to monitoring and evaluation, moving away from traditional input-based methods.
Vietnam needs to strengthen the accountability of agencies responsible for project implementation and management (PIM) to ensure they are more motivated to monitor and evaluate projects effectively Additionally, the involvement of community organizations in this monitoring and evaluation process should be amplified, as current regulations support this approach but it is often not practiced.
Third, Vietnam needs to improve her statistical system to allow for adequate analysis of public investment, and related to it, adopt realistic and feasible indicators of
PIM efficiency to facilitate M&E and project evaluation.
Enhancing human resources in charge of public investment
Human resources are crucial for ensuring the efficiency of public investments, making it vital for the government to establish supportive conditions and incentives that improve the quality of personnel in public investment management This enhancement is particularly important in the areas of appraisal, selection, implementation, and evaluation of state-funded projects Several strategies will be outlined to elevate the quality of human resources in this sector.
In terms of recruitment, it is highly recommended that the only competent individuals who at the same time demonstrate good work ethics should be employed
The recruitment procedures should be transparent and fair Moreover, policies and incentive to attract and keep talented staff should be introduced
The government should establish a comprehensive training policy that includes a feasible roadmap for enhancing staff experience and skills through regular short-term and long-term training programs, such as conferences, workshops, and seminars These initiatives will provide staff with valuable opportunities to improve their knowledge, share experiences, and learn from peers, ultimately raising the quality of their work in appraising, planning, selecting, implementing, and evaluating state-funded projects Additionally, implementing competitions and assessments can motivate staff to pursue self-improvement and stay updated on relevant laws, regulations, and public investment policies During training, it is essential to offer favorable conditions, such as reduced working hours and financial assistance, while encouraging staff to enhance their work ethics to boost overall work efficiency.
To enhance work efficiency, state agencies and local authorities must implement effective incentive schemes that foster a transparent and professional environment Recognizing and rewarding individuals and organizations for outstanding performance is essential, while those exhibiting subpar performance or engaging in misconduct should face appropriate consequences Additionally, assigning tasks according to staff abilities can motivate employees to fully commit to their roles, ultimately maximizing productivity.
Creating impartial regulators for key infrastructure sectors
Addressing critical issues such as localism, a tenure-oriented mindset, and the competition for local benefits is essential for effective governance The overlapping rights and responsibilities among regulators, market participants, central government ministries, and local authorities must be clarified A viable solution is the establishment of a national or regional Infrastructure Regulatory Authority, particularly for key sectors like the Port Authority of the Southeast, to oversee and regulate the regional port system Many countries have successfully implemented governmental or quasi-governmental authorities to manage airports, seaports, and Economic Zones, ensuring efficient administration of infrastructure systems that span multiple provinces or regions.
In Vietnam, regulatory agencies often operate under a line ministry, which complicates the distinction between ownership and regulation To enhance their effectiveness, these agencies should be elevated to authority status, granting them powers akin to a central ministry along with adequate financial resources and operational independence Their primary roles would include approving new projects, establishing industry standards, ensuring fair market competition, protecting citizen interests, and determining user fees.
In brief, the establishment of impartial national or regional Infrastructure
Regulatory Authority for key sectors will settle a large number of current setbacks of public investment in Vietnam, thus enhance public investment efficiency
This thesis proposes actionable solutions to improve public investment efficiency, grounded in the fundamental theory of public investment and addressing the weaknesses and underlying reasons discussed in previous chapters.
First, enhancing the legal framework of public investment
Second, strengthening the public investment management cycle
Third, enhancing the human resources in charge of public investment
Forth, creating impartial regulators for key infrastructure sectors
Public investment is crucial for macroeconomic development, particularly in infrastructure, which has been a key driver of growth over the past few decades.
Vietnam's real estate investment sector faces significant challenges, including a high Incremental Capital-Output Ratio (ICOR) and inefficiencies in public investment management These issues are exacerbated by the excessive number of state-funded projects, many of which experience delays or suffer from low quality Addressing these shortcomings is crucial for improving standards and fostering sustainable growth in the industry.
This study outlines effective strategies to improve public investment efficiency, including strengthening the legal framework, optimizing the public investment cycle, and enhancing the skills of personnel involved in public investment Clearly, achieving greater efficiency in public investment is a challenging endeavor.
Addressing the low efficiency in public investment requires a collaborative effort involving approximately 124 sectors, industries, localities, state-owned economic groups, and enterprises A singular solution is insufficient; thus, it is crucial to implement a combination of measures rather than treating them in isolation Additionally, the government must provide clear guidelines to assist line ministries, local authorities, and state-owned enterprises in executing public investment reforms systematically.
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