This study investigates solutions to increasing investment capital in accelerating socio-economic development in Phu Quoc island in the future.
MINISTRY OF EDUCATION AND TRAINING THE STATE BANK OF VIETNAM BANKING UNIVERSITY OF HO CHI MINH CITY NGO VAN THIEN INVESTMENT CAPITAL FOR SOCIO-ECONOMIC DEVELOPMENT OF PHU QUOC ISLAND SUMMARY OF DOCTORAL THESIS Major: Finance - Banking Code: 62.34.02.01 Academic advisor: Assoc Prof Dr Le Thi Tuyet Hoa HO CHI MINH CITY - 2017 CHAPTER 1: INTRODUCTION 1.1 The urgency of the research topic Phu Quoc, an island district of Kien Giang province in the Southwest of Viet Nam, is considered as the center of the Southeast Asia The master plan for accelerating socio-economic development in Phu Quoc island to 2020 aims to develop the island district into a special administrative-economic zone by 2020 It is believed that investment capital plays a vital role in accelerating economic development In order to ensure the achievement of the aim of the master plan for Phu Quoc island, efficient solutions to increasing investment capital are required The researcher, thus, is interested in conducting this study on “Investment capital for socio-economic development of Phu Quoc island” 1.2 Research goal/ research objective This study investigates solutions to increasing investment capital in accelerating socio-economic development in Phu Quoc island in the future 1.3 Research questions: This study aims to explore the answers to the following research questions: 1) What is the current situation of investment capital in accelerating socioeconomic development in Phu Quoc island? 2) What is the impact of investment capital on socio-economic development in Phu Quoc island? 3) What are factors influencing the attraction of investment capital in accelerating socio-economic development in Phu Quoc island? 4) What is the trend of the factors influencing the attraction of investment capital in Phu Quoc island? And what is the impact of the factors influencing the attraction of investment capital in Phu Quoc island? 5) What are solutions to increasing investment capital in accelerating socioeconomic development in Phu Quoc island in the future? 1.4 Research subject and scope - Subject of the study: Investment capital in accelerating socio-economic development in Phu Quoc island - Scope of the study: the research focuses on investment capital in accelerating socio-economic development in Phu Quoc island in the period of 20112016, include mobilizing investment capital and investment capital utilization 1.5 Research method - Data collection method: both primary data and secondary data were collected and analyzed through the SPSS 16.0 software The secondary data was from 2011 to 2016 while the primary data was from 01/ 10/ 2016 to 31/12/2016 - Research method: a mixed-method was employed in this study on Investment capital in accelerating socio-economic development in Phu Quoc island, which could provide the researcher with a great opportunity to gain a more insightful look into the research topic under investigation when combining quantitative and qualitative methods of data collection and analysis including synthesis, analysis, comparison, inheritance, expert method, and quantitative method with the combination of exploration analysis and multivariate regression analysis 1.6 Previous related studies In the world, a great number of researchers have conducted studies on investment capital in accelerating socio-economic development as Robert Solow (1956), Michael Regan (2016), Lin Xiong (2010), Dunning (1977), Kinda (2010), Vidya Bhushan Rawat, Mamidi Bharath Bhushan, Sujatha Surepally (2011) Numerous related studies were also conducted in Vietnamese context by Nguyen Van Hung (2009), Nguyen Van Binh (2017), Nguyen Van Dung (2014), Nguyen Hong Ha (2015), Bui Manh Cuong (2012), Mai Van Nam (2008), Le Vinh Danh (2004), Phan Thanh Mao (2003), Nguyen Dau (2005), Nguyen Thi Giang (2010), Dinh Van Phuong (1999) Results of the literature review on previous related studies indicate that researches on investment capital in accelerating socio-economic development in Phu Quoc, which is becoming the first special economic-administrative zone of Viet Nam by 2020, have been limited New points of the research are as follows: (1) The study has a combination of qualitative and quantitative research method with a particular scale of Phu Quoc island; (2) With abundant and authentic materials, the status and impact of investment capital on socio-economic development of Phu Quoc Island in the period 2011-2016 has been clarified; (3) Detecting factors that affect socio-economic development; (4) Proposing measures to increase investment capital for socioeconomic development of Phu Quoc island in the coming time 1.7 The significance of the study - Theoretical contributions: results of this present study could contribute more insights into literature on the topic under investigation, investment capital in accelerating socio-economic development - Practical contributions: results of this present study could also raise the local authorities’ awareness of the significance of investment capital and of efficient solutions to increasing investment capital in accelerating socio-economic development in potential areas, especially in Phu Quoc island 1.8 The organization of the study Chapter 1: Introduction Chapter 2: Theoretical framework on Investment capital in Accelerating Socio-economic Development Chapter 3: Current situation of investment capital in accelerating socioeconomic development in Phu Quoc island Chapter 4: The analysis of factors affecting the attraction of investment capital in Phu Quoc island Chapter 5: Conclusions and solutions to boosting investment capital for socio-economic development in Phu Quoc island 1.9 Research process In order to achieve the research objectives, from the theoretical framework and previous researches, the author has proposed the appropriate research method, then analysis of the situation, Assess the impact of investment capital on socioeconomic development, identifying factors affecting on the attraction of investment capital to Phu Quoc Island, from which draws the successes, limitations and causes as the basis for proposing solutions to increase investment capital for socioeconomic development in Phu Quoc Island 4 CHAPTER 2: THEORETICAL FRAMEWORK ON INVESMENT CAPITAL FOR SOCIO-ECONOMIC DEVELOPMENT 2.1 Investment and development investment Investment could be defined as the current consumption savings as a portion of the social wealth which is utilized in a new process of social production to make more wealth for the society in the future It is believed that investment is the key to economic growth Tinh (2009) proposed that development investment is investing assets and labor force, in which investors spend their savings on activities with the intention of making future profit or more assets for themselves and the social economy 2.2 Investment capital 2.2.1 Concept Investment capital could be considered as all expenses utilized to increase or maintain assets in a specific period of time 2.2.2 Investment capital sources Investment capital sources include state investment capital, private sector investment capital and foreign investment capital 2.2.3 Mobilizing investment capital Concept of mobilizing investment capital According to Kham (2001), mobilizing investment capital could be seen as a process of determining and searching for financial sources for investment activities In order to carry out any investment activities, questions of capital including amount of required capital, sources of that amount of capital, the potentiality of the capital sources, ability of participating of each source and how to take advantage of the investment capital must be handled appropriately Indicators of level of investment capital mobilization The level of investment capital mobilization is frequently calculated based on the following indicators: total mobilization, the ratio of the mobilized investment capital to the expected investment capital, capital growth rate, the proportion of implemented investment capital to the investment capital of the whole country and of the other regions, and investment capital structure Factors affecting the mobilization of investment capital for socioeconomic development Attracting investment capital to a country or a locality could be influenced by the following factors: (1) For state capital, which is often influenced by local economic planning, budget revenues, central interest, state enterprise development policies; (2) Non-state capital is often influenced by factors such asinfrastructure, invest- ment policies, living environment, natural resources, local trade promotion and marketing, human resources, credit support and input cost 2.2.4 The efficiency of investment capital The coefficient ICOR, which reflects the relationship between investment capital and economic growth (Harrod-Domar model), was employed in order to examining the efficiency of the utilization of investment capital Investment Capital efficiency is influenced by factors such as natural conditions; economic policy; factors of politics, culture, historical society, customs; and investor capacity factors 2.3 Socio-economic development and the role of investment capital in accelerating socio-economic development 2.3.1 Socio-economic development Huan (2006) defined socio-economic development as a process of economic increment in all aspects over a specific period of time Socio-economic development encompasses economic growth including the increase in volume of output, and progress in economic structure and the society 2.3.2 The role of investment capital in accelerating socio-economic development Investment capital plays the following significant roles in accelerating socioeconomic development: - First, investment capital accelerates economic growth - Second, investment capital accelerates applying science and technology in order to boost labor productivity, product quality and competitiveness of the economy - Third, investment capital boosts the efficiency of the utilization of absolute and comparative advantages of a economy to shift the economic structure in the direction of modernization - Fourth, investment capital facilitates the process of solving social problems 2.3.3 Indicators of socio-economic development In order to assess the level of socio-economic development, three main clusters of indicators are employed: (1) economic growth indicators, (2) economic structural indicators and (3) social development indicators 2.4 Special economic zone and role for socio-economic development Dobrogonov and Farole (2012), ‘Special economic zone’ (SEZ) to cover all forms of a geographically demarcated area within a country, which functions with different administrative, regulatory and fiscal regimes to the rest of the country Under the criteria of the United Nations Development Program (UNDP), the Special Economic Zones are divided into three main categories: Free Trade Zones (FTZ), Export Processing Zones (EPZ) and Multi-purpose zones (MPZ) According to Ge (1999), the creation of special economic zones has the following benefits: creating jobs for workers, increasing exports and diversifying products of the economy, increase foreign exchange, increase local budget revenue, stimulate businesses outside the economic zone to develop and receive advanced technology from abroad 2.5 Experience in enhancing investment capital for socio-economic development Considering experience in enhancing investment capital mobilization in several countries and provinces, some precious experience for enhancing investment capital in Phu Quoc island could be concluded below: - Establishing a unique mechanism - Applying models of public-private partnerships (PPPs) - Intensifying administrative reforms - Developing vocational training - Promulgating more preferential tax policies - Appreciating investors Conclusion of chapter A detailed theoretical background of investment capital for socio-economic development was presented in chapter 2, which is considered as the significant framework for the subsequent chapters 7 CHAPTER 3: CURRENT SITUATION OF INVESTMENT CAPITAL FOR SOCIO-ECONOMIC DEVELOPMENT IN PHU QUOC 3.1 Analyzing the natural and socio-economic conditions of Phu Quoc island Phu Quoc is naturally gifted with priceless assets including mountains, forests, and seas, which facilitates its development of the sea-island tourism, eco-tourism ans resort tourism as one of the top brands in the region and the world The social economy of Phu Quoc island has been recently flourished with high economic growth rate, the highest per capita income of Viet Nam, and the significant improvement on educational level of its citizens 3.2 Current situation of investment capital mobilization for socioeconomic development in Phu Quoc island 3.2.1 Investment capital mobilization policies in Phu Quoc Island The government and local authorities have promulgated a number of policies to increase the effectiveness of mobilizing investment capital in Phu Quoc island including the establishment of the developmental plan until 2030, the establishment of Phu Quoc Economic Zone Management Board aiming to solve several urgent missions in the locality and manage some special mechanisms such as preferential mechanisms accelerating socio-economic development in Phu Quoc However, some other preferential mechanisms on taxation, land-rent, and special business types (e.g casino…) has not been innovated 3.2.2 Situation of the number of investment enterprises and registered projects 3.2.2.1 The number of investment enterprises According to data from the Department of Planning and Investment of Kien Giang province, the number of investment enterprises in Phu Quoc have rapidly increased every year with the average increase of 6.9% per year Non-state-owned enterprises have made up the fastest increase in investment capital, accounting for the most proportion of 99% of the average increase in the total number of investment enterprises in Phu Quoc island 3.2.2.2 The number of registered projects Thanks to its great potential for attracting investment capital, Phu Quoc attracted a total investment capital of 215.194 billion, which was mainly invested in tourism promotion; and 193 investment projects were approved in the period from 2011 to 2016 3.2.3 The scale of investment capital mobilization in Phu Quoc Island Total investment capital in Phu Quoc from 2011 to 2016 had an average annual growth rate of 41.2% and accounted for an average proportion of 44.2% of the total investment capital of the province The total mobilized investment capital reached 117% of the plan of capital mobilization in Phu Quoc in the period of 20112016 It is obvious that two significant sources of the total investment capital of the whole society are state investment capital and non-state investment capital The proportion of investment capital mobilized from foreign and other sources is insignificant Table 3.4 Total investment in Phu Quoc period 2011-2016 Unit: billions VND Year Content 2011 Kien Giang investment capital 2012 2013 20.150 24.407 28.289 2014 2015 2016 33.438 40.517 46.850 Mobilization plan 4.000 4.800 5.700 6.912 10.000 15.000 Phu Quoc island investment capital 3.697 3.178 3.456 7.435 15.933 20.720 - Compared with Kien Giang (%) 18,3 13,0 12,2 22,2 39,3 44,2 - Compared with mobilization plan (%) 92,4 66,2 60 107,6 159,3 138,2 8,4 -14 8,7 115,1 114 30 - Capital growth rate(%) (Source: Kien Giang Statistical Office) 3.2.4 The structure of investment capital mobilization of Phu Quoc Island From 2011 to 2016, a contrast between state investment capital sector and non-state investment capital sector in the structure of investment capital of Phu Quoc island was observed The proportion of state investment capital sector decreased from 71.2% in 2011 to 13.4% in 2016 while that of non-state investment sector increased from 28.5% in 2011 to 86.06% in 2016 3.2.4.1 Structure of investment capital from state sector - Investment capital sources Although state investment capital increased in the period from 2011 to 2016, its proportion significantly decreased in comparison to the proportion of investment capital mobilized from private sector It is transparent that Phu Quoc is currently being planned to develop into an economic zone which is expected to become a special economic zone by 2020 Administratively, Phu Quoc is, however, currently still an island district of Kien Giang province Therefore, state-owned investment capital in Phu Quoc island remains under the control of the provincial administration of Kien Giang - Management levels Considering the management levels of investment capital, investment capital from state budget tends to gradually decrease in the period from 2011 to 2016 Local budgets, in contrast, gradually increase in the same period of time 3.2.4.2 Structure of investment capital from non-state sector According to results of data analysis, investment capital from non-state sector has steadily increased each year with an average annual growth rate of 76.2% The proportion of the total investment capital from non-state sector made up 28.4 % in 2011 and grew up to 86.12% in 2016 in comparison to the total investment capital of the whole society In terms of non-state capital structure, investment capital from both enterprises and residential sector has rapidly increased; investment capital from enterprises increased faster than that from the residential sector 3.2.4.3 Structure of foreign investment capital In general, foreign investment capital in Phu Quoc has been at really low proportion Statistically, there have been only registered foreign enterprises accounting for 0.46% of the total investment capital in 2016 3.2.4.4 Structure of investment capital from other sources Statistically, the total investment capital from other sources such as socialization capital and residents’ funds for expenditure for public works like improving rural roads and other social welfare projects was billion, accounting for about 0.04% of total investment in 2016 3.3 The situation of the utilization of investment capital for socio-economic development in Phu Quoc island 3.3.1 Structure of the utilization of investment capital in Phu Quoc Island Services and some other outperformed sectors has been supposed to have extremely great growth rates of all In 2016, the investment capital increased by times in comparison to the investment capital in 2011, accounting for 85.5% of the total investment In terms of structure of investment capital in services and other sectors, the total investment capital of Phu Quoc island portioning in food and accommodation services, real estate businesses, transport services, and entertainment was 54.96%, 9%, 6% and 4% respectively It could be concluded that the majority of mobilized capital in Phu Quoc was invested in tourism Table 3.9 Structure of investment capital in Phu Quoc period 2011-2016 Unit: billions VND Year Content 2011 2012 2013 2014 3.697 3.178 3.456 7.435 Agriculture-Forestry-Seafood 97 145 158 170 364 518 Industry - Construction 814 1.079 1.271 974 1.977 2.493 2.786 1.954 2.027 6.291 100 100 100 100 100 100 2,6 4,5 4,5 2,3 2,3 2,5 Total Services and other sectors Capital structure(%) Agriculture-Forestry-Seafood (%) 2015 2016 15.933 20.720 13.592 17.709 10 Industry - Construction (%) Services and other sectors (%) 22 34 36,8 13,1 12,4 12 75,4 61,5 58,7 84,6 85,3 85,5 (Source: Kien Giang Statistical Office) 3.3.2 The efficiency of investment capital utilization in Phu Quoc The Incremental Capital Output Ratio (ICOR) in Phu Quoc was 5.9 in the period from 2011 to 2016, which significantly increased from 3.1 in 2011 to 7.2 in 2016 The average ICOR of 5.9 shows that every 5.9 VND invested in Phu Quoc in the period from 2011 to 2016 could enable the investors to gain 1VND of additional GDP Considering the efficiency of investment capital utilization of some calculateable sectors, the agriculture, forestry and fisheries sector had the lowest ICOR of 0.6; the industry and construction sector had the ICOR of 8; and the service sector had the ICOR of 9.4 3.3.3 Impact of investment capital on socio-economic development in Phu Quoc Island 3.3.3.1 Impact of investment capital on economic growth Thanks to the increase in investment capital, GDP growth rate in Phu Quoc island has increased each year The average increase of the whole period from 2011 to 2016 was 26.4% 3.3.3.2 Impact of investment capital on economic restructuring The economic restructuring in Phu Quoc has happened in a positive direction with a gradual increase in services, industry and construction and a gradual decrease in agriculture, forestry and aquaculture The proportion of service sector in 2011 was 38.4%, which grew up to 47% in 2016 3.3.3.3 Impact of investment capital on the average income of the locals in Phu Quoc island Average income of the locals in Phu Quoc island has been increasing The average income was $ 2.145 in 2011 and $ 6.063 in 2016 It is obvious that the average income of the locals in Phu Quoc island was times higher than that of the country 3.3.3.4 Impact of investment capital on other social indicators Investment capital increase not only contributed to a significant improvement in the living standards of the locals but also boosted other social indicators such as employment, poverty reduction and better access to qualified education and health services for the locals It is evident that thanks to the investment capital increase in the period of 2011-2016, the economy of Phu Quoc island gained a remarkable growth rate, which facilitated the improvement in some indicators of socio-economic development 3.4 Assessment of current situation of investment capital for socioeconomic development in Phu Quoc island 3.4.1 Achievements 11 - Investment capital mobilization: In the period of 2011-2016, Phu Quoc was really successful in mobilizing investment capital Numerous achievements in investment capital mobilization included enhancing the scale of capital mobilization, increase in local budgets, attracting more and more private investment capital, and increase in both quantity and quality of the registered projects - Investment capital utilization: Numerous achievements in investment capital utilization included great contribution to local economic growth; boosting the economic restructuring in a positive direction; increasing labor productivity and improving living standards of the locals; better access to qualified education and health services for the locals; and reducing the local unemployment and poverty rate 3.4.2 Limitations - Limitations on investment capital mobilization: Mobilizing capital for infrastructure development was still limited; there were insufficient breakthrough policies; and the inefficiency in taking advantage of local potential for attracting foreign investment capital was also revealed with a limited rate of mobilized foreign investment capital - Limitations on investment capital utilization: There was no attention to the balanced development among economic sectors; the efficiency level of investment capital utilization was still low, which did not correspond to the scale of investment; investment capital for education and health services development remained low proportions; there was lack of attention to environmental protection; and social unrest still occurred 3.4.3 Causes of the limitations - Causes of limitations on investment capital mobilization: there were two significant causes of limitations on investment capital mobilization including (1) the limited state budget and (2) the limited ability to attract investment capital which will be analyzed and clarified in Chapter - Causes of limitations on investment capital utilization: local authorities did not pay sufficient attention to planning for the balanced development among economic sectors; investment capital was allocated for education and health development insufficiently; there was lack of awareness of relation among economic development and social issues and environmental protection; and the implementation of approved projects was still slow Conclusion of Chapter In chapter 3, the author has analyzed carefully the current situation of investment capital for socio-economic development in Phu Quoc Island in the period of 2011-2016 based on both mobilization of investment capital and utilization of investment capital The results revealed the achievements, limitations, and causes of the limitations on the topic under investigation 12 CHAPTER 4: THE ANALYSIS OF FACTORS AFFECTING THE ATTRACTION OF INVESTMENT CAPITAL IN PHU QUOC 4.1 Theoretical background A great number of researchers have conducted studies on attracting investment capital in a locality or a nation, which have contributed significant findings on the topic under investigation Several influential studies were conducted by Ha (2016), Giao and ctg (2015), Loc and Tuyet (2013), Xu (2010), Tho (2005) 4.2 Research model and hypothesis 4.2.1 Proposed research model - Proposed research model: according to results of the literature review, the researcher of this present study proposed the following research model: SAT = f(F1, F2, F3, F4, F5, F6, F7, F8) In order to investigate which factors (the factors from F1 to F8) directly affect the attraction of investment capital in Phu Quoc, the linear regression was employed as presented below: SAT = β0 + β1F1 + β2F2 + β3F3 + β4F4 + β5F5 + β6F6 + β7F7 + β8F8 + ei The variables used in the regression analysis were determined by Factor Score 4.2.2 Research hypothesis Research hypothesis: according to the researcher of this present study, the variables of infrastructure, living environment, investment policies, natural resources, local trade promotion and marketing , human resources, input costs and credit support have positive correlations to the level of satisfaction of investors 4.3 Research Method 4.3.1 Research process The research process includes stages: Stage 1: Qualitative research was employed to establish and develop a conceptual system /scale and research variables, which were utilized to design a survey questionnaire Stage 2: The SPSS 16.0 software was employed in the process of analyzing and identifying the influential factors 4.3.2 Research data and method of data collection - Sample size It is believed that the larger the sample size is, the more reliable the results are Tho (2011) proposed that the minimum sample size is 50 participants for a study employing exploratory factor analysis (EFA); the preferable sample size is 100 participants; and the ratio of respondents to variables should be 5:1 The ratio could be interpreted that the investigation of variable requires at least respondents/observations In fact, the researcher of this present study has investigated 230 enterprises located in Phu Quoc, including all existing types of enterprises 13 - Method of data collection Data was collected from 01/10/2016 to 31/12/2016; the population of the survey included directors, deputy directors, and representatives of the board of directors of enterprises in Phu Quoc island A face-to-face interview with a designed 5-levellikert-scale questionnaire was conducted with the eligible respondents 4.4 Exploratory Factor Analysis (EFA) on the level of satisfaction of investors in Phu Quoc A scale test was run in order to check the reliability of the research model The result shows that the reliability was high enough (Cronbach Alpha > 6) It could be seen that the proposed research model of scales with 37 variables was reliable 4.5.1 Results of regression analysis The SPSS 16.0 software was employed for multivariate regression analysis Results of the analysis were reported below in table 4.11 Table 4.11 Results of multivariate regression analysis Model Unstandardized Coefficients Standardized Coefficients t Sig VIF B Std Error Beta (Con- 0,030 F1 0,180 0,030 0,180 6,011 0,000 1,15 F2 F3 0,082 0,848 0,030 0,030 0,082 0,848 2,755 8,376 0,006 0,000 1,32 1,05 F4 F5 0,101 0,065 0,030 0,030 0,101 0,065 3,387 2,171 0,001 0,031 1,56 1,43 F6 F7 0,107 0,069 0,030 0,030 0,107 0,069 3,569 2,301 0,000 0,022 1,61 1,01 F8 0,118 0,015 0,030 0,118 3,939 0,000 1,32 (Source: Author's calculations based on SPSS 16.0) 4.5.2 Verification analysis - Verification analysis of regression coefficients It could be seen in table 4.11 that variables F1, F2, F3, F4, F5, F6, F7, F8 are significant with high reliability of 95% After analyzing Multi-collinearity (Vif