Evaluating the performance of investments in public sector

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY оNG HÃI YEN EVALUATING THE PERFORMANCE OF INVESTMENTS IN PUBLIC SECTOR: A CASE STUDY OF HIFU MASTER OF BUSINESS ADMINISTRATION THESIS HoChiMinh City - 2010 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY оNG HÃI YEN EVALUATING THE PERFORMANCE OF INVESTMENTS IN PUBLIC SECTOR: A CASE STUDY OF HIFU Major:Business Administration Major Code:60.34.05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: Dr Nguyen Minh Kieu Ho Chi Minh City - 2010 i Acknowledgement I would like to express my heartfelt gratitude and deepest appreciation to my research Supervisor, Dr Nguyen Minh Kieu for his precious guidance, share of experience, ceaseless encouragement and highly valuable suggestions throughout the course of my research I would like to thank to many of my collegues from HIFU, who have helped me during the collection of data as well as support me during doing research: Ms Ngo Kim Lien, Dr Vuong Duc Hoang Quan from Board of Director, Ms Le Thi Tam Tam, Ms Pham Thi Minh Ngoc, Mr Nguyen Thanh Tuan, and my other collegues from Departments of Accounting as well as Entrusted Fund Management, Planning, Human Resource Management and Appraisal My special gratitude is extended to all instructors and staff at Faculty of Business Administration and Postgraduate Faculty, University of Economics HoChiMinh City (UEH) for their support and the valuable knowledge during my study in UEH I would also like to avail this opportunity to express my appreciation to Professor Nguyen Dong Phong, UEH Board of Directors for creating MBA program in English and Dr Tran Ha Minh Quan for his support during the course Specially, my thanks go to Mr Nguyen Thanh Trung for his valuable and enthusiastic support for this research study and for his comments of English from early draft of my thesis Last but not least, the deepest and most sincere gratitude goes to my beloved parents, my husband Mr Nguyen Hung Long, my daughter Bao Tran and my son Duc Huy, for their boundless support, abundant love and encouragement throughout my period of study I, therefore, dedicate this work as a gift to them all ii Abstract Evaluating performance in public investment is still an issue in management There has been greater emphasis placed on performance measurement in public investment HIFU is an organization operating in public sector This qualitative research examines HIFU current performance measurement and suggests an effectiveness performance measurement in public investment for HIFU The new measurement including financial aspect and social aspect is more comprehensive, proper, and complete The measurement is also applied to evaluate HIFU performance of public investment Recommendations for related entities such as the Government, HCMC People’s Committee, and HIFU are suggested to improve the management of HIFU and funds like HIFU Keywords: public investment; performance; performance measurement; public organization; effectiveness; efficiency; and Ho Chi Minh City Investment Fund for Urban Development Contents Acknowledgement i Abstract ii Contents iii List of Tables v List of Figures vi Abbreviations vii Chapter 1: Introduction to the study 1.1 Rationale of the study 1.2 Problem statement 1.3 Research objectives and questions 1.3.1 Research objectives 1.3.2 Research questions 1.4 Scope and Limitations 1.5 Research method 1.6 Implications of research 1.7 Structure of the study Chapter 2: Introduction to HIFU 2.1 Introduction 2.2 Legal status of HIFU 2.3 Organizational structure 2.4 Main business activities 11 2.4.1 Lending 11 2.4.2 Investment 12 2.4.3 Trusted Fund management 13 2.4.4 Authorized municipal bond issuance 13 2.4.5 Financial services 13 2.5 Monitoring and evaluation of outcomes/ results 13 Chapter 3: Literature Review 15 3.1 Public investment 15 3.2 The performance of the public organizations/funds 15 3.3 Measuring the performance of the public organizations/funds 18 3.4 Conclusions 22 Chapter 4: Research Methods 25 4.1 Introduction 25 4.2 Research Design 25 4.3 Data collection 27 4.3.1 Document Collection 28 4.3.2 Personal Interviews 29 4.4 Data Analysis 33 4.5 Conclusion 34 Chapter 5: Data Analysis and Findings 36 5.1 Introduction 36 5.2 Links between data analysis and research objectives and questions .36 5.3 The findings of data analysis 38 5.3.1 The current performance measurement of HIFU in public investments .38 5.3.2 Experiences of performance measurement in public investments .40 5.3.3 Expectations of performance measurement in public investments .41 5.3.4 Objectives used to evaluate performance in public investments 42 5.3.5 Financial assessment 43 5.3.6 Social contribution 49 5.4 Conclusions 53 Chapter 6: Conclusions and Recommendations 56 6.1 Introduction 56 6.2 Conclusions related to research questions 56 6.2.1 Conclusions related to the first question 56 6.2.2 Conclusions related to the second question 58 6.3 Recommendations of the research study 59 6.3.1 Recommendations for HIFU 59 6.3.2 Recommendations for the goverment 61 6.3.3 Recommendations for funder – HCMC People’s Committee .62 6.4 Limitations and further research 63 References 64 Appendix 66 Guidance for indepth-interviews 66 List of interviewees 68 Financial statements of 2008 and 2009 69 List of Tables Table Questionnaire for interview 31 Table The planned and actual lending and direct investment from 2004 to 2009 39 Table Liquidity ratios of HIFU from 2004 to 2009 .43 Table Leverage ratios of HIFU from 2004 to 2009 .44 Table Efficiency ratios of HIFU from 2004 to 2009 46 Table 5 Profitability ratios of HIFU from 2004 to 2009 47 Table HIFU return on equity and market return from 2004 to 2009 47 Table The percentage of actual lending and direct investment from 2004 to 2009 51 List of Figures Figure Organization chart of HIFU 10 Figure The performance of public investment .16 Figure The framework for evaluating HIFU performance 37 Figure Liquidity ratios of HIFU from 2004 to 2009 .44 Figure Leverage ratios of HIFU from 2004 to 2009 .45 Figure Efficiency ratios of HIFU from 2004 to 2009 46 Figure 5 HIFU ROE , RM, and RB from 2004 to 2009 48 Figure The percentage of actual lending and direct investment from 2004 to 2009 51 Figure Assessments on qualitative performance of HIFU .53 vii Abbreviations AFD: France Development Agency CII: HCMC Infrastructure Investment Joint-stock Company HIFU: Ho Chi Minh Investment Fund for Urban Development HCMC: Ho Chi Minh City HCMC PC: Ho Chi Minh City People’s Committee LCI: Law on Credit Institutions MOF: Ministry of Finance PI: Public Investment SOEs: State Owned Enterprises USTDA: United States Technical Development Aid WB: World Bank WTO: World Trade Organization Chapter 1: Introduction to the study 1.1 Rationale of the study : Public investment is considered as public expenditures that the government adds to the public physical capital stock They include the building of infrastructure such as roads, ports, schools, hospitals, etc The issue of whether public investment is effective is still a controversy In both developed and less developed countries, one can speak of a crisis of the public sector The main charge is that it is costly for what it delivers Even though this particular charge is rarely supported by hard evidence it has to be taken seriously because of its impact on both policy makers and public opinion (Pestieau 2009) Private business and foreign organizations often participate in sectors that require less capital, less risk, higher profit, and short payback period because their objective is to get profit from their investment Thus, fields such as welfare, infrastructure, education, health, etc which require large capital, more risk, long payback capital are usually invested by the government - through government agents - to avoid the unbalance in the economy’s structure Moreover, investing in public sector helping to increase the people’s standard of living, stably develop the economic growth and attract foreign investors are the government’s activities The government has staked its political credibility on delivering significant and noticeable improvements to public services (Crawford et al 2003) However, there has been considerable debate over the delivery of public services and the performance of the public sector organizations that deliver them According to Micheli (2005), much of this debate has been based on performance information reported in performance league tables performance targets against which public sector organizations are and assessed These targets and league tables, which are regularly debated by politicians and the media, are often criticized There are many opinions arguing that investments in public sector don’t result in efficiency in aspect of finance because the projects in this sector need a large amount of capital and take a References Anderson, E., Renzio, P and Levy, S (2006) The Role of Public Investment in Poverty Reduction: Theories, Evidence and Methods, Working Paper 263 Overseas Development Institute, London, SE1 7JD, UK Behn, R D (2003) Why Measure Performance? Different Purposes Require Different Measures Public Administration Review, Vol 63 (5) Carin, B and Good, D A (2004) Evaluating Efficiency and Effectiveness in Public Sector Delivery Kaliningrad Workshop Crawford, I., Klemm, A and Simpson, H (2003) Measuring public sector efficiency Green Budget Goriaev, A B (2002) Project Proposal - Evaluating performance and strategy of mutual funds Greenberg, R and Nunnamaker, T (1987) A Generalized Multiple Criteria Model for Control and Evaluation of Nonprofit Organizations Financial Accountability & Management, Vol (4) Greiling, D., (2004) Performance Measurement – a driver for increasing the efficiency of public services Kanji, G and Sá, P M E (2007) Performance Measurement and Business Excellence: The Reinforcing Link for the Public Sector Total Quality Management, Vol 18 (1) Kravchuk, R S and Schack, R W (1996) Designing effective performancemeasurement systems under the Government Performance and Results Act of 1993 Public Administration Review, Vol 56 (4) Macpherson, M (2001) Performance Measurement in Not-For-Profit and Public Sector Organizations Measuring Business Excellence MCB University Press, Vol (2), 13-17 Micheli, P., Mason, S and Kennerley, M (2005) Public Sector Performance: Efficiency or Quality? Centre for Business Performance, Cranfield School of Management, Cranfield, MK43 0AL, UK Moeti, K L B (2000) Evaluating Projects and Programs in the South African Public Sector Journal of Public Administration, Vol 35 (4), 279-294 Ong, T S and Teh, B H (2009) The Use of Financial and Non-Financial Performance Measures in the Malaysian Manufacturing Companies The Icfai University Press Pestieau, P (2009) Assessing the Performance of the Public Sector Annals of Public and Cooperative Economics, Vol 80 (1), 133–161 Smith, G S (1988) Performance Evaluation for Nonprofits Nonprofit World, Vol (1), 24-26 U.S.Trade and Development Agency (2005) Technical assistance on subsovereign urban and infrastructure financing in Vietnam USA Wilcox, M and Bulgaj, M (2004) Evaluating Performance in Local Government: A Comparison of Polish and UK Council EGPA conference Slovenia A working paper World Bank (2007) Project appraisal document on a proposed credit in the amount of SDR 32.8 million to the SRV for a HIFU development project Yin R K (2003) Case study research Sage Publications, Third Edition Zikmund, W G (1997) Business Research Methodology Fort Worth, TX: The Dryden Press Zimmermann, J A M., Stevens, B W (2006) The Use of Performance Measurement in South Carolina Nonprofits Nonprofit Management & Leadership, Vol 16 (3) Wiley Periodicals, Inc Appendix Guidance for indepth-interviews Populations for interviews: - People in management department of HIFU - Responsible people from local authorities agencies Section 1: The measurement How is HIFU performance measured and what measures are used? What are advantages and disadvantages as well as strong points and weak points of current performance measurement of HIFU in public investment? How is the coverage of current performance measurement of HIFU in public investment? How is the accuracy of current performance measurement of HIFU in public investment? Describe performance measurement systems in public investment that you have utilized What you particularly like about them? What are your expectations of performance measurement in public investment? What specific advice would you give to HIFU in implementing a new performance measurement system? What should the contents be used to evaluate performance in public investment? 10 How does the efficient, competent, and honest use of public funds contribute to evaluating the agent’s performance? 11 How does the fulfilment of assignment to agent from principal contribute to evaluating the agent’s performance? 12 How does the qualitative performance appraisal contribute to evaluating the agent’s performance? 13 In addition to three objectives mentioned above, what other aspects need to be evaluated? Section 2: The performance of HIFU How transparent is the use of HIFU public funds? How competent is the use of HIFU public funds? How honest is the use of HIFU public funds? How is the fulfilment of assignment to HIFU from HCMC People’s Committee? How is the qualitative performance of HIFU? List of interviewees No Full name Position Organization Ngo Kim Lien General Director HIFU Tran Huu Thai Deputy General Director HIFU Nguyen Thanh Tuan Le Thi Tam Tam Nguyen Thi Quynh Mai Hoang Dinh Thang Head of Planning Department HIFU Nguyen Van Thanh Deputy Head of Appraisal Department HIFU Nguyen Kim Dung Head of Controller Section HIFU Dao Huong Lan Director 10 Vu Quang Lam Head of Investment Department 11 Nguyen Hung Long 12 Vuong Duc Hoang Quan 13 Nguyen Thi Hong Vice President 14 Nguyen Van Hung Deputy Director Deputy Head - Department of Accounting Deputy Head of Credit Department Deputy Head of Investment Department Deputy Head of Industry Department Vice President of Management Board HIFU HIFU HIFU Department of Finance Department of Finance Department of Finance CII HCMC PC Department of Investment and Planning Financial statements of 2008 and 2009 BALANCE SHEET Unit : VND Items A Short term assets I Cash Cash on hand Cash at bank Cash in transit III Receivables Receivable from customer Advances Advances to suppliers Corporate income tax receivable IV Inventories Tools material 31/12/2009 6.719.514.916.032 01/01/2009 5.894.183.763.191 663.545.684.985 7.258.869 663.538.426.116 672.316.020.550 87.261.953 672.228.758.597 64851.248.671 64.814.296.671 36.952.000 47.650.524.432 44.471.060.198 117.402.000 3.062.062.234 174.119.780 174.119.780 48.892.534 48.892.534 5.990.898.747.474 6.049.120.760.953 -58.222.013.479 5.174.149.691.365 5.240.538.828.909 -66.389.137.544 45.115.122 45.115.122 18.634.310 18.634.310 B Long term assets 1.412.536.887.038 1.339.562.398.804 I Long term investment Stock Provision for diminution in value of stocks 1.344.798.389.707 1.344.798.389.707 1.270.775.397.683 1.271.615.322.707 V.Loan to customers Loan to customers Provision for bad debts VI Other current assets Expenses awaiting for allocation -839.925.024 III Fixed assets Tangible fixed assets - Cost - Accumulated depreciation 62.886.532.015 2.230.251.015 6.426.205.300 -4.095.954.285 64.066.709.928 3.502.928.928 8.436.645.458 -4.933.716.530 Intangible assets - Cost - Accumulated depreciation 60.556.281.000 60.568.781.000 -12.500.000 60.563.781.000 60.568.781.000 -5.000.000 4.851.965.316 4.720.291.193 8.132.051.803.070 7.233.746.161.995 XI Construction in progress Construction in progress Total assets 81 Items 31/12/2009 123.266.006.805 01/01/2009 98.830.896.948 I Payables Payables to customers Health, social insurance and trade union payables Taxes and payables to the State budget Payables to employees Payables awaiting for the settlement 47.275.211.793 329.066.228 32.657.345.394 364.450.753 92.368.345 18.668.566.807 6.980.009.695 21.187.200.718 82.896.406 871.835.709 8.405.490.119 22.932.672.407 8.861.254.803 9.967.214.671 III Interest payables for trust funds 28.652.838.863 18.292.605.264 IV Other payables 38.494.701.346 37.913.731.619 B Equity 8.008.785.796.265 7.134.915.265.047 I Chartered capital 2.113.649.131.296 2.006.580.245.547 4.205.636.504 1.843.662.945 734.983.066.761 665.751.444.444 IV Borrowings Borrowings from the state budget Borrowings from domestic entities Borrowings from foreign entities 2.467.987.063.492 254.320.760.000 79.000.000.000 2.134.666.303.492 1.840.128.610.537 169.292.000.000 186.200.000.000 1.484.636.610.537 V Trust fund from State budget and other entities VI Syndicated funds VII Trust fund from other entities VIII Deposit from customers IX Collateral X Retained profit 1.680.040.899.739 591.674.790.032 3.750.000.000 4.575.097.327 3.008.338.986 230.657.425.421 1.554.024.507.923 759.986.743.616 6.250.000.000 4.575.097.327 12.492.568.569 162.794.408.365 XI Funds Investment development fund Fiancial reserve fund Unemployment allowance fund Supplement capital reserve Reward fund for management board Bonus and welfare fund Total capital 174.254.346.707 76.016.941.137 46.901.316.631 5.266.554.360 41.716.660.061 625.650.657 3.727.223.861 8.132.051.803.070 120.487.975.774 30.368.724.689 41.328.764.369 5.266.554.360 41.716.660.061 288.412.144 1.518.860.151 7.233.746.161.995 A Liabilities II Fees and interest payables II Foreign exchange rate difference III ODA borrowing BALANCE SHEET Unit : VND Items A Short term assets I Cash Cash on hand Cash at bank Cash in transit III Receivables Receivable from customer Advances Advances to suppliers Corporate income tax receivable IV Inventories Tools material V.Loan to customers Loan to customers Provision for bad debts 31/12/2008 5.894.183.763.191 01/01/2008 4.303.940.824.137 672.316.020.550 87.261.953 672.228.758.597 275.375.459.199 757.460.195 274.617.999.004 47.650.524.432 44.471.060.198 117.402.000 20.927.222.074 18.264.868.032 7.500.000 2.654.854.042 3.062.062.234 48.892.534 48.892.534 5.174.149.691.365 5.240.538.828.909 -66.389.137.544 4.007.533.359.106 4.009.645.359.106 -2.112.000.000 18.634.310 18.634.310 104.783.758 104.783.758 B Long term assets 1.339.562.398.804 1.105.409.584.887 I Long term investment Stock Provision for diminution in value of stocks 1.270.775.397.683 1.271.615.322.707 -839.925.024 1.040.114.177.590 1.040.114.077.590 III Fixed assets Tangible fixed assets - Cost - Accumulated depreciation 64.066.709.928 3.502.928.928 8.436.645.458 -4.933.716.530 64.377.980.893 3.839.199.893 8.309.767.661 -4.470.567.768 Intangible assets - Cost - Accumulated depreciation 60.563.781.000 60.568.781.000 -5.000.000 60.538.781.000 60.538.781.000 4.720.291.193 917.426.404 917.426.404 5.409.350.409.024 VI Other current assets Expenses awaiting for allocation XI Construction in progress Construction in progress Total assets 7.233.746.161.995 Items 31/12/2008 98.830.896.948 01/01/2008 102.269.849.730 I Payables Payables to customers Health, social insurance and trade union payables Taxes and payables to the State budget Payables to employees Payables awaiting for the settlement 32.657.345.394 364.450.753 40.923.737.852 379.101.615 82.896.406 871.835.709 8.405.490.119 22.932.672.407 66.362.282 13.427.286.400 4.680.796.447 22.370.191.108 II Fees and interest payables III Interest payables for trust funds IV Other payables 9.967.214.671 18.292.605.264 37.913.731.619 14.835.370.712 9.677.557.622 36.833.183.544 B Equity I Chartered capital II Foreign exchange rate difference III ODA borrowing IV Borrowings Borrowings from the state budget Borrowings from domestic entities Borrowings from foreign entities 7.134.915.265.047 2.006.580.245.547 1.843.662.945 665.751.444.444 1.840.128.610.537 169.292.000.000 186.200.000.000 1.484.636.610.537 5.307.080.559.294 1.869.284.435.808 404.814.940 267.072.000.000 1.065.425.103.743 V Trust fund from State budget and other entities VI Syndicated funds VII Trust fund from other entities VIII Deposit from customers IX Collateral X Retained profit 1.554.024.507.923 759.986.743.616 6.250.000.000 4.575.097.327 12.492.568.569 162.794.408.365 905.571.867.170 929.806.619.362 8.750.000.000 4.575.097.327 28.440.794.551 139.281.011.568 XI Funds Investment development fund Fiancial reserve fund Unemployment allowance fund Supplement capital reserve Reward fund for management board Bonus and welfare fun Total capital 120.487.975.774 30.368.724.689 41.328.764.369 5.266.554.360 41.716.660.061 288.412.144 1.518.860.151 7.233.746.161.995 88.468.814.825 25.216.405.480 30.424.385.090 5.266.554.360 25.360.091.143 1.000.000.000 1.201.378.752 5.409.350.409.024 A Liabilities 318.400.000.000 747.025.103.743 INCOME STATEMENT For the fiscal year ended at 31 December 2009 Unit : VND Items I Incomes - Interest income - Income from capital contribution - Trust fund’s management fees - Deposit interest - Other incomes Year 2009 332.010.409.554 124.752.150.441 123.980.240.997 6.216.232.247 46.584.272.092 30.477.513.777 Year 2008 334.655.236.092 102.210.864.621 130.770.765.000 2.986.706.188 47.122.892.409 51.564.007.874 II Expenses 79.854.636.830 159.485.864.003 A Operating expenses - Interest expenses from borrowing and bond publication - Interest expenses from customers’ deposits - Provision for bad debts and diminution in value of financial investment - Other expenses 58.985.362.730 137.960.193.754 64.600.947.607 69.767.122.947 1.066.889.785 2.411.005.414 (9.007.049.089) 2.324.574.427 65.117.062.568 665.002.825 20.869.274.100 16.220.872.678 21.525.670.249 16.644.171.715 69.102.787 1.067.137.880 475.771.538 86.123.500 1.283.557.589 580.253.959 1.548.479.407 510.735.485 977.174.325 1.673.030.384 460.795.145 797.773.957 252.155.772.724 21.498.347.303 230.657.425.421 175.169.372.089 12.431.609.985 162.737.762.104 B Adminitrative expenses - Staff salaries - Unemployment allowance expenses - Materials and office supplies - Fixed assets depreciation - Administrative management expenses - Travel expenses - Other expenses III Operating results Profit (loss) before tax Coporate income tax Profit (loss) after tax INCOME STATEMENT For the fiscal year ended at 31 December 2008 Unit : VND Items I Incomes - Interest income - Income from capital contribution - Trust fund’s management fees - Deposit interest - Other incomes Year 2008 334.655.236.092 102.210.864.621 130.770.765.000 2.986.706.188 47.122.892.409 51.564.007.874 Year 2007 239.472.091.079 140.991.399.644 69.964.789.000 1280.521.277 14.191.733.115 13.043.648.043 II Expenses 159.485.864.003 73.234.770.735 A Operating expenses - Interest expenses from borrowing and bond publication - Interest expenses from customers’ deposits - Provision for bad debts and diminution in value of financial investment - Other expenses 137.960.193.754 57.143.513.639 69.767.122.947 54.651.369.602 2.411.005.414 2.164.290.703 65.117.062.568 665.002.825 327.853.334 B Adminitrative expenses - Staff salaries - Unemployment allowance expenses - Materials and office supplies - Fixed assets depreciation - Administrative management expenses - Travel expenses - Other expenses 21.525.670.249 16.644.171.715 86.123.500 1.283.557.589 580.253.959 1.673.030.384 460.795.145 797.773.957 16.091.257.096 11.500.206.073 44.340.750 1.000.653.387 641.035.487 1.275.074.127 953.491.573 676.455.699 175.169.372.089 12.431.609.985 162.737.762.104 166.237.320.344 26.956.308.776 139.281.011.568 III Operating results Profit (loss) before tax Coporate income tax Profit (loss) after tax ... suggestions of objectives in evaluating the performance of public investments and the definition of performance mentioned by Pestieau (2009), in the present study the performance of public investments of. .. to other investment funds in the country Finally, evaluating the performance of HIFU results in finding out the scientific base to enhance effectiveness of investments in the public sector In. .. Implications of research Evaluating the performance of public organizations is the answer for the debate between the advocates and critics of investments in public sector On the other hand, the findings