Investment impact evaluation of vietnam challenge fund

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Hoang Thi My Hang INVESTMENT IMPACT EVALUATION OF VIETNAM CHALLENGE FUND: A CASE STUDY OF H’MONG BEEF VALUE CHAIN PROJECT IN CAO BANG PROVINCE Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS SUMMARY Supervisor: Dr Nguyen Thi Phi Nga Hanoi – 2012 TABLLE OF CONTENTS ACKNOWLEDGEMENTS ABSTRACT VALUE CHAIN PROJECT IN CAO BANG PROVINCE TÓM TẮT TABLLE OF CONTENTS LIST OF TABLE LIST OF FIGURES LIST OF ABBREVIATIONS INTRODUCTION Background and relevance of the study Focus and scope of the study Sources information and research method Structure of the study CHAPTER 1: THEORIES AND LITERATURE REVIEW 1.1 The challenge fund 1.1.1 Original of challenge fund and its characteristics 1.1.2 Challenge funds‟portfolio approach 1.1.3Enhancing Value Chain‟s approach 1.1.4 The challenge fund impacts 1.2 Impact investment evaluation of Challenge Fund 1.2.1 Impact investingconcept 1.2.2 Impact investment methods: 1.2.3 Impact investment method of Challenge Fund 1.2.4 Experimental method 1.2.5 Key measurements 1.3 Understanding the Vietnam Challenge Fund CHAPTER 2: THE PROJECT ON H’MONG BEEF CONSUMPTION CHANNEL IN CAO BANG PROVINCE 2.1 Cao Bang profile 2.2 Current beef consumption channel in Cao Bang province 2.3 H’mong beef consumption channel project of The Vietnam Challenge Fund in Cao Bang province 2.3.1 Le Thanh Company – the main project implementing partner 2.3.2 Cao Bang H‟Mong beef project operation CHAPTER 3: METHODOLOGIES 3.1 Sample design and selection 3.2 The Questionnaire 3.3 Data Collection 3.4 Data Processing CHAPTER 4: FINDINGS AND DISCUSSIONS 4.1 General characteristics of the sample 4.2 Social investment returns: 4.2.1 Income generation at Household /Farmer level 4.2.2 Job creation at worker/household level 4.3 Economic return of the company 4.3.1 Technical benefits 4.3.2 Commercial benefits 4.3.3 Financial benefits 4.4 Challenges CHAPTER 5: CONCLUSION AND RECOMMENATION REFERENCES APPENDIX INVESTMENT IMPACT EVALUATION OF VIETNAM CHALLENGE FUND: A CASE STUDY OF H’MONG BEEF VALUE CHAIN PROJECT IN CAO BANG PROVINCE Hoang Thi My Hang MBA Candidate, 2009-2012 Vietnam National University, Hanoi School of Business Supervisor: Dr Nguyen Thi Phi Nga INTRODUCTION Background and relevance of the study The Vietnam Challenge Fund have firstly introduced as a social venture investment fund in Vietnam since 2009 The fund is one of three components of the project Market for Poor Phase (M4P2) There is an absence of systematical monitoring and evaluation tools to evaluate the impacts of the funds in promoting inclusive business in Vietnam parallel with pro-poor approaches Vietnam Challenge Fund is recognized as co-sharing funds to promote investment in private sector, especially encouraging innovation in agricultural value chains which directly effect to the poor By testing new supply chains systems, successful projects can contribute effective business model which can bring greater socio-economic benefits for the society The impact investment evaluation plays an important role for donors and policy makers in project management and decision making in order to optimize benefit of the projects achieve development sustainability and provide efficient aids In Vietnam, there is a shortage of methodology to evaluate an impact investment because of time consuming, expensive costs and complicated techniques By analyzing a case study on impacts evaluation of the Challenge Fund project on H‟mong beef production in Cao Bang province, this research aims to provide a systematic analysis on social investment return in terms of job creation, income generation, and economic return of the company in terms of technical benefits, commercial benefits and financial benefits The result of this study will provide lessons learnt which contributes to enrich an effective tool for better project design, project assessments, and investment decision making of the future Challenge Funds Focus and scope of the study This study concentrates on analyzing impact investment of the Vietnam Challenge Fund on farmer households and company implementing partner before and after project implementation which is one of the main factors of the H‟mong beef value chain in terms of socio and economic returns The results will be explored by the following four research questions: • What is the impact investment evaluation methods used of the Challenge Fund? • How does challenge fund operation and Vietnam Challenge Fund work in Vietnam? • How does the H‟mong beef production project work in Cao Bang province? • How does the Vietnam Challenge Fund impact on socio-economic conditions of the poor households in the mountainous areas through the H‟mong beef production project? Sources information and research method The primary data was collected from the questionnaires and depth interviews of 50 households in Soc Ha commune, Ha Quang district, Cao Bang province In which 25 households participated in the cow rearing project and other 25 households not participated in the project Structure of the study The research includes five chapters Chapter presents theories and literature reviews on impact investing concept, challenge fund definition and its impacts, impact investing evaluation of challenge fund and understanding the Vietnam Challenge Fund Chapter identifies the methodology used in this study Chapter present briefly information about the H‟mong beef production project and how does it work in Cao Bang province Chapter presents findings and discussions about the impacts of the fund to the project in term of social and economic returns by examining treatment and control groups and within treatment groups before and after project implemented Chapter presents the main conclusions on the Challenge Fund evaluations and some lesson learnt for future study CHAPTER 1: THEORIES AND LITERATURE REVIEW 1.1 The challenge fund 1.1.1 Original of challenge fund and its characteristics The challenge funds was first introduced by the United Kingdom as a kind of impact investing funds for promoting investment in private sectors Several donors have also been actively promoting challenge funds across 53 countries in Asia, Latin America, Eastern Europe and Africa CGAP‟s Pro-Poor Innovation Challenge The challenge funds firstly aimed to leverage effective investment and prompt innovation of the private sector, non-government organization and entrepreneurship (Sweden International Development Agency 2012) Secondly, the challenge funds have been recently used as a pro-poor approach in development interventions as a way of corporation with private sectors to generate economic growth and poverty reduction by supporting funds for innovative business models engaging the poor‟s participation Thirdly, the challenge funds have established in developing countries to reduce impacts of market failures and externalities which prevent the private sector from development and innovation (Barkat et al 2002) 1.1.2 Challenge funds’ portfolio approach Theoretically, a project can be defined as one of the four following project types as the graph below: Chart 1.2 Four types of the existing project in practices Source: Porteous & Irwin 2005, FDCF OPR, p.13 From the above chart, the project (B) that has low financial and social return will not be feasible for investment The project (A) that has high financial returns but low social returns can operate effectively by the private sector without any interventions The project (C) has low financial returns and high social returns facing financial difficulties in seeking funds and needs financial support from the government or other organizations Finally, the project (D) has both high financial returns and high social returns which rarely exist in the practice (Porteous & Irwin 2005, p.13) The objective of the challenge fund is to provide funds for the project (C) to ensure that it becomes the project type (D) in order to bring high potential social returns to the communities 1.1.3 Enhancing Value Chain’s approach The definition by the United Nations Industrial Development Organization (2009, p.10) states that „the value chain is a concept which can be simply described as the entire range of activities required to bring a product from the initial input-supply stage, through various phases of production, to its final market destination‟ In the challenge fund approach, the poor are viewed as deprivation of resources It is necessary to provide opportunities and specific skills in order to enhance their ability to access the market with higher value food chains which directly improve the livelihoods of poor farmers (Moustier and Anh 2009) Recently, the value chain concept is applied as a pro-poor in the social venture investment funds and other development interventions Value chain analysis might be a tool to design projects and programs in order to provide support to a value chain, or set of value chains, in order to achieve a desired development outcome 1.1.4 The challenge fund impacts There are many studies across countries and regions illustrating that challenge funds contribute to leverage effective investment, prompt innovations, effective pro-poor approaches, reduce impacts of market failures and externalities and bring significant social benefits in terms of job creation and income generation 1.2 Impact investment evaluation of Challenge Fund 1.2.1 Impact investing concept Impact investment evaluation is a crucial part of risk management There are several ways of interpreting impact investment concept from different points of view: In general, Rossi and Freeman (1993) consider impact investment including conceptualization, design, implementation and utility of social intervention programs” Carlsson et al, (1994) defined the assessment activities is “an activity for finding out the value or results of something which will provide the information are required from specific purposes” In the development project concept, Reidar (1998 p.57) argues that impact investment can be analyzed at the certain time in the aspects of “efficiency, effectiveness, relevance, impacts and sustainability” This definition has broadly approached in assessment of development activities In the concept of social adventure fund, “Impact investments are investments of companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return The aim of this report only analyses the investment impact of challenge funds in the aspect of development projects 1.2.2 Impact investment methods: Impact investing evaluation focuses on how the programs, projects effect on individuals, households and institutions and draw up lessons learnt for program interventions Impact investing evaluations can also explore unintended consequences, whether positive or negative on beneficiaries Depending on different purposes, impact evaluation can be defined into two main types: formative and summative evaluation (Reidar 1998) There are wide ranges of impact investing evaluation approaches which can be defined by their purposes or kinds of information needs Table 1.1 Some approach methods of impact evaluation Approaches Use Logical Project planning and Matrix Descriptive framework performance numerical analysis evaluation Experimental and Qualitative quasi- Form estimate Statistical of project impact Analysis Uni-variate multivariate experimental and or the investment intervention Defining counterfactual factors are the core issue of the evaluation design The common method is the use of comparison methods between comparison groups (those who not participate in a program) with control groups (those receive the intervention) (Baker 2000) 1.2.4 Experimental method Among above methodologies, experimental designs are considered the best optimal approach This method is a combination of „with and without‟ approach with a „before and after‟ approach that uses baseline study and follow-up data is strongly recommended from a methodological perspective (Subbarao 1999 cited in Jones et al 2009) The experimental method will be carried out as the following steps: First, a random assignment is used to define (a) control group (experimental group) and (b) a comparison group (quasi-experimental group) in order to estimate the counterfactual factors Second, data of different participation from pre- and post-program intervention is collected from baseline and follow-up survey Third, the treatment and comparison groups are defined at sufficient sizes to ensure statistical inferences with minimal attrition Fourth, cost-benefit and cost-effectiveness analysis are integrated to measure the project efficiency Finally, qualitative techniques such as statistics and econometrics are incorporated to achieve the comprehensive findings 1.2.5 Key measurements In order to measure impacts of the project to livelihood improvement for the poor, two key measurements were used including job creation and income generation Job creation: this concept can be measured by the number of full- time jobs created Income generation: Income is the standard measurement for the overall wealth of residents and might also have impacts on level of living of the respondents Company benefits: Number of target enterprises who realize a financial benefit as a result of the program‟s activities per year and cumulatively This study will examine economic return of a challenge fund project in terms of technical benefits, commercial benefits and financial 1.3 Understanding the Vietnam Challenge Fund The Vietnam Challenge Fund (VCF) is one of the three components of the market for poor programs (M4P) The Vietnam Challenge Fund portfolio: • Geography: spanning 11 provinces • Funding sectors: fruit, livestock and fish, staples such as cassava, and major export crops - coffee, tea • Type of company granted: State Owned Enterprises, small private firms, a foreign multinationals, joint-ventures • Size of project: from US$2,550,000 to US$86,200 • Size of grant: from US$275,000 to US$40,000 (website market for poor 2011) When launching the program in 2009, VCF received 210 proposals from all types of agriculture business across country Basing on performance criteria of Vietnam Challenge Fund, the eleven projects that were approved for grant funding which accounted for US$1.26 million By testing new supply chains systems, successful projects can contribute effective business model which can bring greater benefit for the society 10 CHAPTER 2: THE PROJECT ON H’MONG BEEF CONSUMPTION CHANNEL IN CAO BANG PROVINCE 2.1 Cao Bang profile Cao Bang is one of thirteen provinces in the Northern mountainous region of Viet Nam Figure 2.1 Map of Cao Bang province Cao Bang in Vietnam map Source: Caobang.gov.vn The project on H‟mong beef production is being carried out across five high mountain districts of the province, namely Ha Quang, Nguyen Binh, Bao Lac, Bao Lam and Cao Bang Town This study only focuses on Ha Quang district because this district is the first piloting district and also has the largest H‟mong ethnic minority population The survey district of Ha Quang is a relatively small 11 district, with only 45,323 hectares of natural land or 7% of the total natural land of the whole province (Cao Bang statistic year book 2011) 2.2 Current beef consumption channel in Cao Bang province Beef production is well known among of high quality beef and is the main products of the provincial cattle production The animal husbandry contributes 32% of the GDP from agriculture-forestry-aquaculture or 11% of the GDP of the whole province in 2009 (Cao Bang statistical year book 2010, pp.147) The H‟mong cow is generally preferred since it gives a better weight ratio and higher quality of beef than many of the other breeds in the area However, this preference has not been translated into a price premium for the farmers, just the ease of selling the animal There are two ways to sell the cow as the graph below: Figure 3.2 Beef consumption value chain before project intervention Weakly market Breeders/ farmers traders or the slaughter houses Outside consumers: other cities, provinces (Super markets, Restaurants, hotel, outside consumers) Local consumers In fact, there is a lack of linkage between farmer suppliers and local and outside markets which results in a reduction in selling prices, commercial prices, quality and quantity of H‟mong beef product in Cao Bang province In addition, it is 12 observed that cattle‟s rearing on high mountainous areas is a labor-intensive activity which can potentially create a large number of jobs related to developing the H‟mong beef production 3.3 H’mong beef consumption channel project of The Vietnam Challenge Fund in Cao Bang province 3.3.1 Le Thanh Company – the main project implementing partner The Le Thanh Company has been contracted through the Vietnam Challenge Fund (VCF) to implement a project that aims to build the first modern slaughter-house in the northern mountainous provinces, design and apply a beef traceability system and purchase the H‟mong beef from the poor minority people organized in cattle-breeding interest groups The graph below describes the H‟mong beef consumption channel undertaken by Le Thanh Company Figure 3.3 Established beef consumption channel in Cao Bang province 24 interest groups Hotels, restaurant s LeThanh Construction Ltd Company Rural Food Ltd Consumers 13 Supermarket (BigC Metro) In this channel, Le Thanh Company has played a crucial role in connecting farmers to large markets with a range of distribution channel national wide By introducing a new system of slaughter-house and traceability, the company has developed a niche product with the Rural Food Company, entered supermarkets, retailers such as big C, Metro, hotels and restaurants in Hanoi, Thanh Hoa, Nam Dinh and twenty other provinces 3.3.2 Cao Bang H’Mong beef project operation Cao Bang H‟Mong beef consumption project is one of the eleven projects receiving grants from the Vietnam Challenge Fund The project proposal of H‟Mong beef are developed by Le Thanh Company with purpose of enhancing the quality of H‟Mong beef consumption channel in Cao Bang province This project potential brought a huge impact to economic and society change 14 CHAPTER 3: METHODOLOGIES 3.1 Sample design and selection The core issue of the impact investment is establishing what would have happened to beneficiaries had and not received intervention Because counterfactual factors are difficult to observed, random assignment is used to defined control group (experimental group) and comparison group (quasiexperimental group) For the treatment group, a random sample of 25 households were taken from the 50 households participated in the baseline study Another 25 households were randomly selected for the control group, from the list of about 300 households in Soc Ha commune, Ha Quang district, Cao Bang 3.2 The Questionnaire Questionnaires were designed with three key sources of data need to be collected in order to measure income generation and job creation including household information; general production information and income generation 3.3Data Collection Data of different participation from pre- and post-program intervention is collected from baseline and follow-up survey The former were conducted 2930 October and December 2010, the later were undertaken in May 2012 by VCF team The author worked as a part time team member of the VCF team, participated in conducting survey during period from 14th to24th of May 2012 3.4 Data Processing Qualitative techniques such as statistics are used to achieve the comprehensive findings All information collected from questionnaires were coded in excel file into range value Firstly, descriptive statistics were calculated for all variables to 15 have a general screening on the real data set in terms of standard deviations, means, variances, max, etc This step also helps to detect any mistake of data entry Then, the data set of households was processed to give information on their demographics, sources of incomes and jobs opportunities Grouping these results into each measurement as done previously will give us an overview on the impacts of the project on the livelihood of the beneficiaries 16 CHAPTER : FINDINGS AND DISCUSSIONS 4.1 General characteristics of the sample Household head profile The result of the survey shows that most of the household heads are men The average age is around 40 The educational level is low in relation to the national average, with as much as 34% of household heads not going to school and most of them within this group remaining illiterate Household size, labor, occupation According to the survey, the household size is large in comparison to the national average with 6.54 members per household The average age of working members is 34 In which, 52% of the working population are women The most common occupations include cultivation and animal husbandry with 100% of households involved in both these occupations The main crops include maize, peanut and soya bean, and the main forms of livestock are cow, pig and poultry 4.2 Social investment returns: 4.2.1 Income generation at Household /Farmer level 4.2.1.1 The treatment group (The baseline data vs after-project data) The following discussion will compare and contrast between the treatment group ‘before and after’ project intervention The household income Based on the data of the baseline study conducted in November 2010, this analysis will look at the change of income indicators over period of 2009 17 2012 These indicators include total household income, average of total household incomes, average of income per capital annum, average of income per capital per month for mains products and total income The survey reveals that there was a significant increase in the average income of the households before and after the project intervention The average income of the households in the survey sample is VND 42,426,300 million (equivalent to US$2,040) per year which is 42 percent higher than that of 2009 (before project intervention) The income per capita is VND 6.428 million (US$ 309) per year or VND 535,686 (US$26) per month which compare with 4.58 million (US$ 257 per year) 381,680 (US$ 21) per month citation The survey findings also reveals the heavy reliance of the local people on the non-farming income particularly from government welfare payments and local wages has slightly reduced, but still remain higher than the income generated from pig raising Cattle rearing Cattle-rearing revenue and expenses: the 25 interviewed farmers had sold a total of 32 H‟Mong cows to the company (Annex 2) Most farmers had sold one cow, and just one farmer had sold the largest quantity of five cows to the company H’Mong cow earnings: the total net income from H‟Mong cattle-raising by the 25 surveyed farmers was VND 436,966,000 (Annex 3) From the table above, on average, a farmer earns a net income of VND 17,478,640 from cattle-raising activities The highest earnings from cattle-raising among the surveyed farmers were VND 42,894,000 when a farmer sold two cows, without having to incur any breeding or calf-buying expenses The lowest earning was just VND 5,790,000, when a farmer who sold one cow, but spent over VND 15,000,000 on buying a bigger calf 18 4.1.1.2 The control group and the treatment group (with and without project intervention) The following discussion will compare and contrast the treatment group (project group) and control group (non-project group) to define counterfactuals of the change in the income patterns of the household participation in cow rearing The household income The average income of the households in the survey sample is VND 26,686,420 (equivalent to US$1,283) per year, only equal to 63% of the total income of the treatment group The income per capita of the control group is VND 5,559,671 (US$ 267) per year or VND 463,306 (US$22) per month Those figures are relatively equivalent to 86 % of the income per capital of the treatment group This income level is extremely low, accounting for only 39% of the current average GDP per capita of the province (VND 14.22 million or US$684 per capita per year in 2011), and lower than the national poverty line of VND 520,000 per person per month The differences of the income patterns between project households and nonproject households can be explained by the difference in the structure of crop and livestock production patterns between the treatment and control groups The results the survey reveal that there is a significant change in the structure of income sources between the two groups presenting as in the figure below: 19 Table 4.4 Sources of income pattern of the treatment and control groups Cattle rearing Cattle-rearing revenue and expenses: the 25 interviewed farmers of the control group had sold a total of 28 cows to the local markets (see Annex 3) Most farmers had sold one cow, and just three farmers had sold two cows during the last year The price of a cow was from VND 7,500,000 to VND 19,000,000, depending on the weight, quality and age of the cow The average price of a cow sold to local markets / traders was VND 14,680,000 4.2 Job creation at worker/household level Job creation can be examined under the impact of the project to the community in term of creating new jobs for both workers and households This project involved over 500 farmers participating across nine communes in five districts of Cao Bang province However, in a short period of nearly two year implementation, the project had limited effect on job creation for workers In addition, a cattle rearing on high mountainous areas is a labor-intensive activity Among 125 working members of the 50 sampled households in the 20 baseline survey, the project engaged as many as 133 extra laborers, including both men and women 4.3Economic return of the company The beef project has achieved initial success in engaging poor ethnic minority households in promoting cattle-breeding interest groups, applying a basic traceability system for the beef, and constructing the first professional slaughterhouse in Vietnam‟s northern mountainous provinces The project has also earned a positive economic return in terms of technical, commercial, and financial benefits However, the company has also faced several challenges • Technical benefits This is the first slaughterhouse for cows built in the northern mountainous area of Vietnam • Commercial benefits Firstly, Le Thanh Company has pioneered the introduction of a very basic system which, in terms of technical compliance could be deemed to be effective at the slaughter-house level Secondly, the company has conducted a range of marketing activities which initially effectively introduce H‟mong beef to markets in big cities and other provinces Thirdly, in cooperation with the Rural Food Company in Hanoi, these companies were initially established as a niche product Financial benefits This project has currently brought a net profit and investment return The net profit for each H‟Mong cow slaughtered and sold is about VND 1.5 million currently and the slaughter service fee is VND 150,000 per cow As the slaughterhouse is still operating under its designed capacity, it will take about – years for this slaughterhouse to get the full return in investment 4.4 Challenges 21 The H‟Mong beef production is the first traceability system of the cattle production in Cao Bang province The implementation of this system would be both expensive and time consuming because the company has adopted a pragmatic system Another issue should be considered is that the company budget is also limited Furthermore, the interest rate of banks still remains high which may be difficult for capital mobilization and investment activities of the company It is denoted that, Cao Bang is a mountainous province and the cow rearing areas are also much more remote from the town center The geographical difficulties with poor transportation, high transaction cost and a lack of storage techniques may diminish capacity to access markets and reduce both quality and quantity of the production 22 CHAPTER CONCLUSION AND RECOMMENATION The recent success of the Vietnam Challenge Fund funded by the Asian Development Bank and the UK‟s Department for International Development illustrates that this fund can propose innovative of new business models to engage the poor on a replicable and sustainable basis The impact investment plays a crucial role of project monitoring and evaluation Studies on impact investment of the Vietnam Challenge Fund provide fruitful lessons for the following new business models and future challenge funds design and implementation Further research The author suggests that in future a similar study should be carried out in other challenge funds across other provinces and regions should be covered all these above issue The experimental method used in this study will be useful tool for the project impact investment of the challenge funds The author also believes that such a case study on H‟mong beef production provided in this research will be a fruitful example of the linkage between markets and the poor, the growth of private sector and poverty reduction, an effective tool to reduce market distortions, promoting business innovation and economic sustainability 23 ... Impact investment evaluation of Challenge Fund 1.2.1 Impact investing concept Impact investment evaluation is a crucial part of risk management There are several ways of interpreting impact investment. .. challenge fund and its characteristics 1.1.2 Challenge funds‟portfolio approach 1.1.3Enhancing Value Chain‟s approach 1.1.4 The challenge fund impacts 1.2 Impact investment evaluation of Challenge Fund. .. assessments, and investment decision making of the future Challenge Funds Focus and scope of the study This study concentrates on analyzing impact investment of the Vietnam Challenge Fund on farmer