ABSTRACT:
Since the Doi Moi in 1986, Vietnam has transformed itself from one of the world’s poorest nations to a lower middle-income nation. The social structure and political system of the country have changed significantly from this time, leading to the current situation of public investment in infrastructure in different provinces and cities of Vietnam. Regarding to the country’s budget spending, Ministry of Planning and Investment plays a key role in determining development investment and drawing up specific plans on public investment as well as policies for economic management, Official development assistance (OAD) sources, preferential loans, and foreign non-governmental aids. Ministry of Finance works closely with Ministry of Planning and Investment in allocating spending. However, other state organizations such as the government and local People’s Committees also contribute to plan and decide the spending under a complex legal framework. The public investment in infrastructure brings positive outcomes in reducing poverty and shifts in choices of transportation. However, there are some problems in managing spending activities including the government budget deficit in recent years and the ranks of Vietnam in comparison with other countries. The ineffectiveness in managing spending activities comes from the bribery and corruption in the government, over reliance on foreign support sources or poor management planning. The ineffectiveness of public investment could lead to negative impacts on economy and people living standard. To attract foreign investment, it is necessary to have clear and detailed plans with foreign investors to avoid any delays in providing support capitals. The corruption and bribery need handling by government strictly as well.
Keywords: Public investment, Infrastructure, policies, ineffectiveness, economic consequences.
I. Introduction
For a long time, national attention has been drawn to the crumbling condition of nations infrastructure as it spurs a debate over decision on national investment (Alicia and Leah 1990). As a result, the effectiveness in the spending of public investment on infrastructure have impact on economic activity at national level especially have greater output, more private investment, and more employment growth (Alicia and Leah 1990). Vietnam is among Asian countries that witness significant development record in economy in the past 30 years, especially after Doi Moi in 1986 (Worldbank 2018). Since the reform happened, Vietnam has transformed from one of the worlds poorest nations to a lower middle-income nation (Worldbank 2018). This success comes from different reasons such as active participation in ASEAN or WTO, concluded negotiation for the EU-Vietnam Free Trade Agreement or Trans-pacific Partnership (VIR 2016). Since Doi moi reforms, the social structure and political system in this country also changes drastically. All of these factors heavily influence the situation of public investment in infrastructure in different provinces and cities. This paper critically discusses the departments that have duty and incentives for policies with the real problem of managing activities to see any economic consequences of ineffective investment based on real numbers and facts. Solutions are given for better policies enactment.
II. Literature review
1. Duty in policies
Infrastructure capital is defined as large capital-intensive natural monopolies such as highways, water and sewer lines, road, communication systems or other transportation facilities (Agenor 2006). Meanwhile, public investment generally refers to the spending of national capital for investments, which aim to fulfill targets of public programs and projects (VIR 2018). This source for public investment consists of state budget, state credit, official development assistance, revenues from taxes and charges (VIR 2018).
With these sources, there are different departments and organizations that are responsible for policies on allocating public investment. However, among them, Ministry of planning and investment plays a key role in determining development investment and having specific plans on public investment as well as policies for economic management, ODA source, preferential loans, and foreign non-governmental aids (MPI 2017). More specifically, in the Decree of the Government defining the function, tasks, powers and organizational structure of the Ministry as the Decree No. 86/2017/ND-CP dated July 25 2017 (MPI 2017), all plans, decisions or directives should be submitted to the Prime Minister, Government and National Assembly. However, as a unit of Government, this Ministry is in charge of listing programs and projects prioritized to get public investment. Furthermore, Ministry of Planning and Investment coordinate with the Ministry of Finance in allocating budget for important projects (MPI 2017). Once the spending is decided, the projects are then approved by ministry-equivalent Government departments and provincial Peoples Committees. The chairmen of Peoples Committees at district or province level have decision on invested projects with capital under some relevant thresholds (MPI 2017).
2. Problems in managing activities
There is big constraint in infrastructure in recent years. Vietnam will need $25 billion US each year to invest in infrastructure while the annual funds available from both public and private sectors are less than $16 billion US (Asian Development Bank, 2009). Despite the development in infrastructure with an improvement in infrastructure rankings from the 95th place to 79th place in 2016, the competitiveness of its infrastructure system is still slight compared with other economies in South East Asia (World Economic Forum 2016). The consequence of this ineffectiveness leads to larger amount of government debt as well. In fact, the government effectiveness can be measured in the following chart (Figure 1). This shows a good sign of increase in effectiveness from Vietnam government to 0.05 percent in 2015 after reaching its bottom in 2012 and 2013. Yet, in comparison with other countries, especially those in South East Asia, this is quite small rate. Furthermore, this rate tends to decrease in recent years to reach 0 percent in 2017 (The World Bank 2018). It seems that relevant department, ministries and government have not sought excellent plan on funding and investment.
Figure 1: Government effectiveness in Vietnam
The underlined theory in this ineffectiveness might come from causes of delay. There are 56 causes of delay that have been identified based on literature review and interviews with local contractors, and owners (Assaf, Al-Khalil and Al-Hazml 1995). These causes could be categorized into nine main groups as “materials, manpower, equipment, financing, environment, changes, government relation, contractual relationships, and scheduling and controlling techniques” (Assaf et al. 1995: 46). To be more specific, in Vietnam, there are multiple causes that can be recognized in serious delay. Firstly, it is the transportation ineffectiveness and poor-managing delay in the development of public buildings like airports or ports. In fact, the growth in recurrent expenditure is not keeping pace with capital expenditures (WorldBank 2018). Another reason comes from the public investment reliance on private investment and foreign supports. Furthermore, it might come from the transparency in government expenses. Many projects need to get approval after bribery and lobbying government (WorldBank 2018).
The complexity in approval process for public spending on projects is also another determinant cause for delay in projects (Darko, E, Hai, NM and Whitley, S 2015). The government has not headed to sustainable investment on transportation as they ignore detrimental impacts on environment during construction and post-construction maintenance (WorldBank 2018). Finally, capital shortage is one of main reasons for delay in projects as private sectors are more and more encouraged (Darko et al. 2015).
3. Economic consequences
There are a number of economic consequences coming from ineffectiveness spending on infrastructure in Vietnam. The most visible negative impacts of poor infrastructure can be seen in logistical nightmares (VIR 2012). According to VIR (2012), in a conference of Vietnams trade facilitation, value creation and competitiveness, World Bank expert indicated Vietnam has been far left behind other countries in South East Asia in term of time, cost and reliability of physical trade infrastructure. Vietnams transport, logistic and border management cost are trade barriers almost as significant as tariff barriers especially in the context of Vietnams open to world economy, this bottleneck could continue limiting the further growth for local economy according to Victoria Kwakwa World Bank in Vietnams country director (VIR 2016). The other consequences brought to local economy is the uneven distribution of public investment. In fact, big cities like Danang, Hochiminh or Hanoi receive more funding for infrastructure rather than undeveloped regions. Meanwhile, the positive impact of investment on infrastructure should be to reduce poverty in poorest and rural areas and more impact is seen in these regions rather than to richest ones. Finally, ineffectiveness of investment can be seen in electricity industry.
Figure 2: Total costs of generating electricity in Vietnam
It is seen from figure 2 that hydro power is over-relied on while unprepared plan from government leads to a lack of electricity demand (Doan and Dapice 2009). This leads to a growth in electricity prices that reflect actual costs of production and distribution nationwide (Doan and Dapice 2018).
III. Methodology
In order to conduct study more effectively, this section includes the research methodology. In more details, in this part, the target population, research context, type of data analysis, samples, respondent profiles and collection methods will be presented. Regarding to target population, this refers to the entire group of individuals or objects (Doan 2018). In this research, the index that is publicly published in World Bank sites and Government statistic offices sources will be useful to be collected. Data from World Bank and GSO are pre-collected and filtered from different countrys public disclosure as it becomes more credible to collect. Moreover, World Bank data has drawn conclusion via the data and description of the datas categories. The research context is based on all possible public disclosure of Vietnam. Data and conclusion in this research is derived from previous research and analysis.
The sampling of this research will be Vietnams economic index throughout the period of 2000 to 2017. The data, which is generated, by World Bank and GSO is based on the whole population of Vietnam. The respondents could be all possible individuals/business groups that have impact on the national economy examining the eco ratio and responding living or working standard. The measures will be based on the number of ports, airports, the index of governments corruption control, GDP point, road meters, or public investment in VND.
1. Findings
According to World Bank report, it is undeniable that Vietnams transition to a market economy has transformed the whole country and people living standard especially since the Doi Moi in 1986 (World Bank 2018). Vietnam stands out as a successful story among the transitional economies such as Eastern Europe (World Bank 2018). This can be seen in figure 3. This has proved the significant development of Vietnam in term of economy.
Figure 2: Vietnams output performance relative to other transitional economies
Although the development of Vietnam economy is visible, the usage of resource is not as efficient as expected according to this report. According to GSO (2018), the investment of constant prices by different forms of economic activity in 2010 rises gradually 2011 to 2016 (Figure 4 & Figure 5). This shows the intensiveness of investment throughout this period. However, the effectiveness of government budget can be seen in figure 6 as it was negative from 2007 to 2015 and just above positive in 2016 and 2017. The ineffectiveness in spending can be seen Hochiminh city. As the population and migrants to this city soared in recent years and efforts from city authorities to improve infrastructure, there are some existing problems leading to degradation in living standard of citizens. For example, waste collection system is absent in many areas of the city. People still rely on underground water and use polluted water rivers (Doan et al. 2017). The uneven development in large city is clearly seen in Hanoi as well as Hochiminh. The five-year-delayed sky train is due to lack of funding from China (Doan 2017). The state-owned China Railway Sixth Group Co., delayed disbursement of $250 million in ODA from China that held the whole project. This poses negative impact not only in traffic but also environment of the whole city. Meanwhile, Hanoi Committee and Government are still passive in speeding the whole progress.
Figure 4: Investment at constant 2010 prices by kinds of economic activity
Finally, it is found that corruption varies significantly across provinces in Vietnam. In the period from October 2006 to September 2007, there were 400 corruption cases that were brought to court involving 820 people (Darko, E, Hai, NM and Whitley, S 2015). The total damages of these cases are estimated to be up to 290 billion VND (Darko et al. 2015). The frequencies of these cases are in Hanoi, Hochiminh city, Nghe An, Thanh Hoa, Long An and Binh Thuan (Darko et al. 2015). Furthermore, through findings, foreign firms are more likely to bribe when entering industries which domestic companies have already developed in Vietnam such as manufacturing or agriculture (Darko et al. 2015). The FDI invested into country will need to bribe as it causes interruption in investment process. As a result, this leads to corruption. The corruption and bribery are two factors that lead to a delay and ineffectiveness of investment on infrastructure.
2. Recommendations and limitation
There are some recommendations given to the government after the analysis of current situation. It is seen that government has tendency to share and selling assets and liabilities of SOEs to foreign investors more and more. Therefore, it is highly suggested to government to rely more on private sector. Besides, the foreign direct investment (FDI) is one of important factor that boost economy in developing countries (Delgado, McCloud and Kumbhakar 2014). This could share risks with other supporters. However, it is necessary to have clear plan and commitment to avoid delay in subsidizing capital. Besides, corruption has also been argued as circumvent existing inefficient bureaucratic regulations that could curb the development of one country (Delgado et al. 2014). Hence, besides attracting FDI and foreign investors to participate in the local economy, it is necessary to handle the issues of bribes and corruption first. Another advice to government is to have detailed and forecast plans for investment and areas of infrastructure to improve. The plans should analysis the current situation and indicate any problems that need to deal with. This helps to distribute the sources of investment evenly and brings post-profit for the regions.
The paper relies heavily on World Bank and GSO sources. However, the accuracy of numbers and real spending are not investigated fully. The test and interpretation above can be wide used in deeper understanding the economic development in Vietnam, perhaps explained by the complicated hidden relation between governmental regulations, ambiguous information and the infrastructure spending.
3. Conclusion
In conclusion, the capital investment on infrastructure is significant the development of a country. In Vietnam, the Ministry of Investment and planning and Ministry of Finance are mainly in charge of deciding investment but they still need approval and submission to Prime Minister and Government. This complexity in investment allocation lead to corruption and bribery that are one of main causes for delay in projects and ineffectiveness of public investment. Other reasons come from management plan and over reliance on foreign support. This leads to heavy consequences to economy, people living standard and environment. The solutions are to attract foreign investment meanwhile having clear plan and details with foreign investors to avoid any delays in supporting capital. The corruption and bribery need handling by government strictly as well. Only by doing so, can infrastructure bring better living standard for Vietnam citizens in both rural and urban areas.
REFERENCES:
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THỰC TRANG VIỆC ĐẦU TƯ CÔNG
VÀO CƠ SỞ HẠ TẦNG CỦA VIỆT NAM
ThS. PHAN XUÂN HOÀNG
Nhà nghiên cứu chính sách, Hội đồng Nhân dân tỉnh Nghệ An
TÓM TẮT:
Kể từ khi áp dụng chính sách Đổi Mới vào năm 1986, Việt Nam đã chuyển mình từ một trong những quốc gia nghèo nhất thế giới sang một quốc gia có thu nhập trung bình thấp. Cơ cấu xã hội và hệ thống chính trị của Việt Nam đã thay đổi đáng kể từ thời điểm này, kéo theo đó là việc đầu tư công vào cơ sở hạ tầng tại các tỉnh thành khác nhau của đất nước. Liên quan đến nhiệm vụ chi ngân sách, Bộ Kế hoạch và Đầu tư đóng vai trò chính trong việc xác định đầu tư phát triển và có kế hoạch cụ thể về đầu tư công cũng như các chính sách quản lý kinh tế, nguồn ODA, cho vay ưu đãi và viện trợ phi chính phủ nước ngoài. Bộ Tài chính phối hợp chặt chẽ với Bộ Kế hoạch và Đầu tư trong việc phân bổ chi tiêu. Tuy nhiên, các tổ chức khác như Chính phủ, Ủy ban nhân dân địa phương cũng góp phần lên kế hoạch và quyết định việc chi tiêu theo một khung pháp lý phức tạp. Đầu tư công vào cơ sở hạ tầng mang lại các kết quả tích cực trong việc giảm nghèo và thay đổi cách thức giao thông. Tuy nhiên, việc quản lý các hoạt động chi tiêu hiện có một số khó khăn bao gồm sự thâm hụt ngân sách của Chính phủ và sự xếp hạng của Việt Nam so với các nước khác. Sự thiếu hiệu quả trong việc quản lý các hoạt động chi tiêu đến từ sự hối lộ và tham nhũng trong Chính phủ, sự phụ thuộc quá nhiều vào các nguồn hỗ trợ của nước ngoài hoặc kế hoạch quản lý kém. Đầu tư công kém hiệu quả có thể dẫn đến những tác động tiêu cực đến nền kinh tế và mức sống của người dân. Để thu hút đầu tư nước ngoài, cần có kế hoạch rõ ràng và chi tiết với các nhà đầu tư nước ngoài để tránh bất kỳ sự chậm trễ trong việc cung cấp vốn hỗ trợ. Bên cạnh đó, tình trạng tham nhũng và hối lộ cần được Chính phủ xử lý.
Từ khóa: Đầu tư công, cơ sở hạ tầng, các chính sách, kém hiệu quả, hậu quả kinh tế.
