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Public investment in Vietnam big, but efficiency low
Public investment has become a hot topic on economic forums, especially when nine delegations of officials on March 8 will start inspection tours to examine public investment projects in localities and economic groups, a part of the plan to curb inflation in 2011.
Low investment efficiency
The report by the Ministry of Planning and Investment MPI submitted to the government on December 28, 2010 showed that 65 percent of Vietnam’s GDP growth relies on investment capital from citizens, while labor productivity only contributes 25 percent and the figure is steadily decreasing.
The figures show low investment efficiency in Vietnam. In other words, Vietnam needs to increasing the volume of investment capital in order to obtain growth.
A recent survey conducted by Vu Tuan Anh from the Vietnam Economics Institute also shows that the public investment capital has been growing immoderately year after year. In the last 10 years, the public investment capital scale has increased by a factor of 3.2, or 13.9 percent a year. In 2008, the government tried to cut down public investments in an effort to curb inflation. However, in that year the public investment capital was just a little lower than that in 2007. And then the public investment capital jumped in the next year, 2009, as “compensation” for the cutting in 2008.
MPI has pointed out that despite the efforts of the government in the last many years to boost growth, loosen monetary policies and expand credit, low public investment has prevented the efforts from bring the desired effects. Morever, the efforts brought “side effects” which were even more dangerous than the high inflation rate, such as the decrease of the competitiveness of the national economy.
Public investment capital goes on the wrong track?
Reviewing the 10-year development, Vu Tuan Anh from the Vietnam Economics Institute said that the Government of Vietnam is the largest investor in regional countries, as it spends 1/3 of the total state budget for development. Every year, Vietnam spends an amount of money equal to 17-20 percent of GDP on public investment, while other regional countries only spend less five percent. China, for example, spent 3.5 percent, while Indonesia 1.6 percent only.
A question has been raised as to whether or not public investment goes to the right addresses. Some experts say that public investment brings low efficiency because the capital has been pouring to infrastructure projects. which take a long time to earn back capital, to remote and difficult areas, or to the public works. However, MPI said that investment efficiency is an important factor that investors must consider when making investment decisions.
The expert from the economics institute said that the State has injected low capital in fundamental industries such as mechanical engineering, equipment manufacturing, healthcare equipment manufacturing, chemical industry and high technologies. Meanwhile, it is pouring big capital to other industries such as mining, bauxite exploitation, coal, shipbuilding. Especially, it is spending big money on developing a high-speed rail which will be used to carry passengers, not cargo. It seems that the principle of prioritizing to develop the sectors which can help advance economic restructuring and modernize the national economy has not been implemented in the last 10 years.
It’s necessary to clarify responsibilities in public investment
In the last 10 years, the story about ineffective public investment has been discussed regularly. A lot of resolutions and legal documents have been promulgated, but they have not bring good results.
Commenting on public investment cuts, Dr Le Dang Doanh, a well known economist in Vietnam, said that the ineffective public investment problem has never been settled.
He went on to say that it is now the right time for the government to take actions to solve the root of all the problems that lead to the ineffective investment. It is necessary to tighten the discipline in public investment and set up a mechanism to clarify the responsibilities of individuals and agencies which make public investment decisions.
“I am afraid that if we do not change the mechanism on supervising investments supervision, we will not be able to create the driving force to change the investment efficiency,” Doanh said. “Public investment projects must be made public and carried out transparently so that they can be supervised by elected agencies”.
Pham Huyen
vietnamnet
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