Public investment accounts for nearly 30% of the country’s total investment, however, it has proven relatively ineffective in past years, according to Vietnam Annual Economic Report 2012.

Public investment accounts for nearly 30% of the country’s total investment, however, it has proven relatively ineffective in past years

The report, jointly complied by a group of senior Vietnamese economists, mentioned challenges for the Vietnamese economy in its goal of restructuring, one of these being ineffective public investment.

The report stated that, after becoming a member of the World Trade Organisation (WTO) in 2006, Vietnam poured massive amounts of money into State-owned businesses, leading to massive investment in non-core activities.

The Government has often selected SOEs for infrastructure projects even though many of them have showed poor performance, and caused waste.

The amount of investment in Hanoi-Thai Nguyen Expressway project, which is under the management of the Directorate for Road of Vietnam, has been adjusted four times, now totaling VND2 trillion (USD95.2 million), while the initial estimate was VND568 billion (USD27 million). This was largely due to its sluggish site clearance work.

Another typical example is Thang Long Bridge. Since March, 2010, the bridge has undergone three other repairs. Despite the efforts of both foreign and domestic experts, cracks remain.

“It is selection bad development strategies that has resulted in waste for the national budget. Too many priority projects are offered to State-owned groups," Dr. Nguyen Duc Thanh, Director of Vietnam Centre for Economic & Policy Research.

Private enterprises contributed just 10% to the GDP in the last decade, which partly explains why Vietnam has faced such difficulties in global economic integration, Thanh added.

Lax management and decentralisation

According to the report, localities have been allowed to approve their projects and then seek funds from the State budget, making many all too eager to approve projects to assure fund allocation. Since most of the projects become are carried out by State-owned enterprises it has left the Government bearing most of the risk. At the same time the Government has shown lax supervision over project implementation.

Over the past years there has been a rush to build industrial parks, but to date; only 46% these have been utilised. Many have no waste treatment systems and cause serious harm to the local environment.

The report indicated that ineffective public investment is a major cause the increasing public debt. By 2010, the public debt rate was estimated to be 56.7% of GDP, a figure that rose to 58.7% in 2011.

Up to 40% of the Vietnamese public investment is poured into infrastructure projects,while the investment in agriculture, technology and education has fallen.

Economists have suggested that Vietnam should build a legal framework to target a larger percentage of funds towards Public Private Partnership model for project implementation in order to mitigate risk to the Government. They also suggest that the Government intensify supervision over localities in their project licensing and implementation process.