(TIỂU LUẬN) INTERNATION INVESTMENT SITUATION ANALYSIS AND IMPLICATIONS FOR VIETNAM

The term “international investment” also refers to the international flows of financial resources, which are divided into two flows: Official flow Foreign Aid and Private flow.. Our repo

FOREIGN TRADE UNIVERSITY

HO CHI MINH CITY CAMPUS

MID-TERM ASSIGNMENT

Subject: International Economics

INTERNATION INVESTMENT: SITUATION ANALYSIS AND IMPLICATIONS FOR VIETNAM

Group 4 - Class: K56CLC4 Lecturer: Mrs Trần Nguyên Chất

Group members:

Nguyễn Thị Ngọc Phượng Huỳnh Nhật Quang

Đỗ Thị Hoàng Quyên Trương Trần Nhật Quỳnh

Ho Chi Minh, January 2019

Table of Contents

I An overview of international investment 3

1 The concepts of investment, foreign investment, international investment 3

1.1 Investment 3

1.2 Foreign investment 3

1.3 International investment 3

2 Taxonomy of international financial flows 4

II Official Development Assistance - the case of Viet Nam 4

1 The historical framework of ODA 4

2 Definition of ODA 5

3 ODA activities & management and the impacts on Viet Nam 6

3.1 An overview of ODA activities in Viet Nam 6

3.2 The impacts of ODA on Viet Nam 8

III ODA graduation and the impact to Viet Nam economy 10

1 ODA graduation of Viet Nam 10

2 Analyze the impact of ODA graduation in Viet Nam: 11

2.1 SWOT model: 11

2.2 Negative effects of ODA graduation 12

2.3 Positive effect of ODA graduation: 14

IV Major problems about ODA in Vietnam 15

1 ODA disbursement in Vietnam 15

1.1 Slow capital disbursement 15

1.2 Reasons for the slow disbursement process 16

2 The management and using of ODA in Vietnam 17

2.1 Shortcomings in ODA use and management 17

2.2 Corruption in economic infrastructure projects using ODA capital 1

V Solution for Viet Nam about ODA problems 19

1 General orientations for solution 20

1.1 ODA management 20

1.2 Attracting and speeding up ODA disbursement rate 21

1.3 Enhance capacity of implementing projects by ODA 21

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2 Specific policies and plans to improve the effectiveness of ODA investment are being implemented in future: Public

private partnership (PPP) 22

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This report was presented by group 4 at the subject International Economics, with a fundamental aim to have some situation analysis and implications for international investment in the case of Viet Nam The term “international investment” also refers to the international flows of financial resources, which are divided into two flows: Official flow (Foreign Aid) and Private flow Our report would pay more attention

in the Foreign Aid, which mainly focuses on the realistic activities and management of Official Development Assistance (ODA) in Vietnam

In recent years, ODA has been an effective source of support for Vietnam’s development in terms of economic goals, the processes of innovation, industrialization and modernization; however; the movement of Vietnam into “lower income country” and the problem of inefficient ODA utilization have been notably taken into account by the Government The report would concentrate on analyzing these situations and expecting certain implications for the case of Vietnam.

I An overview of international investment

1 The concepts of investment, foreign investment, international investment

1.1 Investment

In a broad sense, investment is usually understood as a sum of money or other resources (including, eg knowledge or time) spent with the expectation of getting a future return from it (1) There are three main approaches to the concept of investment based on the context and purpose:

a In macro-economic and national accounts: investment means expenditure on new capital goods (goods that are not consumed but instead used in future production) Such investment is the source of new employment and economic growth.

b In finance: Investment refers to the purchase or ownership of a financial asset with the expectation of a future return either as income (such as dividends), or as capital gain (such as a rise in the value of the stock).

c Legal definitions of investment: Found in law and legal agreement, focus on the issue of property, notwithstanding the productive or financial nature of the investment, unless specific limitations are made.

1.2 Foreign investment

Foreign investment involves capital flows from the border of one country to another, granting extensive ownership stakes in domestic companies and assets Foreign investment denotes that foreigners have an active role in management as a part of their investment A modern trend leans toward globalization , where multinational firms have investments in a variety of countries.

1.3 International investment

International investment is investing via a wide range of potential strategies, to capitalise on advantages offered outside your home country and create capital movement across borders It’s an investment approach that increasing numbers of international professionals and expatriates are exploring, particularly since it has become far easier to do so with the emergence of index trackers and exchange-traded funds (ETFs).

2 Taxonomy of international financial flows

II Official Development Assistance - the case of Viet Nam

1 The historical framework of ODA

After the Second World War, the world economy fell into a serious crisis In order to revive the world economy, many international financial institutions were established at this time One of the plans for economic reconstruction at the time was the Marshall Plan, a precursor

of a form of official development assistance, intended to assist European countries in restoring a war-torn economy devastated.

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In Paris, the Organization for Economic Co-operation and Development (OECD)

was formed to implement the Marshall Plan Participants in the Paris conference agreed on the objectives of the European Economic Co- operation Organization, including:

- Improve the living standards and working conditions of member countries.

- Achieve high economic growth and sustainability, maintain

Initially, the OECD focused only on aid to warring countries in World War II and war-torn countries Once the economies of these countries have been restored, aid is extended to other countries for the purpose of promoting economic development around the world.

During the Cold War, developing countries belonging to the socialist side, including Vietnam, received almost no direct aid from

DAC countries but indirectly through non-governmental organizations and the United Nations For many years Vietnam received mainly aid from the Soviet Union and Eastern European countries In this period, the provision of ODA was heavily influenced by political factors.

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After the Soviet Union and the socialist system in Eastern Europe disintegrated, other socialist countries had to carry out political reforms

in line with the new situation, capitalist countries resumed aid to Vietnam, China and Cuba In general, political issues no longer have a significant impact on ODA provision Thanks to the positive reforms, our country has received increasing support from the donor community.

2 Definition of ODA

Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent (using a fixed 10 percent rate of discount) By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (“bilateral ODA”) and to multilateral institutions ODA receipts comprise disbursements by bilateral donors and multilateral institutions.

In other words, ODA needs to contain the three elements:

(a) undertaken by the official sector (official agencies, including state and local governments, or their executive agencies);

(b) with promotion of economic development and welfare as the main objective;

(c) at concessional financial terms (if a loan, having a grant element of at least 25 percent).

3 ODA activities & management and the impacts on Viet Nam

3.1 An overview of ODA activities in Viet Nam

3.1.1 Significant ODA projects

Since the reconnection with international financing institutions in

1993, Vietnam has attracted a large amount of ODA and ODA has

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significantly contributed to infrastructure construction, poverty reduction, institutional reform,

and socio-economic development Amongst all of Vietnam’s ODA donors, Japan has been the largest bilateral one for the last two decades In recent years, ODA has been an effective source of support for Vietnam’s development, especially as Vietnam is still a poor country and needs to attract outside capital to achieve its economic goals, namely the processes of innovation, industrialization and

12% of total social investment capital, the equivalent of 24% of total investment capital from the budget or 50% of state credit capital for development and investment.(4)

ODA projects have helped Vietnam to restore, upgrade and build

3676 km of highways, about 1,000 km of provincial highways, and 188 main bridges on the national highways with a total length of 33.7 km Among these projects, many are very important such as the No 5 route linking Hanoi to Hai Phong, the national highway 1A from Hanoi to Vinh and Ho Chi Minh City to Can Tho and Nha Trang, and the Metro Line No.1 - a 20-km metro line, which connects Ben Thanh Market in the city’s District 1 and Suoi Tien Park in District 9, passing through Di An town in Binh Duong province Other major projects have also been implemented such as My Thuan Bridge, the Hai Phong and Sai Gon seaport upgrade, the Cai Lan deep-water port construction, the Tien Sa and Da Nang port restoration, the construction of many electric factories such as Phu My 1, Phu My 2, Ham Thuan-Da Mi, Song Hinh, Nhim, Pha Lai 2, Tra Noc et cetera, and the 500 kV North-South line as well as the 220KV line installation from Playku-Phu Lam to Tao Dan-Nha

Be

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In mid-August 2018, the Ministry of Investment and Planning (MPI) issued a warning against borrowing from the Official Development Assistance (ODA) source in its report on ODA attraction, management and use over the next two years The ministry urged that if Việt Nam continued borrowing without careful consideration, the country could

According to the Ministry of Planning and Investment (MPI), Vietnam graduated from the World Bank (WB)’s International Development Association in July 2017 and is expected to graduate from the Asian Development Bank (ADB)’s Asian Development Fund from January 2019.

Therefore, Vietnam will have to begin borrowing at higher costs and with shorter grace periods Instead of cheap loans from the WB and the ADB, Vietnam will need to secure loans from the International Bank for Reconstruction and Development with interest rates of 3-4% on

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concessional loans and 3.51-5.1% on ordinary loans, depending on the terms of the loans.

For bilateral donors, the interest rates on ODA provided by the Republic of Korea range from 0% to 2% and Indian loans average 1.75% For Japan, the Ministry of Finance informed that, from October

2017, the lending rates would rise from 1.2% to 1.5%, coupled with other fees The rates on loans for human resources development, education, healthcare, environmental protection, vocational training and climate change response also rose from 0.3% to 1% (5)

The ineffective administrative system is the main obstacle to ODA management, which slows down the implementation of investment projects Therefore, appropriate policies and strategies should be carried out to maintain the efficiency of ODA in Vietnam

3.2 The impacts of ODA on Viet Nam

The figures mentioned above indicate that ODA has significant impacts on Vietnam in many aspects It is an important resource for promoting growth, reducing poverty, strengthening institution capacity and enhancing know-how management and technological transfer.

3.2.1 ODA is an important source of capital for development investment

The industrialization and modernization process that Vietnam is implementing requires a huge amount of investment capital that domestically mobilized capital can not be met Therefore, ODA has become an important external source of capital to meet the capital demand for development investment.

3.2.2 ODA helps to acquire modern scientific and technological achievements and develop human resources

One of the important factors contributing to accelerating the process of industrialization and modernization of the country is the

factor of science and technology and the ability to absorb the advanced scientific achievements of the labor force.

Through ODA projects, there are activities to help Vietnam improve its science, technology and human resource development such as:

- Advanced management skills and experience are transferred to

g p agencies, research centers as well as ministries, sectors and localities with the support of high-tech ODA programs and projects in the areas

of information technology, biotechnology, materials technology, construction technology, etc…;

- Providing technical documentation;

- Holding workshops with the participation of foreign experts;

- Sending Vietnamese staff to study abroad;

- Organizing study tours to study experiences in developed countries;

- Directing experts to Vietnam to support the project and directly provide modern technical equipment and lines for programs and projects.

Through these activities, donors will significantly contribute to improving Vietnam's science, technology and human resource development, and this is a fundamental, long-term benefit for Vietnam.

3.2.3 ODA helps to adjust the economic structure

ODA projects donated to Vietnam often give priority to the development of economic and technical infrastructures and human resource development, facilitating the balanced development of different sectors and regions in the whole country In addition, there are

a number of projects to help Vietnam implement administrative reform

to improve the performance of state management agencies All that contributes to the adjustment of economic structure in Vietnam.

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and spending norms have not met the requirements in the context ofchanging market prices.

The requirements are complex, demanding for each donor'sdifferent types of documents and approval has to go through manysteps, while donors' representative offices in Vietnam have littleauthority, so regularly consult with higher authorities In addition, thereare projects funded by many donors, so procedures often overlap,causing difficulties for project owners during the implementationprocess

1.2.3 The complex process of site clearance

In reality, there are many difficulties and shortcomings incompensation and site clearance in localities across the coutry Manyprojects, works of construction, lasted for years due to the stage ofclearance with dull, slow progress Firstly, the price of landcompensation is inappropriate for there is inconsistency not onlybetween the market price and the price set by the People’s Committeebut also between the prices of different localities More over, theprocess of resettlement is stagnant and the work of granting land useright certificates is still inadequate In particular, the larger the land useproject is, the more complex and time-consuming the defense work is.Therefore, clearance work takes a lot of time for disbursement

1.2.4 The capital assignment

Capital allocation is also one of the reasons for the limiteddisbursement of capital Objectively, the allocation of capital depends

on the legal regulations, the project assigned capital must have enoughdocuments which includes the decision to approve the project toallocate capital In order to issue this decision, it must go through avery long process in which the investor must hire a consultant, prepare

a feasible advisory report, and after completing the feasibility report,

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