Regional Investment in Viet Nam

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies [1][2][3] Core Viewpoints - Vietnam aims to achieve upper middle-income status by 2030 and high-income status by 2045, requiring gross capital investments to account for 32-35% of GDP, with government investment at 7.3% of GDP annually to support infrastructure development [14] - Public investment in Vietnam has declined from 8% of GDP in 2011 to 6% in 2022, with chronic under-execution of investment budgets and significant delays and cost overruns in major projects [15][16] - Vietnam's infrastructure quality lags behind regional peers, with low expressway density and high road transport costs, which could impact its attractiveness as an FDI destination [19][20] - The public investment management (PIM) and intergovernmental fiscal (IGF) systems in Vietnam suffer from allocative inefficiencies, lack of coordination, and weak enforcement mechanisms, leading to suboptimal investment outcomes [28][29][30] Public Investment Trends - Vietnam's public investment has been declining, with the share of public investment in GDP falling from 8% in 2011 to 6% in 2022, while the economy remains capital-scarce compared to upper middle-income and high-income countries [24][25] - The central government's share in total government investment has decreased from 40% seven years ago to 20% in 2022, with provinces accounting for 80% of infrastructure investment [16][52] - Vietnam's infrastructure quality ranks 77th globally, behind regional peers like China, India, and Malaysia, with road transport costs being the highest in the region [19][20] Inefficiencies in PIM and IGF Systems - Allocative inefficiencies are evident in strategic infrastructure, with provinces over-investing in low-value projects like industrial parks and provincial ports, while national infrastructure spending has been squeezed [16][30] - There is a lack of investment in environmental protection and climate adaptation, with Vietnam being among the top 10 countries most affected by climate change, yet public investment in disaster protection is only 0.05% of GDP [40][41] - Implementation inefficiencies are significant, with an average delay of 5 years and cost overruns double the original budget for large-scale transport projects [42][45] Systemic Problems in Subnational PIM and IGF Systems - The lack of a conducive intergovernmental fiscal framework has led to fragmented investment decisions, with provinces holding 78-85% of public investment resources, leaving the central government with limited capacity to fund national infrastructure [52][53] - There is no enabling legal framework for vertical and horizontal investment coordination, with the State Budget Law banning the transfer of investment funds between provinces, creating financing gaps for regional projects [59][60] - The absence of effective incentive and enforcement mechanisms has resulted in a race-to-the-bottom competition among provinces, leading to wasteful investments in uneconomic projects [62][63] Recommendations and Next Steps - The report recommends rebalancing infrastructure investment from provincial to central levels, addressing legal loopholes, and establishing robust monitoring mechanisms to improve public investment efficiency [16][75] - It suggests adopting effective instruments for vertical and horizontal coordination, such as co-financing arrangements and matching grants, to enhance regional investment coordination [80][81] - The report also calls for a review of expenditure responsibilities and the establishment of a regional Public Investment Program to align with integrated masterplans and improve investment outcomes [78][79]