To realize the government’s Resolution 11 on curbing inflation, stabilizing macro-economy, ensuring social welfares, cutting government spending is now discussed ebulliently. These measures are needed to not only curb inflation but more importantly, to contribute to restructure the economy and make it more effective.
Since Vietnam implemented the renovation policy, the economy has experienced many “movements of investment”, under which investors raced each others to build beer, tobacco, cement, sugar, motorbike assembling, cassava powder processing factories, to develop offshore fishing crews, to build seaports, industrial and economic zones. After that, they competed to build pulp, steel factories, small and medium sized hydro power plants, resorts, residential areas, universities, golf courses and airports…
These projects were invested by private investors and also capital from the central and local governments and State-owned enterprises. However, we do not have any research work analyzing the effectiveness and waste of these projects as well as their impacts on the economy.
Writing this article, I do not see myself as an “outsider” but partly an “offender”, because I was a cabinet member and I did not fully realize the situation and effectively contribute to restrict and prevent ineffective government spending.
To dodge “investment movements”, we should return to some basic ways of approach.
Giving priority to economic effectiveness
Primary understanding about economics is how to create the highest effectiveness with restricted resources. It is more important for Vietnam, a very poor country, though it has reached the threshold of a middle income country. Vietnam has no way to have an appropriate investment priority order.
It is sad to see modern but empty markets, empty museums, theatres or cultural houses, empty seaports, quiet airports or universities which cannot enroll enough students. Investment in these ineffective works would have been used to solve many other urgent needs of the people.
Some said that we should not pay attention to only economic effectiveness, but also political, social effects and the balance in development among regions.
It may be right for some locations but in general, such works will make the national resources exhausted and negatively affect the country’s development. Moreover, they can harm the environment and erode the people’s trust in the state.
The above situation originates from the desire to develop robustly, to perform industrialization at any cost, the capital allocation policy under the ask-give mechanism, calculations based on partial and personal interests, etc. This article only analyzes reasons related to economic thought and management and decentralization mechanism.
Demand decides supply
It is obvious that in the market economy, supply is decided by demand. But this theory seems to not be right in Vietnam, at least in building seaports.
Vietnam has a long coast and marine transportation needs to be developed. Vietnam needs to build seaports but it must ensure the effectiveness of these works.
In building seaports, the topography (deep or dry water) is not enough. The favorable position and the inflow and outflow of goods, management capability is also important.
People said that with 3,000km of coast and being located near international sea lanes, it is unacceptable for Vietnam to rank behind Singapore in marine transportation. Let’s see how many countries in the world that have longer coasts than Vietnam’s and they are more developed than Vietnam, but they do not have international seaports. Many global-level seaports are located in narrow territories like Singapore, Hong Kong or the Netherlands.
Malaysia spent billions of US dollars to build a modern deep seaport to compete with Singapore, but it failed. Thus, only ports that meet all above-mentioned conditions can satisfy clients and become international ports.
Another example is the construction of airports in Vietnam. The effectiveness of airports depends on the volume of passengers and cargo, the income of local passengers which afford them to travel by air or not, topography, land, etc.
Similarly, the construction of open economic zones, specialized economic zones and border-gate zones must be considered based on the demand. These zones can work effectively if they have all necessary conditions, not only good infrastructure and attractive investment incentives.
China’s Shenzen and Zhuhai are successful because they are supported by Hong Kong, Macau, and Taiwan; which Vietnam’s Chu Lai and Chan May open economic zones do not have. Vietnam’s border-gate economic zones are also located in remote and isolated areas, where people are extremely poor. Moreover, with a large number of border-gate economic zones are built, they all work ineffectively.
Administrative frontier and economic space
Dispersed investment is also associated with the misunderstanding of the concepts “administrative frontier” and “economic space”. All provinces want to become “complete economies” with their own agriculture, industry, service, universities, ports, airports, and economic zones, though they do not have enough resources for these.
Industrialization does not mean that all provinces are industrialized. We need appropriate a labor division for each location; otherwise resources will be dispersed or overlapped.
Problems in making development plans and decentralization mechanism are also reasons. Vietnam has had development plans for sectors and regions but these plans are not qualified enough. Many development plans do not catch up with the actual situation and requirements. Development plans for sectors often go behind development plans for regions and there is a gap between development plans for sectors and regions. The overload of highways and roads to seaports in Hai Phong, HCM City and Ba Ria-Vung Tau are examples. Moreover, development plans are not implemented strictly.
The more the economy develops, the more decentralization is needed because the central government cannot do everything. There are many tasks that only local governments understand and can solve properly. The government has issued a decree on decentralization but the decree shows many problems. The decree does not stipulate which areas and works that are decided by the central government and by local government. Leasing forest land to foreign investors is an example.
Decentralization is only effective if local officials are trained well to be capable to solve complicated social-economic, environmental, technical issues.
If Vietnam plans to restructure its economy towards improving quality and effectiveness in the near future, restructuring the investment policy must be the first task.
Vu Khoan
Source: TBKTSG
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