Home / Investment Capital

The Market's Ability to Supply Capital to Meet the Capital Needs for Highway Construction of Enterprises and Investors.


2.2.2.5. The market's ability to supply capital to meet the capital needs of businesses and investors to build highways.

As analyzed above, the capital supply capacity of the capital market is very diverse, depending on each project and the capital mobilization policy of the Government. Regarding the structure of capital sources for investment in construction and development of roads and highways in Vietnam today, capital from the state budget is extremely limited; capital from the market, especially long-term capital markets, such as the stock market, can be said to be not really strong; ODA capital (in addition to the compensation for state budget deficit) is gradually decreasing; therefore, all possibilities can only rely on investment capital from the non-state budget sector, especially from the private sector.

Total investment capital for infrastructure development compared to GDP in the period 2001 - 2010 is shown in the following table:

Table 2.3. Ratio of infrastructure development investment capital to GDP in regions

Area

Investment capital ratio to GDP (%)

State budget

7 – 8

State credit

5.6 – 6

State-owned enterprises

5.3 – 5.9

Private sector

7 – 8

FDI

5 – 6

Maybe you are interested!

The Markets Ability to Supply Capital to Meet the Capital Needs for Highway Construction of Enterprises and Investors.

Source: Ministry of Planning & Investment, Assessment of capital structure for infrastructure development investment (2001 – 2010)

Through the comparison table, we can see that the total investment capital of the private sector is equal to the investment capital from the state budget. In the period 2001 - 2010, the total development investment capital of the whole society increased by 11-13%/year, reaching 32% of GDP. The total investment capital of the whole society in this period reached over 150 billion USD compared to 46 billion USD in the period 1991-2000. In the total investment capital of the whole society, investment from the state budget reached 7-8% of GDP (in the period 1991-2000 it reached 6.4% of GDP), state credit reached 5.5 - 6% of GDP, investment capital of state-owned enterprises reached 5.3 - 5.9% of GDP, investment capital of the population reached 7-8% of GDP, FDI reached 5 - 6% of GDP.


Compared to GDP, it is expected that in the period 2011-2020, the total social investment capital will reach an average of 30-32% of GDP. Of which, there are capital sources that the State can completely control, while the State capital can only partially control, or can only indirectly guide the allocation and use through financial mechanisms and policies. It is also possible that the State can decentralize the ability to control and guide the State for investment capital sources as follows:

+ Investment capital from the State budget reaches 7-8% of GDP, this is the part that the State can completely control. This investment capital plays an important role, performing the same function as other types of normal investment capital, which is to generate profit, create a foundation for economic growth, and also has the function of directing and guiding other investment capital sources.

+ The State capital that can be controlled is mostly State credit capital, in the period 2001-2010 accounting for 5.5 - 6% of GDP. This capital is used both to increase resources for development and to guide investment through selective forms of users based on criteria such as investment subjects, investment fields or investment locations.

+ The State capital that can be partly controlled is the investment capital of State-owned enterprises, which in the period 2001-2010 accounted for an average of 5.3-5.9% of GDP. With the increase in autonomy for State-owned enterprises, the State's control over the use and allocation of this capital source is increasingly limited, so there have been problems of loss and waste of this investment capital source.

+ With capital sources from the residential sector and foreign investment, the State can only orient and guide investment through the use of investment capital sources that the State can control, and through other financial mechanisms and policies. Therefore, to guide the allocation and good use of these capital sources, the State needs to use a combination of both of the above mentioned tools.


Table 2.4. Ratio of capital investment in infrastructure to GDP of some Asian countries

Countries

Infrastructure investment ratio / GDP (%)

Korea

29.4

Indonesia

24.9

Malaysia

21.9

Philippines

15.3

Thailand

26.8

China

44.2

Vietnam

41

Source: WB, http://ppi.woldbank.org


50.00%

40.00%

30.00%

20.00%

10.00%

0.00%

44.20%

41%

29.40%

24.90%

21.90%

26.80%

15.30%

Indonesia

Malaysia

Philippines

Thailand

Source: http://ppi.woldbank.org

Thus, it can be seen that in recent years, total social investment in some countries in the region has continuously increased (including investment in technical infrastructure) and remained at a high level. The capital/GDP ratio has increased from 34% in 2001 to over 42% in the years 2006 to 2009, with an average for the entire period 2001-2010 of approximately 41%, compared to 30.7% in the period 1991-2000. In 2007, Vietnam's capital investment/GDP ratio was only lower than that of China (44.2%), but much higher than that of Korea (29.4%), Thailand (26.8%), Indonesia (24.9%), Malaysia (21.9%) and the Philippines (15.3%). Over the years, this rate has generally decreased in most countries, while in Vietnam it has increased sharply and always remained high, currently among the highest in East and Southeast Asia.


In Vietnam, in recent times, all economic sectors have grown and expanded in scale in all fields. The structure of economic sectors has changed in a positive direction, in line with the market mechanism. Analysis shows that the investment proportion by economic sector has also changed significantly, as shown in the following table:

Table 2.5. Investment proportion by economic sector of Vietnam


Area

2000 (%)

2009 (%)

State

59.1

40.6

Private

22.9

33

Foreign investment

18

25.6

Source: WB, http://ppi.woldbank.org


18%

22.90%

59.10%

25.60%

State

40.60%

Private


Foreign investment

33%


2000 2009


Source: WB, http://ppi.woldbank.org

Through table 2.5, it can be seen that the state economic sector in total social investment has decreased quite rapidly, from 59.1% in 2000, down to 40.6% in 2009, and in 2010 equal to 42% of GDP; the proportion of investment capital of the non-state sector increased from 22.9% to 33% and the proportion of the foreign investment sector increased from 18% to 25.6% in the same period.

The research results also show that, in the past 10 years, capital of the foreign investment sector increased 6.7 times, the private economic sector increased 6.9 times and the public economic sector increased 6.9 times.


The state sector increased by 4.6 times, so it can be seen that other economic sectors have a higher growth rate than the state economic sector. Studies also show that the investment efficiency of the state sector is lower than that of the private sector.

In the context of investment from the State budget gradually decreasing and narrowing due to limited resources, low investment efficiency while public debt is gradually increasing to the safe limit; foreign investment has not been attracted to areas of the economy where capital is used most effectively, encouraging investment from the private sector in infrastructure development, especially road traffic, is really important in the country's economic development. Moreover, the scale of the economy is still very small, so domestic capital can only meet a part. The ability to mobilize domestic capital, enterprises, and residents annually for development investment only reaches about 2/3 of the total capital demand, the rest must rely on foreign capital.

Therefore, it is necessary to combine diverse capital sources: state budget, government bonds, ODA capital, capital from the private sector and public-private partnership (PPP) to bring about optimal efficiency.

At the 13th National Assembly session, the Government reported to the National Assembly the orientation for restructuring public investment, accordingly, since 2012, the total mobilized social investment capital is about 1,000,000 billion VND, equivalent to about 33.5 - 34% of GDP. Specifically, the investment capital from the State budget is about 180,000 billion VND, the Government bond capital is 45,000 billion VND, the State's development investment credit capital is about 55,000 - 56,000 billion VND, accounting for 5.6% of the total social investment capital. The investment capital from residents and private enterprises accounts for 41.8 - 43%. It is expected that about 170,000 billion VND will come from foreign direct investment (FDI), accounting for 17.5 - 18% of the total capital. Thus, with this mobilization plan, the proportion of public investment will account for about 39.5 - 40.3% of total social investment capital, while in 2011 it was 41.7% and in the period 2006 - 2010 it was up to 44.3%.

Mobilizing investment capital from many different sources, or in other words diversifying investment capital sources for the whole society in general and for investment in road traffic development in particular, comes from the actual capacity of the State budget's capital sources.


can meet the development investment needs of the economy. Therefore, this will be one of the positive solutions to contribute to promoting economic growth, social stability, and strengthening the financial potential of the State.

2.2.2.6. Other conditions

Other conditions supporting investment in highway construction under the PPP model, first of all, must include a developed, synchronous and stable financial market. Although this is a different condition in Vietnam, with a market economy, this condition must be considered a prerequisite to ensure that private investors are able to mobilize enough capital to meet the initial investment capital requirements of the project, both during the project implementation process. Managing financial activities at the macro level, the financial market is built and completed, operating smoothly, the financial market is developed, private investors can access capital sources in the market, they have the conditions to mobilize capital for project implementation from financial institutions or through the issuance of shares, debt securities in the capital market. In addition, the developed financial market also helps private investors choose a source of capital with a reasonable cost of capital to increase the efficiency of project investment. How to balance the cost of capital with revenue and balance the potential risks of the project. It is thanks to the financial market, the financial market has the ability to provide capital with low interest rates, which also creates the attraction for private investors when they participate in investing in the construction of highway projects.

The factor of stable political environment also makes the construction and development of expressway projects in the form of PPP in Vietnam attractive when mobilizing investment capital from foreign investors. A stable environment, priorities for socio-economic development according to international practice, is to develop infrastructure one step ahead. With the trend of increasingly deep and wide integration into the international economy, Vietnam cannot help but participate in regional and international trade, so Vietnam's expressway network also has the mission of connecting with countries in the region.


2.3. Experience of other countries in mobilizing non-budgetary capital to implement highway projects and lessons for Vietnam

2.3.1. Experience of developed countries

2.3.1.1. Japan's experience

In order to ensure funding for the development of the road network, especially highways, in 1953 the Japanese Government issued the Law on Effective Measures related to the establishment of the Road Improvement Cost Support Fund, later renamed the "Road Fund". The main source of the fund is from the revenue from gasoline tax. In 1968, a vehicle purchase tax (5% of the purchase price) was added to the Road Fund. Since 1971, the Fund has been supplemented by the implementation of tax collection on vehicle loads on highways. The use of the Fund is divided into 3 types: Projects paid for in part by the Fund and supplemented from the State budget; Toll projects, funded by loans and repaid from toll revenue, the Fund only partially supports; Independent local road projects, paid for by the local budget, the Fund can partially support if necessary. In addition, to diversify forms of cooperation for the construction of transport networks, to mobilize capital for the development of transport infrastructure including highways, to reduce the burden on the State budget and to soon complete the implementation of the strategic goal of building a complete and modern transport system, the Japanese Government has called for contributions from the whole society, especially the private sector.

Table 2.6. The process of participation in construction and operation of infrastructure by private investors in Japan


Form​​

Year​​

KCHT and DV


Privatization

1987

Railway system

2004

Narita International Airport

2005

Road network (including highways)

State-private joint venture

1985

Kansai International Airport

1986

Tokyo Bay Expressway

1998

Central Japan International Airport (Nagoya)

Delegation of TC power to the private sector

2000

Hibiki Seaport Cargo Terminal

2005

Haneda Airport Passenger Terminal

2005

Haneda Airport Cargo Terminal

Source: Promoting the role of the private sector in sustainable infrastructure development, http://vnep.org.vn


Table 2.6 shows that public-private cooperation in highway construction has been applied by the Japanese Government since 1986. By 2005, the Government also allowed the private sector to directly construct some highways.

In addition, to attract investment outside the state budget, the Japanese Government also issued two types of bonds: one issued by the Government and one issued by a banking group with a government guarantee. Therefore, the problem of lack of capital for infrastructure construction and development in Japan has been solved.

2.3.3.2. UK experience

From 1992 to 2010, the UK implemented 913 PPP projects, with a total capital of 115 billion pounds (equivalent to 200 billion USD), covering many areas of both technical and social infrastructure. The initial goal was to attract investment in infrastructure without increasing the burden on the budget. Later, the PPP program was also implemented for the purpose of increasing investment efficiency. The UK's experience in implementing PPP shows that: 80% of UK PPP projects have costs equal to or below the estimated level, and the construction time is guaranteed to be on schedule. Compared with the average of traditional public service provision projects, the number of projects exceeding the estimate is up to 30%. To implement the PPP project, the UK Government's Department of Economy and Finance has established the UK Partnership, which functions as a knowledge development and expansion center for the Government's PPP program, connecting with each Government agency in each PPP project. With the task of advising on national PPP policy and strategy, advising on specific PPP projects, for example, supporting stages in the bidding process to select investors. The Partnership operates on the basis of funding collected from the service fees they provide. The Partnership is also responsible for drafting sample documents and guidelines for PPP projects. Although the capital structure of the Partnership is 51% private and 49% state-owned. What is special is that this organization operates in a non-profit form.

The UK Partnership has contributed greatly to the success of the PPP programme in the UK. However, it is impossible not to mention other advantages that a developed country like the UK has, such as a relatively comprehensive legal and institutional framework and

Comment


Agree Privacy Policy *