“Public investment should focus on large, strategic, high-priority projects — those capable of shifting the landscape or generating major breakthroughs in science and technology, expanding the growth frontier, and laying a vital foundation for future socio-economic development,” said Dr. Le Duy Binh, managing director of Economica Vietnam, in an interview with The Saigon Times

Quantifying the effectiveness of public investment The Saigon Times: Many argue that to achieve high growth in the coming years, investment — particularly public investment — will play a crucial role. Do you agree, and why? Dr. Le Duy Binh: In any economy, public investment is a core component of aggregate demand. Each country has its own way of ensuring that public investment fulfills its role as a growth engine. For Vietnam, the more important question is how public investment can contribute effectively and sustainably to the goal of high growth during this new chapter of national development. First, the economy urgently needs a major upgrade in essential infrastructure to create the physical foundation for growth and expand the growth frontier. Transport, technology, and telecommunications infrastructure — along with energy, water, education, training, and basic social services infrastructure — are all indispensable for shifting toward a new growth model that relies more on technology, digital transformation, and innovation. Beyond expanding the growth frontier, every kilometer of road extended and every seaport or airport built or upgraded will also expand markets, improve domestic and international connectivity, and reduce logistics costs. Investing in basic social services such as education, healthcare, and the environment not only enhances the quality of growth and ensures citizens benefit from it, but also improves the quality of human capital for the new growth phase. Second, public investment must catalyze private investment by creating a foundation for it — acting as seed capital, improving the investment climate, and encouraging private investment to develop in parallel with public investment through public-private partnerships and other mechanisms. Statistics show that a 1% increase in private investment yields the same absolute value as a 2.5% increase in public investment or a 3.5% increase in foreign direct investment (FDI). This underscores the many ways in which public investment will remain a pillar of Vietnam’s economy in the years ahead. Third, public investment must be closely aligned with the goals of improving productivity, quality, efficiency, and competitiveness; improving the Incremental Capital-Output Ratio (ICOR); and advancing the shift toward a new growth model alongside economic restructuring, turning science, technology, and innovation into key drivers. Only then can the economy avoid relying mainly on capital and labor, and only then can Vietnam achieve deeper, more sustainable growth and evade the middle-income trap. Finally, while public investment may increase in volume and share, it must be done in a balanced manner so as not to exert excessive pressure on fiscal sustainability or “crowd out” private capital. Increasing public investment or recurrent spending means recurrent revenue must also rise, placing an additional burden on businesses and citizens and possibly dampening investment and consumption. Therefore, public investment must be calibrated within the broader context of aggregate demand and macroeconomic conditions, aligned with Vietnam’s economic structure and development goals. In reality, public investment has often fallen short of being truly effective, properly targeted, or capable of generating spillover effects. These shortcomings remain unresolved. To enable public investment to fulfill its new missions, do we need a tool to measure effectiveness and thereby prioritize projects that deliver high and sustainable growth? - Every public investment project, during its formulation and appraisal, is already evaluated based on social, economic, and environmental criteria. The government has also issued regulations on monitoring and evaluating public investment according to criteria such as: the alignment of a program with national and local socio-economic objectives; the extent to which the program meets its approved investment goals; the real-world operational and utilization indicators compared with those approved; and the measures taken to mitigate negative social or environmental impacts. Thus, what matters is that this process must be carried out accurately and transparently, ensuring proper evaluation of each group of criteria through clearly defined indicators. For example, under socio-economic criteria, one must examine the project’s ability to create jobs nationally and locally, the ratio of benefits to investment costs, net profit rates, and operational efficiency over the years. Benefits as well as negative impacts must be quantified, and evaluations should be benchmarked against similar projects in other localities nationwide and in countries with development levels comparable to Vietnam’s. In the new development context, the effectiveness of public investment projects must be improved. Accordingly, the quantified results associated with each category of criteria should be increasingly higher. ICOR, profit margins, net profit — all of these indicators must improve in line with Vietnam’s roadmap toward upper-middle-income status by 2030 and high-income status by 2045. In addition, new criteria should be added to the existing framework — such as how a public investment project will support the transition to an innovation-driven economy; the level of scientific and technological content; the degree of domestic enterprise participation and contribution; the extent to which the project stimulates and diffuses innovation across sectors; its impact on mobilizing domestic private investment; and its ability to attract small and medium-sized enterprises into the implementation of major public-investment projects. Solving the resource-mobilization challenge In an economy expected to grow on the basis of science and technology, innovation, and the digital economy, public investment will shoulder many responsibilities beyond infrastructure. How can the financial constraints be addressed? Could you offer some concrete suggestions? - In developed economies, innovation relies heavily on private-sector resources. In such contexts, public investment must be structured to attract the maximum possible private participation, enabling the economy to transition rapidly and intelligently toward innovation-driven growth. This means that in addition to building essential infrastructure, the state must expand investment in innovation and science-and-technology at the enterprise level through public investment projects, creating critical socio-economic and institutional environments that accelerate the shift to an innovation-based economy. For example, some countries use public procurement programs to drive innovation. Contractors wishing to participate in public procurement projects must meet innovation-related criteria such as domestic technology content, the use of high-quality human resources, and the ability to diffuse technological innovation to small and medium-sized enterprises in the same sector. The goods purchased under these programs are themselves high-tech products that serve important socio-economic missions of the country. The United States, Japan, and China are all adopting this model of using public procurement budgets to stimulate innovation within the private sector. Israel is also well known for its Yozma Venture Capital Fund model, which combines state budget contributions, the Israel Investment Bank, foreign venture capital funds (providing capital and management expertise), and Israeli investors. The fund’s creation in 1993 fundamentally reshaped Israel’s startup ecosystem, energizing all components of the ecosystem and enabling Israel to develop world-class inventions and patents—greatly supporting its high value–added technology sector. The Yozma model has inspired many countries since, proving that public investment can deliver substantial impact and help shape an innovation-driven economy. Another approach is to establish a legal environment that supports the commercialization of the outcomes and products of basic scientific research, which largely relies on public investment. We can explore methods to collaborate with the private sector—private enterprises and private research institutes—through appropriate public-private partnership models to jointly conduct research and commercialize the results of basic scientific research. This would strengthen the role of private capital in this field while also generating additional resources to sustain other public investment programs and projects. Some argue that, based on our economic growth goals and corresponding policy measures, we need a “philosophy” for next-generation public investment—one that aligns with the philosophy for attracting FDI and promoting the capacity of domestic enterprises. What is your viewpoint? - Public investment must go hand in hand with private investment and should be grounded in several core principles. First, public investment should focus on large, strategic, and high-priority projects—those capable of shifting the landscape or creating major breakthroughs in science and technology, expanding growth space, and establishing critical foundations for future socio-economic development. Second, public investment should not replace the role of private capital; rather, it should encourage and guide private investment, FDI, and other sources of financing. In areas where the private sector can perform well, we should encourage and facilitate their participation. Third, investment decisions and resource mobilization should be aligned with specific socio-economic objectives, combining public and private investment as well as other social financing mechanisms in a flexible manner. Finally, the quality and effectiveness of public investment projects must be enhanced using innovation and technological criteria such as technological content in implementation and operation; contributions to technological progress and innovation; and contributions to the development of the private sector.

Reported by Hoang Hanh