Development capital investment in Vietnam is not only the physical factor that directly determines economic growth. Its huge role needs to be identified in many ways.
Capital investment – a decisive factor for growth
Investment capital is the physical factor that directly determines economic growth. Basically, in the periods where the overall social development investment capital/GDP ratio is higher, the GDP growth rate is also higher.
To have the capital for development investment, the question is where to get the money?
First, in terms of domestic accumulation and foreign borrowing. High domestic accumulation is a source of investment. If the investment capital is similar to domestic accumulation, it is necessary to promote the role of accumulation without causing negative side effects. If the investment capital is always higher than the accumulation, then foreign debt must be higher. If the investment efficiency is low and the budget is constantly overspending, it will lead to side effects.
Second, in terms of the type of economic formation, from the state sector, the non-state sector, and the foreign investment sector.
Investment capital from the state sector contributes mainly to the formation of key projects of the country; Investing in projects in sectors or fields where other sources cannot or do not want to invest because of low-profit margins, long time to pay back capital, or inability to recover capital; contribute to restructuring the economy in branches, regions, and fields according to the general development orientation; as a source of capital to attract capital from other sources…
The investment capital of the investors and the private sector plays an important role in the market economy. This source of capital increasingly accounts for a higher proportion than the average annual rate of the previous periods and soon accounts for the largest proportion among the three sources. This is one of the important factors contributing to making the non-state economy in general and the private sector, in particular, become the driving force of the economy.
The proportion of foreign investment capital in 2020 is lower than 5 years ago, but it is a high proportion (estimated at 21.4% in 2020, lower than 4 years ago, but on average in the 2016-2020 period, it will reach 22, 92%, higher than the rate of 22.6% in the period 2011-2015). If other foreign capital sources (such as official development assistance, ODA capital, indirect investment capital…) are included, the proportion is even larger (estimated to account for about 1/3 of the total development investment capital of the whole society).
The capital increase is very important, but it is a growth model in quantity, in width, being limited in resources will easily cause macroeconomic side effects such as inflation, budget deficit. , bad debt, public debt, government debt, external debt … Therefore, improving investment efficiency is the biggest goal to achieve double results: using less capital, but contributing more to GDP. It is not limited in terms of source, and does not cause side effects, at the same time it is switched to a model of quality growth, in-depth development …
The measure of investment efficiency is the ICOR coefficient. ICOR reflects, to increase 1 dong of GDP at constant prices, how much development investment capital needs to be invested. A low ICOR proves high investment efficiency, a high ICOR proves low investment efficiency, a decrease ICOR proves an increase in investment efficiency, an increase in ICOR proves a decrease in investment efficiency.
Compared with other countries in the region, if the average ICOR of Vietnam in the period 2001-2005 (is 4.88) is lower than that of Indonesia (5.31), the Philippines (5.70), and India (4.92), the average for the 2011-2013 period (6.99) is higher than that of Indonesia (4.64), the Philippines (4.10).
The investment efficiency of the non-state sector is often high because the investment in this sector is often economical, less wasteful, and quickly built, put into production and business. However, due to its small scale and low business efficiency, the profit margin is low.
The investment efficiency of the foreign-invested sector is higher than the general level, partly because this region has advantages in capital, technology, and technology higher than the other two sources.