Mobilization of investment from local community for construction of rural technical infrastructures in the Mekong Delta Region

A BRIEF OF MSC IN PUBLIC MANAGEMENT
GROUP 15 - MPPM INTAKE 6 - UPPSALA

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Title: Mobilization of investment from local community for construction of
rural technical infrastructures in the Mekong Delta Region
Level: Thesis of MSc in Public Management
Author: Thu Nguyen Thi Hoai
Dzung Mai Quoc
Supervisor: Dr. Sven-Erik Svärd PhD
Dr. Hung Nguyen Manh PhD
Date of presentation: 18
th
May, 2013
Objectives:
Awareness about the important role of technical infrastructure for
economic development and social stability, Viet Nam Government has spent
about 9-10% annual GDP to priority invest for infrastructure development
across the country, especially rural areas - where 66% of Viet Nam's
population live and work. However the dependence on almost 100% of the
limited national budget and have not been mobilized other sources from the
community for rural infrastructure is a major constraint in Viet Nam in the
past in which farmers in the Mekong Delta is a typical example. By a research
on policies to attract investment to construct rural infrastructure, the authors
stated that: there is a big incentive for rural development in a great potential
of Mekong Delta if can gather contributions of the people to build
infrastructure through a mechanism to attract investment from the community
in this area. Therefore, to identify key elements in terms of policies influence

on investment attraction of community to build infrastructure and analyze
roles of the community in activities of investment attraction to construct rural
infrastructure in the Mekong Delta, it is a necessary to make
recommendations on mechanisms to attract investment with community
involvement.
A BRIEF OF MSC IN PUBLIC MANAGEMENT
GROUP 15 - MPPM INTAKE 6 - UPPSALA

ii
Research Questions:
- What is the community’s role in participating in construction of rural
infrastructures in the Mekong Delta Region?
- What are the major factors that impact the mobilization of investment
from local community for construction of rural technical infrastructures in
the Mekong Delta Region?
The objective and scope of the thesis
This paper aims to analyze the role of the community in investment
attraction. Moreover, it aims to identify the main factors of policy affecting
the mobilization of investment from the community in construction of rural
infrastructure in the Mekong River Delta. Thereby, the paper also look for
recommendations on mechanisms to promote investment attraction with the
participation of the community in construction of rural infrastructure in the
Mekong River Delta.
Theoretical Framework
The model of studying investment mechanism with participation of
community in technical infrastructure construction in MDR based on
considering the role of the local community participation in the World Bank’s
specific project in 2002 (Community-based Rural Infrastructure Project -
CBRIP) in relation to indices such as voluntary contribution, transparence and
responsibility for explanation to people of The Viet Nam Provincial

Governance and Public Administration Performance Index (PAPI-2011).
Research Method:
Through using data of statistical reports, specialized reports, especially
performance indicators and management of provincial administration in Viet
Nam - 2011 (PAPI), and based on actual results of a project have been
implemented by the World Bank in Viet Nam, the authors had analyzed,
A BRIEF OF MSC IN PUBLIC MANAGEMENT
GROUP 15 - MPPM INTAKE 6 - UPPSALA

iii
compared advantages - disadvantages of Mekong Delta rural from which to
point out opportunities and challenges for building a mechanism of
investment attraction from community on technical infrastructure sectors by
SWOT analysis.
Reflection and conclusions:
Based on analysis results of actual states and affecting factors, authors
come into a conclusion as follow: transparency and accountability to people
have an organic relationship with participation and contribution of people in
building mechanism of attracting investment in community. It is also
recommended to adjust some contents in legal documents together with
classify community and perform mechanism of managing basic construction
investment as for rural infrastructures. The study shows that policy on
mobilizing resources from community is considered as an important factor to
develop technical infrastructure as well as rural socio-economic development
in the whole country generally and Mekong Delta in particularly.
Recommendation for a futher study:
In the scope of study with limitation of time, group of authors proposed
to use secondary data to analyze in the thesis; it is seen to be a reasonable
option due to legitimacy, reliability and level of credibility of data used in
reports and researches made by prestige organizations including Government

Inspectorate,Ministry of Interior, United Nations, etc. However, mechanism
of investment attraction with participation of community to develope rural
technical infrastructure in Mekong Delta can be more effective if there is
more time to conduct the thesis that allows to integrate analysis and
assessment into report results based on provincial competitiveness index (PCI
– 2011) and group of authors in charge of exploiting, analyzing primary data
through summary of questionairs and extensive surveys due to characteristics
of population areas apart from each other, difference in education as well as
A BRIEF OF MSC IN PUBLIC MANAGEMENT
GROUP 15 - MPPM INTAKE 6 - UPPSALA

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management skill of commune-level officers in this area; this is really large
challenge during study.
Value of the thesis:
In a scope of this research, an objective is to advise policy makers and
authorities at all levels. The central authorities can base on the proposals to
enact policy frameworks (in the form of legal documents such as decrees of
the Government, decisions of the Prime Minister ), local authorities base on
proposed mechanisms of the central authorities to issue specific policies
which meet with their local conditions (particularly at the provincial level).
The study has also suggested new recommendations (for proposed new
mechanism) or adjustment (for current policies) some legal documents. The
study also plays a role to orient developers (including foreign and domestic)
in dialogues and suggestions policies for central and local governments in
terms of investment to construct infrastructure.
Key words:
Community ;
Participant ;
Investment attraction ;

Mechanism ;
Technical infrastructure ;
Rural ;
PAPI indicator;
Transparency ;
Responsibility of explanation;
Eco-social development ;
Rural development ;
Mekong Delta Region.

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TABLE OF CONTENTS
1. INTRODUCTION 5
1.1 Rationale 5
1.2 Research Questions 7
1.3 The objective and scope of the thesis 7
1.4 Literature reviews 7
1.4.1 Theories of investment, the role of investment and investment
policy in socio-economic development. 7
1.4.2 Theories, viewpoints about investment, its policies, and capital
source for rural infrastructure development in Vietnam 11
1.4.3 Definitions and roles of infrastructures in development issue: 15
1.4.4 Roadmap for building legal documents related to public-private
partner 17
2. THEORETICAL FRAMEWORK 19
2.1 The connection between community participation and investment
in building rural technical infrastructure 19
2.2 The Provincial Governance and Public Administration
Performance Index (PAPI) 22

3. RESEARCH METHOD 28
3.1 Data collection 28
3.2 Methods of analysis 28
4. CURRENT STATE AND POLICIES ON
MOBILIZATION OF INVESTMENT INTO RURAL
INFRASTRUCTURE IN THE MEKONG DELTA REGION 29
4.1 Current social-economic and rural infrastructure situation of the
Mekong Delta 29
4.2 Rural infrastructure development policy in Vietnam and the
Mekong Delta Region 32
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4.2.1 General Guideline and policy 32
4.2.2 Investments in infrastructure development 35
4.3. Analysis of PAPI index to identify the factors that impact on
infrastructure investment in the Mekong 38
5. CASE STUDIES: CAN THO CITY AND LONG AN
PROVINCE 43
5.1 Can Tho City 43
5.2 Long An Province 46
6. POLICY RECOMMEDATIONS 50
6.1 Adjusting Regulations 50
6.2 Classifying community to make investment attracting mechanism
more effective 50
6.3 Implementation of typical basic investment management for rural
technical infrastructures 51
7. CONCLUSION 53
REFERENCES 57
APPENDIX 61

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LIST OF FIGURE, DIAGRAM:
Figure1:The location map of Mekong River Delta 5
Figure 2: Two measuring factures in PAPI 24
Figure 3: PAPI index and component indices 26
Figure 4: Influences between PAPI’s assessment contents 26
Figure 5: Analysis frame for attraction mechanism of investment in building
infrastructure with participation of the community 27
Figure 6: Administrative map of the MDR 29
Figure 11: Infrastructure Development Funding mechanisms 35
Figure 8: The chart on contribution mobilization from the community - PAPI
2011 39
Figure 9: The index of openness, transparency and accountability to the
people of 13 provinces in MDR 39
Figure 10: Administration map of Can Tho City 44
Figure 11: Administrative map of Long An Province 46

LIST T OF TABLE:
Table 1: Summary of some infrastructure criteria of Mekong Delta in 2011 31
Table 2: Infrastructure Investment Funding Mechanism (%GDP) 36
Table 3: Total investment capital for rural development 47

LIST OF REFERENCE:
Box 1: (PPP) Public Private Partnership 17
Box 2: PAPI in Vietnam for the period 2009 – 2011 23
Box 3: New Rural Program 68

LIST OF APPENDIX FIGURE:

APPENDIX FIGURE - 1: Comparison of PAPI 2011 in some provinces/cities
61
APPENDIX FIGURE - 2: PAPI Table - 2011, weighted summary 62
APPENDIX FIGURE - 3: PAPI Table - 2011, non-weighted summary 64
APPENDIX FIGURE - 4: PCI map 2011 66
APPENDIX FIGURE - 5: Ranking of Provincial Competitiveness Index in
2011 67

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ACRONYMS:
MDR
- Mekong Delta Region
PAPI
- Viet Nam Provincial Governance and Public Administration
Performance Index
PCI
- Provincial competitiveness index
CPMU
- Central Project Management Unit
PPMU
- Provincial Project Management Unit
CPCC
- Communal Project Coordination Committee



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1. INTRODUCTION

1.1 Rationale
Located at the South of Vietnam, the Mekong Delta Region, so called
Southern Delta Area or Southwestern Area by Southern people of Vietnam, is
one of the rich and large delta areas in the Southeast Asia and in the world,
MDR consists of 13 provinces/cities with the natural land area of 4.05 million
ha (accounting for 12% land areas of the country)and the population is about
17.33 million (accounting for 19.7% of the national population)
1
; in which,
the land area and population in rural area are 3.51 million ha (accounting for
87% regional area) and 11.54 million people (accounting for 66.64% of
regional population)
2
, respectively. The people of MDR have high solidarity,
creativeness and many similarities in habits.

(Source: Report of construction planning implementation for MDR - 2012)
Figure1:The location map of Mekong River Delta
The regional development planning orientations showed that MDR plays
an important role in regional trading, production for export, rural
development of Vietnam. With its favorable geographic location (about
700km coastal line and 400km road borderline), MDR is potential for


1
Preliminary statistics - 2011, Available at:
2
Urban Development Agency (2012), Annual Report on Urban Development of Vietnam, Ministry of
Construction, Hanoi.
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development of maritime, international aviation transport and known as the
connection hub between South Asia and East Asia. In addition, on the basis of
the favorable natural conditions (land, soil, climate, river network), MDR has
many advantages in food production, fruit trees, aquaculture (accounting for
more than 90% rice output for export; 70% fruits and 74.6% aquatic products
of the country). It is possible to say that MDR is strategically located in
international exchange among Vietnam and other countries in the region, at
the same time, plays an important role in securing food security for the
country and region.
Although, the natural condition of MDR is very convenient for the
investors, especially agricultural sector, the management method of local
authorities at all levels are active, flexible; so far, socio-economic
development in MDR is not respective to the available potentials of the
region, especially in rural areas (which account for majority of land area and
population of the whole region). It is the rural technical infrastructure
weakness that adversely impacts on the socio-economic development in rural
areas in particular and the general development of the whole region.
Infrastructure is always regarded as the background for socio-economic
development and strongly attracts investment resources. However, the
technical infrastructure works require a great deal of investment costs but their
profitability is not so high, therefore, in the last time, 100% investment in rural
infrastructure in Vietnam, particularly in MDR is originated from the State
budget while ODA fund gets more and more difficult due to pressure of interest
rate, consequently, investment in rural infrastructure becomes the burden on the
national budget and seems impossible to meet the people’s demands while the
resources from community have not been properly explored. Some recent
projects have shown that the infrastructural works in rural areas in MDR are
still attractive in some certain fields because of the social security objectives
and promotion of the community’s development. The infrastructure works such

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as rural roads, grid, communication network and waste water treatment works
etc… are constructed at rural areas of MDR with the direct investments from
the local residents (by fund, resources and knowledge …) which partially
proved the correctness of the foresaid statement. However, to make residents’
investment stronger and more effective, it is necessary to develop an
investment attraction mechanism from the community. From the essential
demands, the authors group chose the topic: “Mobilization of investment
from local community for construction of rural technical infrastructures in
the Mekong Delta Region” in our research.
1.2 Research Questions
The research is to answer two main questions:
- What is the community’s role in participating in construction of rural
infrastructures in the Mekong Delta Region?
- What are the major factors that impact the mobilization of investment
from local community for construction of rural technical infrastructures in
the Mekong Delta Region?
1.3 The objective and scope of the thesis
This paper aims to analyze the role of the community in investment
attraction. Moreover, it aims to identify the main factors of policy affecting
the mobilization of investment from the community in construction of rural
infrastructure in the Mekong River Delta. Thereby, the paper also look for
recommendations on mechanisms to promote investment attraction with the
participation of the community in construction of rural infrastructure in the
Mekong River Delta.
1.4 Literature reviews
1.4.1 Theories of investment, the role of investment and investment
policy in socio-economic development.
Sachs - Larrain (1993) in "Macroeconomics in the global economy"

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presented the general definition of investment as follows: "Investment is the
cumulative production to increase production capacity in the post period of
the economy". Production includes the production domestically manufactured
and imported from abroad – according to the flow of products; for tangible
products such as housing, capital construction, machinery and equipment or
intangible products such as patents, property transfer fees
There are main types of investment as the following:
+ Investment in fixed assets: including investment in factories,
machineries, equipment, vehicles This form of investment is to raise
production capacity. The ability to achieve high or low growth depends on
this kind of investment.
+ Investment in intangible assets: current assets include raw materials,
semi-finished and inventory finished goods. Thus, the amount of investment
in current assets is the change in volume of the above –mentioned
commodities in a certain period.
+ In consideration of the macro level of the economy, there is an
important form of investment in fixed assets, it is the investment in
infrastructure. The kind of investment requires the large fund and delayed
payback. However, investment in infrastructure promotes the development of
other sectors in the economy.
J. M. Keynes (1936) has stated that the governmental intervention in the
market is essential, in other words, it is needed to have the State’s intervention
through primarily applying financial instruments (tax and expenditures) to
increase the aggregate demands, to prevent from recession and unemployment.
The State policies play a certain important role in increasing the aggregate
demands and reducing the risk of unemployment. Therefore, to overcome the
crisis, unemployment, the state government must be regulated through its
economic policies, which enable consumption demands improvement and

investment insulation. To achieve economic growth, the Government should
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work more in public works, and also promote or encourage investment of
private sectors [Keynes 1936].
J.M. Keynes brought out the multiplier model in theory, in which it is
evitable to increase national income (national productivity) and investment at
the same time. He studied the relationship between them and introduced the
concept of “investment multiplier”. The investment multiplier (k) presents the
relationship between investment increase and income increase. Based on
Keynes’s model, if an extra amount of money is added to aggregate
investment, then the income will increase by an amount equal to k times
investment increase.
His multiplier model is presented as: K = ∆Y / ∆ I, so: ∆ Y= k. ∆ I
(in which Y is income variation; k is multiplier, I is investment variation)
According to Keynes, income is divided into either consuming and
saving or consuming and investing. Accordingly, he believes that:
Saving (S) = Investment (I). This is also considered economic growth
model of Keynes.
Consequently, each increase in investment will bring about the demand
of supplementary employer and means of production, which raises the income
and job opportunities. Boosting the income will be the major premise for
extending the new investment. Hence, the investment multiplier magnifies the
national income based on its chain impacts. It indicates the direct proportion
between investment increase and income increase.
Discussing the economic growth and the role of external investment for
the developing countries, Samuelson said that most of developing countries is
short of capital; their low income only serves for their minimal subsistence.
Thus their capital accumulation is limited, which is shown in theory "the
vicious cycle" and "external jostle". In the opinion of Samuelson, human

resources in developing countries are limited by age and low education,
lagging technology. Therefore, many developing countries are getting more
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difficult and increasing their "vicious circles". So, it is necessary to have
“external jostle” to develop the economy in order to break the "vicious circles".
Samuelson's theory states about overseas investment in developing countries:
experts, technology, capital , the necessity for facilitating overseas
investments. [P. Samuelson, 2009]
According to the “vicious circle model” of Samuelson, the development
of a country or a specific territory in a developing area will be limited if it
depends entirely on Government resources without other impacts from
foreign investment.

Figure 2: Vicious circle model of Samuelson
Discussing about the concept of the term "Policy", the economist - Franc
Ellis
3
said that there is no a single definition of "Policy". He said: "The Policy
is defined as roadmap and intervened solutions selected by the Government to
achieve the target of a sector in the economy."
Meanwhile, the Japanese economist – Harry T.Oshima (1987) in the
book “Theory of Economic Growth in the Asia” asserted that countries with
water rice agriculture in the peak season are still short of labors. To settle this
issue, the theory offers two main keys in order to improve the living standard
of farmers, rural civilization and economic growth and also to avoid a lot of
pressures on urban areas. They are :
- Remain the agricultural labors and also create more jobs in idle months

3
Franc Ellis (1995), Agricultural Policies in Developing Countries, Agricultural Publishing House, Hanoi.
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(increasing crops, diversifying livestock, plants, trades to improve the income).
- Implement agricultural industrialization: infrastructural construction
(electricity, water, transportation and communication systems), development of
processing industry and social infrastructure (education, health, culture) for rural
areas. Economic restructuring, labor structure shifting, replacement of manual
labors with high-yield machinery and equipment
In brief, through the literatures that have been discussed, we believe that
the investment in infrastructure through investment attraction mechanism
from external resources is essential to create greater incentives for social
development. At the same time, investment in infrastructure and economic
development will enable countries to avoid the risks of unemployment
increase and economic crisis.
1.4.2 Theories, viewpoints about investment, its policies, and capital source
for rural infrastructure development in Vietnam
The research on investment policies for agriculture, farmer, urban –
current situation and direction in the current time” (2009) of Agricultural
Economics Department (Ministry of Planning and Investment) concluded
that: argiculture, farmer and rural areas play a crucial position in terms of
industrialization - modernization in our country. Developing agriculture and
urban , rasing standard of living to farmers are the foundation to ensure that
our country can develope stably. To implement this mission, we need not only
enhance the investment from the state budget in accordance with Resolution
of the Party Central Committee on argiculture, farmer and rural but also have
reasonable investment policies to attract more investments from enterprise
such as: domestic enterprises, FDI enterprises with the aim at industrial
development investment, handicraft and cottage industry, service, atracting

more investment in potential branches that is not exploited.
Law on Investment in 2005 has stated: “Investment means the use of
capital in the form of tangible or intangible assets for the purposes of forming
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assets by investors to carry out investment activities. In term of deveplopment,
investment is to purchase capital on economic and social activities to get much
economic social benefits in the future. Through investment activity, material
and technical foundations and manufacturing ability served for the economy is
perfected, innovated and modernized; that mainly contribute to form and adjust
the economy structure, that is to realize the aims of stabilizing the
macroeconomics, to enchance the economy and sociability development. On
the other hand, investment generally issacrifice the current resource inoder to
conduct activities with the aim at gaining certain results in the future which is
to obtain greater results. Therefore,investments are used with the aims to gain
bigger outcomes than which investors invested in the period of carring out an
investment.In there, the resources that is indicated here is capital, natural
resource, technical, workshop, labour, intelligence… and the aim is to
raisefinancial assets (capital), physical assets (factory, road, hospital,
machine…), goodwill ( qualification, skill, capacity, management level…) in
the sociable manufacturing.
Hence, it can be understood that investment stimulating or attracting
policiesare general viewpoints, methods, tools that the State uses to act upon
on investment branchs to adjust investment object’s activities to the desired
aims of the states. That is divisd into two main policy group : (i) policy group
of distributing and mobilizing capital for construction, setting up general
infrastructure works to develop social and economic activities and
infrastructure to develop a certain branch or sector; (ii) policy group in
stimulating, attract capital from people, domestic associations, foreign
investors who directly invest in manufacturing activities in urban area.

The investment economic textbook of National Economics Univesrity (2007)
specifies that investments are classified into three categories basing on the outcome
of investment activity, the enssence and benefit of invesntment concludes:
 Financial investment:
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Financial investment is a kind of investment in which people who has lot
of money buying financial instrustments to get predetermined interest rate, or
interrest rate that depends on the result of business activities of the releasing
office. Financial investment don’t creat new treasure for the economy (if we
don’t regarding international relationship in this branch), financial investment
only raise finacial treasure of the group or individual. With the operation of
this investment types, capital is cycled easily, can be withdrawn rapidly if
necessary. This is a really important capital providing resource for investment
and development.
 Trade- related investment:
Trade- related investment is a form of investment, in which investors
spend money on buy goods and then sell them at a higher price in order to get
profit by the difference in the purchase and sale price. This type of investment
does not create new assets for the economy (if not consider foreign trade),
which only increases the financial assets of investors in trading process,
transfer of ownership of goods between sellers and investors and among
investors with their customers. However, trade related investment canpromote
circulation of material wealth created by investment and development. From
that promote investment and development, increase budget revenues, capital
accumulation for production and business development services in particular
and the society in general production.
 Development investment :
Development investments the investment activities that creates new
assets for the economy, increase the potential business and other social

activities, development investment is the essential condition to create jobs,
improve living standards of all people in society. On the other hand,
development investment is to spend money on building or repairing buildings,
infrastructure, buying equipment installing them on thepedestal, training and
fostering human resources, implementing of normal costs associated with the
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operation of these assets to maintain operation capability of existing
institutions and create new potentials for socio-economic background.
Three types of investment always exists and has a mutual relationship
with each other, in which development investment is the most fundamental
investment, paving the cumulative problem, development of financial
investment and commercial investment. Development investmentis a condition
for the introduction,existence and development of any service business
establishment. Besides, financial investment and business investment support
and create conditions to increase investment and development. However, in the
context of this topic, the authors only deeply find down, consider the problem
of economic development investment-type investment decisions direct the
development of social production, is prerequisite for the introduction, existence
and development of any service business establishment.
There are several capital resources for urban technical infrastructure in
Vietnam:
- State budget capital: a direct capital budget expenditures at all levels
(central and local) for the construction of the infrastructure or may be derived
sources of funds (ODA capital, state credit, capital of the state enterprises )
- Non- state budget capital, including capital resources from the non-
state sector, contributing citizens, funds from donors, benefactors
Capital investment structure between state and non-state funds
currently don’t have accurate statistics. However, it is possible to see that a
major source of capital investment for infrastructure mainly comes from rural

or derived budget (focus budget, ODA, government bonds, investment
preferential credit of the State) because investing in infrastructure
construction in rural areas is the branch not being able to make profit or
recover capital slowly, as well as the amounts of work maintenance, low
income. The mobilization of contributions from non-state sector is still very
limited. The mobilization of local capital contributions primarily uses to build
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community infrastructure such as rural roads, inland canals, aquaculture
infrastructure, village infrastructure, small bridges the small scale works,
contribution of the investment to build irrigation - hydropower, infrastructure
of industrial zones, processing zones.
1.4.3 Definitions and roles of infrastructures in development issue:
In general, infrastructure is an overall structure consisting of material
facilities, techniques and architectures which set the foundation for socio-
economic activities to operate properly.
In variety of researches on infrastructures, researchers often divides
infrastructures into 2 main types, including economic infrastructures and
social infrastructures.
As a diversified and practical structure, infrastructures take an important
part in the socio-economic development progress of every country and territory.
After having studied database from 121 countries globally in the period
of 1960-2000; Cesar Calderon and Luis Serven (2004)
4
concludes 2 important
statements, namely: (1) infrastructure level actively influences in economic
growth and development (2) the higher level of infrastructures means the less
level of inequality in incomes in society. From these two statements, one
conclusion has been implied, accordingly, infrastructures strongly affect work
on hunger eradication and poverty reduction.

Naoyuki Yoshino and Masaki Nakahigashi (2000)
5
carried research on
roles of infrastructures in economic development for the following two
reasons: (1) infrastructure development contributes to increase economic
productivity and efficiency; (2) infrastructure development makes great
contribution to poverty reduction. Kingsley Thomas (2004) states that
infrastructure is important because it is not only an essential part of


4
Cesar Calderon, Luis Serven (2004), The Effects of Infrastructure Development on Growth and Income
Distribution, Draft for Discussion, March.
5
Naoyuki Yoshino, Masaki Nakahigashi (2000), The Role of Infrastructure in Economic Development,
Preliminary version, November.
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manufacturing business activities for every enterprise and family but also an
economic area accounting a large proportion in GDP. Investment for
infrastructure development makes up 20 % of total investment and 40 - 60%
of public investment in almost all developing countries. On average, in
developing country, 4% of GDP spends for infrastructure development,
especially, 10%GDP
6
in some cases.
In a research on influences of infrastructure development in Vietnam,
Pham Thi Tuy (2006)
7
finds out 6 significant impacts of the issue, they are:

(1) Infrastructure development brings more opportunities to attract
various investment for socio-economic development;
(2) Building comprehensive and modern infrastructure is of great importance
to develop driving force economic zone and major economic area, and
then gradually influences and involves neighboring area;
(3) Develop infrastructure to raise living standard directly affects
poverty, including poor family and region;
(4) Infrastructure development takes it full effect on the poor as well as
actively contributes to protect the environment;
(5) Poverty reduction benefits most from the result of investment in
infrastructure, especially in rural traffic system;
(6) Infrastructure development brings opportunity to raise people
awareness and knowledge levels, to improve health condition and to
minimize social inequality for the poor.
In a study in (2000)
8
, World Bank’s report pointed out that poor
infrastructure results in poor living standard despite income raising.
In conclusion, infrastructure plays an crucial important part in socio-economic
growth, making a driving force for development of every country in the world.


6
Kingsley Thomas (2004), The Role of Infrastructure in Development, The Lecture Program 2004, The
Development Bank of Jamaica.
7
Pham Thi Tuy (2006), Impacts of infrastructure development for poverty reduction, Economic Magazine
publication 332, January.
8
World Bank (2000), Voice of the poor: Seeking for changes, Report on World Development.

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1.4.4
Roadmap for building legal documents related to public-private
partner - PPP
Whereas private investment in “public” projects and activities has
become popular globally, this model has not been utilized to mobilize
financial resource for infrastructure development in Vietnam, the situation is
considered one of the reasons leading to GDP deficit from 2-3% before 2009.
9

A number of questions are given;
including: what should the Government do to
ease the burden of national budget for
investment in building infrastructures every
year? And how to exploit the rich potential
resources of both foreign and domestic
investments for infrastructure development,
especially with work and project requiring
high cost but bringing about high
profitability, including rural clean water
supply, rural waste treatment or rural traffic
system project, etc…
In fact, the Government notices the on-going difficulties of using
national budget to invest in infrastructures, and the ability to borrow money
from both domestic and foreign funds is limited. In the coming years, ODA
fund will be reduced because Vietnam per capital income ranks medium.
Therefore, mobilizing private financial resources has become great
importance, the situation also shows the important roles of private sector in
Vietnam economy. Apparently, it is extremely important to develop market-

oriented financial and infrastructure system to take full advance of variety of
capital sources, such as community budget, private investment and ODA. For
example, according to statistics from WB, in the period of 1996-2006,


9
World Bank (2010), Report on Vietnam development in 2009, page 95.
Box 1: (PPP) Public Private
Partnership
PPP is the model of transfer for
private sector in investment
project which in the past
belonged to Government’s
investment and operation.
There are two significant
aspects need to be considered,
they are: private investor in
charge of providing services
through some projects and risks
related to project.
PPP includes cooperation
between State and Private
sector, especially the spirit of a
joint venture.
Source: WB in Vietnam:
Development report.
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Vietnam attracts only USD 6 billion private investments in infrastructures
compared to 40 billion USD in the Philippines, 42 billion USD in Indonesia

and 100 billion USD in China. Therefore, it is necessary for Vietnam to apply
and catch up with Public Private Partnership (PPP) model.
Due to increasing demand of infrastructures, Vietnam Government
decides to carry out important steps with an aim to improve overall
environment for Public Private Partnership and to build capacity in effective
implementation. In order to enhance PPP model, the Government
promulgated several policies and guidelines Currently, Decision No.
71/2010/QĐ-TTg dated November 09
th
2010 requires a significant regulation
on pilot investment applied PPP model.
Decision No.71 is considered the first step to attract private investment from
both domestic and foreign sectors in infrastructures for serving public services.
It is mandatory for Investor in Project that equity capital need to be at
least 30% of private sector taking part in Project. Investor can mobilize
commercial loan or other capital courses (without Government guarantee) up
to 70% of private sector’s capital in Project
10
. However, this public-private
regulation has not worked properly due to some reasons, for example
misunderstanding definitions of “Socialization” and “Public Private
Partnership”; besides, there are wrong operation of Governmental existing
investment mechanism and inflexibility of regulation on minimum capital in
PPP model (must be at least 30%), etc… In addition, the misunderstanding
about the beneficiaries of infrastructures invested through PPP model, which
can contribute to mobilize huge community resources, has been ignored.
Although, it is important to utilize community resources and local people
resources, an appropriate mechanism to attract investment that people
voluntarily take part in and contribute to local infrastructure development is
also needed.

10
Decision No. 71//2010/QÐ-TTg of the Prime Minister on November 09, 2010, Article 3 – Pilot investment
principle in form of public-private partners.