Evaluating the performance of investments in public sector

MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HOCHIMINH CITY









ĐẶNG HẢI YẾN




EVALUATING THE PERFORMANCE OF
INVESTMENTS IN PUBLIC SECTOR:

A CASE STUDY OF HIFU

MASTER OF BUSINESS ADMINISTRATION THESIS










HoChiMinh City - 2010


1




MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY






ĐẶNG HẢI YẾN

EVALUATING THE PERFORMANCE OF
INVESTMENTS IN PUBLIC SECTOR:

A CASE STUDY OF HIFU



Major: Business Administration
Major Code: 60.34.05



MASTER OF BUSINESS ADMINISTRATION THESIS



Supervisor: Dr. Nguyễn Minh Kiều





Ho Chi Minh City - 2010


i

Acknowledgement
I would like to express my heartfelt gratitude and deepest appreciation to

my research Supervisor, Dr. Nguyen Minh Kieu for his precious guidance,
share of experience, ceaseless encouragement and highly valuable suggestions
throughout the course of my research.
I would like to thank to many of my collegues from HIFU, who have
helped me during the collection of data as well as support me during doing
research: Ms. Ngo Kim Lien, Dr. Vuong Duc Hoang Quan from Board of
Director, Ms. Le Thi Tam Tam, Ms. Pham Thi Minh Ngoc, Mr. Nguyen Thanh
Tuan, and my other collegues from Departments of Accounting as well as
Entrusted Fund Management, Planning, Human Resource Management and
Appraisal.
My special gratitude is extended to all instructors and staff at Faculty of
Business Administration and Postgraduate Faculty, University of Economics
HoChiMinh City (UEH) for their support and the valuable knowledge during
my study in UEH.
I would also like to avail this opportunity to express my appreciation to
Professor Nguyen Dong Phong, UEH Board of Directors for creating MBA
program in English and Dr. Tran Ha Minh Quan for his support during the
course.
Specially, my thanks go to Mr. Nguyen Thanh Trung for his valuable
and enthusiastic support for this research study and for his comments of
English from early draft of my thesis.
Last but not least, the deepest and most sincere gratitude goes to my
beloved parents, my husband Mr. Nguyen Hung Long, my daughter Bao Tran
and my son Duc Huy, for their boundless support, abundant love and
encouragement throughout my period of study. I, therefore, dedicate this work
as a gift to them all.
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Abstract
Evaluating performance in public investment is still an issue in

management. There has been greater emphasis placed on performance
measurement in public investment. HIFU is an organization operating in public
sector. This qualitative research examines HIFU current performance
measurement and suggests an effectiveness performance measurement in
public investment for HIFU. The new measurement including financial aspect
and social aspect is more comprehensive, proper, and complete. The
measurement is also applied to evaluate HIFU performance of public
investment.
Recommendations for related entities such as the Government, HCMC
People’s Committee, and HIFU are suggested to improve the management of
HIFU and funds like HIFU.



Keywords: public investment; performance; performance measurement; public
organization; effectiveness; efficiency; and Ho Chi Minh City Investment Fund
for Urban Development.
iii

Contents
Acknowledgement i

Abstract ii

Contents iii

List of Tables v

List of Figures vi

Abbreviations vii

Chapter 1: Introduction to the study 1
1.1 Rationale of the study : 1
1.2 Problem statement: 4
1.3 Research objectives and questions: 4
1.3.1 Research objectives: 4
1.3.2 Research questions: 5
1.4 Scope and Limitations 5
1.5 Research method : 5
1.6 Implications of research 7
1.7 Structure of the study : 7

Chapter 2: Introduction to HIFU 8
2.1 Introduction 8
2.2 Legal status of HIFU 8
2.3 Organizational structure 9
2.4 Main business activities 11
2.4.1 Lending 11
2.4.2 Investment 12
2.4.3 Trusted Fund management 13
2.4.4 Authorized municipal bond issuance 13
2.4.5 Financial services 13
2.5 Monitoring and evaluation of outcomes/ results 13

Chapter 3: Literature Review 15
3.1 Public investment 15
3.2 The performance of the public organizations/funds 15
3.3 Measuring the performance of the public organizations/funds 18
3.4 Conclusions 22

Chapter 4: Research Methods 25
4.1 Introduction 25
iv

4.2 Research Design 25
4.3 Data collection 27
4.3.1 Document Collection 28
4.3.2 Personal Interviews 29
4.4 Data Analysis 33
4.5 Conclusion 34

Chapter 5: Data Analysis and Findings 36
5.1 Introduction 36
5.2 Links between data analysis and research objectives and questions 36
5.3 The findings of data analysis 38
5.3.1 The current performance measurement of HIFU in public investments 38
5.3.2 Experiences of performance measurement in public investments 40
5.3.3 Expectations of performance measurement in public investments 41
5.3.4 Objectives used to evaluate performance in public investments 42
5.3.5 Financial assessment 43
5.3.6 Social contribution 49
5.4 Conclusions 53

Chapter 6: Conclusions and Recommendations 56
6.1 Introduction 56
6.2 Conclusions related to research questions 56
6.2.1 Conclusions related to the first question 56
6.2.2 Conclusions related to the second question 58
6.3 Recommendations of the research study 59

6.3.1 Recommendations for HIFU 59
6.3.2 Recommendations for the goverment 61
6.3.3 Recommendations for funder – HCMC People’s Committee 62
6.4 Limitations and further research 63

References 64

Appendix 66
Guidance for indepth-interviews 66
List of interviewees 68
Financial statements of 2008 and 2009 69

v

List of Tables

Table 4. 1 Questionnaire for interview 31
Table 5. 1 The planned and actual lending and direct investment from 2004 to 2009 39
Table 5. 2 Liquidity ratios of HIFU from 2004 to 2009 43
Table 5. 3 Leverage ratios of HIFU from 2004 to 2009 44
Table 5. 4 Efficiency ratios of HIFU from 2004 to 2009 46
Table 5. 5 Profitability ratios of HIFU from 2004 to 2009 47

Table 5. 6 HIFU return on equity and market return from 2004 to 2009 47
Table 5. 7 The percentage of actual lending and direct investment from 2004 to 2009 51


vi

List of Figures

Figure 2. 1 Organization chart of HIFU 10
Figure 3. 1 The performance of public investment 16
Figure 5. 1 The framework for evaluating HIFU performance 37
Figure 5. 2 Liquidity ratios of HIFU from 2004 to 2009 44
Figure 5. 3 Leverage ratios of HIFU from 2004 to 2009 45
Figure 5. 4 Efficiency ratios of HIFU from 2004 to 2009 46
Figure 5. 5 HIFU ROE , RM, and RB from 2004 to 2009 48

Figure 5. 6 The percentage of actual lending and direct investment from 2004 to 2009 . 51
Figure 5. 7 Assessments on qualitative performance of HIFU 53


vii

Abbreviations

AFD: France Development Agency
CII: HCMC Infrastructure Investment Joint-stock Company
HIFU: Ho Chi Minh Investment Fund for Urban Development
HCMC: Ho Chi Minh City
HCMC PC: Ho Chi Minh City People’s Committee
LCI: Law on Credit Institutions
MOF: Ministry of Finance
PI: Public Investment
SOEs: State Owned Enterprises
USTDA: United States Technical Development Aid
WB: World Bank
WTO: World Trade Organization

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Chapter 1: Introduction to the study
1.1 Rationale of the study :
Public investment is considered as public expenditures that the
government adds to the public physical capital stock. They include the building
of infrastructure such as roads, ports, schools, hospitals, etc. The issue of
whether public investment is effective is still a controversy. In both developed
and less developed countries, one can speak of a crisis of the public sector. The
main charge is that it is costly for what it delivers. Even though this particular
charge is rarely supported by hard evidence it has to be taken seriously because
of its impact on both policy makers and public opinion (Pestieau 2009). Private
business and foreign organizations often participate in sectors that require less
capital, less risk, higher profit, and short payback period because their objective
is to get profit from their investment. Thus, fields such as welfare,
infrastructure, education, health, etc. which require large capital, more risk,
long payback capital are usually invested by the government - through
government agents - to avoid the unbalance in the economy’s structure.
Moreover, investing in public sector helping to increase the people’s standard
of living, stably develop the economic growth and attract foreign investors are
the government’s activities. The government has staked its political credibility
on delivering significant and noticeable improvements to public services
(Crawford et al. 2003).
However, there has been considerable debate over the delivery of public
services and the performance of the public sector organizations that deliver
them. According to Micheli (2005), much of this debate has been based on
performance information reported in performance league tables and
performance targets against which public sector organizations are assessed.
These targets and league tables, which are regularly debated by politicians and
the media, are often criticized. There are many opinions arguing that

investments in public sector don’t result in efficiency in aspect of finance
because the projects in this sector need a large amount of capital and take a
2

long time of capital turnover, more risk, although there is no official research
of this issue. One is used to hearing harsh statements about inefficient public
services. It is not surprising to see public sector performance questioned. What
is surprising is that what is meant by performance, and how it is measured,
does not seem to matter much to either the critics or the advocates of the public
sector (Pestieau 2009).
On the other hand, due to globalization and liberalization of world
markets, competition faced by the organizations has become more and more
intensive and the pressure to perform better is unavoidable (Ong & Teh 2009).
According to Greiling (2004), in recent years managing and measuring
performance has been one of the key drivers in the reform of the public sector.
Performance measurement may provide data on how effectively and efficiently
public services are delivered. Evaluation encompasses efficiency (the ability to
undertake an activity at the minimum cost possible) and also effectiveness
(whether the activity is achieving the objectives which were set for it) (Carin &
Good 2004). According to Moeti (2000), the importance of evaluating the
performance of public sector goes beyond simply taking “good” evaluation as
an end in itself, but rather as a means to an end. The outcome of the evaluation
may result in either a change in the goals required of the organization, change
in the organization’s procedures and methods, or change in the organization by
the way of growth, reorganization, or reduction. In that line, Carin & Good
(2004) suggested that evaluation makes an important contribution but not
always “the answer”. Evaluation provides government officials, development
managers, and civil society with better means for learning from past
experience, improving service delivery, planning and allocating resources, and
demonstrating results as part of accountability.

In Vietnam, the government also issued Decision No. 224/2006/QD-
TTg on October 6, 2006 on the monitoring and evaluation of performance of
state-owned enterprises, Ministry of Finance issued Circular No. 115/2007/TT-
BTC on September 25, 2007 guiding a number of content on monitoring and
3

evaluating the performance of state-owned enterprises, under which
"evaluating the performance of business is using criteria to determine the
effectiveness and classify business”. Criteria for evaluating is the system of
norms and standards used to determine performance and classify businesses
comprehensively and objectively. Evaluating the performance of the business
intended for classification and incentives to encourage on material and mental
for business and management and administration of business operations
effectively, handle in time for business and business management weaknesses.
Ho Chi Minh City Investment Fund Urban Development (HIFU), a
financial institution directly under the Ho Chi Minh City (HCMC) People's
Committee, together with other local investment funds were expected to act as
the entity oriented trade and attract private capital and invest in infrastructure
projects urban-oriented recovery costs. HIFU is responsible for investing in the
public sector such as construction of bridges, roads; building hospitals, schools
under the objective programs of the city. In the period of integration, the
investments in infrastructure, health care, education are the top concerns of the
authorities of HCMC, contributing to attracting foreign investment, bettering
living conditions, improving environment and upgrading the intellectual
standards of the people. Many projects that HIFU finished in the past time
contributed to fulfilling objective programs of HCMC.
However, to date there has been limited research on evaluating the
effectiveness of investments in public sector in Vietnam in general and of
HIFU in particular. Conducting such research will enable public organizations
not just to enhance efficiency of investments in public sector, but also to

encourage private sector and non-state economic sectors to participate in this
sector under suitable forms so as to gradually decrease the list of works with
100 percent of state capital. Moreover, more importantly, it raises awareness of
the performance measurement in the public sector.
4

1.2 Problem statement:
According to the route of entering WTO, from the end of the year 2007,
Vietnam opened the financial market. Foreign banks and financial institutions
are allowed to operate completely in Vietnam. The competition of investment
market is increasingly strict. On the other hand, owing to global economic
crisis, Vietnam doesn’t avoid the influence from that crisis. As a consequence,
the government is having policies to tighten public investments, especially
inefficient projects, pursuant to Decision No. 390 of the Prime Minister.
Assessing the performance of public investments is necessarily indispensable
in the period and HIFU is the case at point, especially when HIFU to be a
HCMC’s financial corporation and of the whole country. In addition, HIFU is a
pilot model of the public organization operating under the objective programs
of the local. The results from the evaluating performance of HIFU can be used
to refer to other investment funds in the country. Finally, evaluating the
performance of HIFU results in finding out the scientific base to enhance
effectiveness of investments in the public sector.
In summary, the problem that public sector organizations in Vietnam in
general and HIFU in particular face appears to be that how effectiveness of

investments in public sector.
Therefore, the problem to be addressed in this research is to evaluate
the performance of HIFU investments in public sector, and then, to
recommend for its improvement in the future.
1.3 Research objectives and questions:

1.3.1 Research objectives:
A research objective is the researcher’s version of a business problem.
Objectives explain the purpose of the research in measureable terms and define
standards of what the research should accomplish (Zikmund 1997). In solving
the research problem this study has the following objectives :
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- To identify the appropriate method to evaluate the performance of
HIFU investments in public sector
- To evaluate the effectiveness of HIFU investments in public sector
- To contribute to knowledge of the effectiveness of investments in
public sector.
1.3.2 Research questions:
Research questions involve the research translation of “problem” into
the need for inquiry (Zikmund 1997). The research problem defined above
leads to the following research questions:
- Which is the appropriate method to evaluate the performance of
HIFU investments in public sector?
- How effective are HIFU’s investments in public sector?
1.4 Scope and Limitations
Investment in public sector and effectiveness are very large fields. The
study looks for the scientific knowledge to improve effectiveness of
investments in public sector, particularly the case of HIFU. Thus, the study is
limited to the case of HIFU and regulations are imposed by Vietnam law.
1.5 Research method :
In choosing a research design, Zikmund (1997) discusses three types of
business research: exploratory, descriptive and causal research.
• Exploratory research is usually conducted to clarify and define the
nature of a problem.
• Descriptive research is designed to describe characteristics of a

population or phenomenon.
• Causal research is conducted to identify cause-and-effect
relationships among variables where the research problem has
already been narrowly defined.
6

Choosing a type of research depends upon the research questions that
the researcher wants to answer. This research study is designed to investigate
HIFU investments, evaluate the performance of HIFU investments and identify
the extent of the effectiveness of HIFU investments. Thus, “exploratory” was
viewed as an appropriate research type. In summary, the exploratory research
has been chosen for this research. An exploratory research technique that
intensively investigates one or a few situations similar to the researcher’s
problem situation is case study method, and in this research, it is used to obtain
information to the research problem.
Selecting research design is the next step after choosing type of
research. There are four types of research design from which to select: survey,
experiments, observation and secondary data (Zikmund 1997). Selection of
research design is based on the advantages and disadvantages of each kind of
research designs and circumstances in which the research problem is defined.
In this research, survey, and secondary data methods are used in combination.
Survey was chosen as a research technique in this study to investigate
and describe the performance of HIFU public investments and identify the
appropriate performance measurement of HIFU public investments.
Questionnaires were designed and directly asked to interviewees to collect data
related to HIFU public investments and identify the appropriate performance
measurement of HIFU public investments. The argument for choosing survey
was twofold. Firstly, surveys provide quick, efficient and accurate means of
assessing information about the population. Secondly, surveys are more
appropriate in cases where there is lack of secondary data.

The secondary data method was used to investigate the performance of
investments in public sector. The variables such as liquidity ratios, financial
leverage ratios, efficiency ratios, and profitability ratios are derived from
financial statements. These financial statements are available from accounting
department of HIFU and from other financial organizations directly.
7

1.6 Implications of research
Evaluating the performance of public organizations is the answer for the
debate between the advocates and critics of investments in public sector. On
the other hand, the findings are not just to help enhancing effectiveness of
HIFU investments in public sector, but also to encourage HIFU increasing
activities in this sector. Consequently, the findings urge the private sector and
non-state economic sectors to participate in the public sector. Finally, it raises
HIFU awareness of the performance measurement in the public sector.
1.7 Structure of the study :
This research is structured into 6 chapters. Chapter 1 introduces the
research including research background, research problem, research objectives,
and research questions. Chapter 2 introduces to HIFU. Chapter 3 provides a
literature review of measures to evaluate the performance of investments in
public sector. Chapter 4 discusses methodology utilized in the research.
Chapter 5 analyses the data collected and presents the findings of the research.
Chapter 6 points out conclusions and recommendations of the research.

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Chapter 2: Introduction to HIFU
2.1 Introduction
Ho Chi Minh City Investment Fund for Urban Development (HIFU) was
established in 1996 as a pilot program intended to mobilize capital for urban

development investment outside of the state budget pursuant to a decision of
the Prime Minister of the Socialist Republic of Vietnam (SRV) dated 10
September 1996 with a charter capital of VND 500 billion, to be provided by
Ho Chi Minh City (HCMC). While there are other similar funds operating in
Vietnam, HIFU is the only one established pursuant to a Decision of the Prime
Minister; all of the other twenty three similar funds were established pursuant
to actions of the People’s Committees of the cities or provinces where such
funds are located.
As an entity 100% owned by HCMC, HIFU is a state financial
institution operating under regulations passed by the Chairman of the HCMC
People’s Committee following the approval of the Minister of Finance (MOF).
HIFU disburses and repays funds entrusted to it by HCMC; lends to urban
infrastructure projects, and makes direct investments, taking stakes of up to
20% or more in joint stock companies involved in socio-economic
infrastructure. City Infrastructure Company (CII) is one such company founded
in 2001, which operates transportation and other projects under such
arrangements as Build-Transfer (BT) and Build-Operate-Transfer (BOT). From
2003 up to now, HCMC has issued municipal bonds with the proceeds being
used by HIFU for various infrastructure projects. Through its borrowing from
financial institutions, HIFU is providing additional capacity to finance
infrastructure. HIFU purpose is to mobilize capital to invest in the development
of infrastructure projects and other urban developments in HCMC as requested
by the HCMC People’s Committee.
2.2 Legal status of HIFU
HIFU is neither a bank nor a non-bank financial institution as defined in
the Law on Credit Institutions (LCI), which took effect on October 1, 1998. As
9

a state-owned entity directly under the management of the HCMC People’s
Committee, it has a legal status that is unusual but not unique, as up to date,

there are 24 such funds operating in Vietnam. While HIFU operates under the
authority of the HCMC People’s Committee and not under the direct control of
MOF, certain aspects of its operation and those of other provincial
development funds are governed by MOF. Specifically their financial
management is governed by MOF Circular 43 and accounting policies by MOF
Circular 78.
HIFU establishment under a decision of the Prime Minister does not
provide clarity about its legal status, and does not provide clarity about the
regulatory framework within which it should operate. HIFU is not governed by
the law on banks and financial institutions or the law on private enterprises or
the law on state owned enterprises (SOEs). This lack of legal clarity makes
HIFU difficult to evaluate its performance in public investment. In order for
HIFU to be able to better perform tasks assigned by the HCMC People’s
Committee through the process of evaluation as well as the findings from the
evaluation, HIFU will need to operate as presently structured while waiting for
a new legal framework to be approved that would apply to all HIFU-like funds.
2.3 Organizational structure
As local institution, the Fund is directly under the authority of the
People’s Committee of HCMC. The Fund’s organizational structure includes
the Board of Management, Controller Section, General Director, Deputy
General Directors, and several technical departments (See Figure 2.1).

In order to ensure the managerial autonomy, HIFU is legally made distinct
from municipal technical departments by placing it under an independent board
of management. According to the Charter, the Fund’s Board of Management
has seven to nine members from heads of government departments. Currently,
the Board has six members who are representatives from HCMC Institute for
Economic Research, Department of Finance, Department of Planning and
10

Investment, and Branch Office of the State Bank of Vietnam. Other board
members are General Director and the Chief of the Controller Section.
Figure 2. 1 Organization chart of HIFU













The Board is responsible for approving budgets and corporate plans,
capital mobilization strategies, investments, major procurements and sales of
assets, monitoring performance and advising management, and approving
major changes in the Fund’s policies vis-à-vis personnel, marketing, internal.
The Controller Section is to oversee and inspect the operating activities of the
General Director, Chief Accountant, technical departments with regards to
compliance with the law, the Fund’s charter and regulations, financial norms,
resolutions and decisions made by the Board of Management. It has to make
annual reports to the Board of Management on the activities of monitoring and
controlling. At the same time, it has to report to the Board of Management all
unusual activities, possibilities of operating losses or abuse of power
committed by the management. The Fund’s General Director is responsible for
the management of day-to-day operations, making financial plans and budgets
HCMC People’s Committee

Board of Management
General Director
Controller Section
Deputy
General Director
Trusted
Fund
Dept
Deputy
General Director
Deputy
General Director
Deputy
General Director
Appr-
aisal
Dept
Office
Planning &
Promotion
Dept
Invest-
ment
Dept
HR
Dept
Accou-
nting
Dept
Credit

Dept
11

and for making quarterly, six-month and annual reports, and formulating the
long-term corporate plan.
2.4 Main business activities
2.4.1 Lending
Utilizing HIFU capital or syndicated loans with other financial
institutions, HIFU has committed to lending to targeted programs and key
projects of developing socio – economy infrastructure and Ho Chi Minh City’s
economy, which are considered generating sound revenue for loan repayment
and capital pay-back. In projects financed by syndicated loans, HIFU has often
been the loan manager.
From 1997 to 2009, HIFU has provided loans to about 175 projects of
various field categories. In addition to using HIFU capital, HIFU has raised
funds through syndicating loans with other financial institutions to finance
infrastructure projects in Ho Chi Minh City, especially focusing on following
main groups of projects:
• Transportation: These are capital-intensive projects. Focusing on
projects of constructing and rehabilitating key traffic routes to solve traffic jam
in the City (Dien Bien Phu St., Hung Vuong St., Phu My Bridge, Provincial
Roads 15 & 25 and other projects of road and bridge construction), and public
means of transportation (buses).
Total lending amount to this project category which HIFU provides is
VND 2,538 billion. Lending to transport projects accounts for 34.52% of total
HIFU lending for the period 1997 to date.
• Water: Total lending amount to this project category which HIFU
provides is VND 341 billion. Lending to water projects accounts for 4.64% of
total HIFU lending for the period 1997 to date.
• Residential areas, Industrial parks: These are projects under the

planning and new constructing program of Ho Chi Minh City such as
12

economic-social infrastructures, residential buildings and key markets which
HIFU provides is VND 2,811 billion. Lending to these projects accounts for
38.23% of total HIFU lending for the period 1997 to date.
• Health: These are projects under the program of health socializing to
build and equip hospitals, infirmaries with modern facilities. Total lending
amount to this project category which HIFU provides is VND 710 billion.
Lending to these projects accounts for 9.66% of total HIFU lending for the
period 1997 to date.
• Education: these are projects under the program of education
socializing to upgrade facilities of schools in Ho Chi Minh City. Total lending
amount to this project category which HIFU provides is VND 334 billion.
Lending to these projects accounts for 4.54% of total HIFU lending for the
period 1997 to date.
By the end 2009:
 Total disbursement: VND 7,364.049 billion.
 Debt collection:
VND 3,478.196 billion.
 Total outstanding loan: VND 3,970.781 billion.
2.4.2 Investment
HIFU direct investment activities, which were primarily in form of
contributing capital in some privatized state-owned enterprises and investing in
plants at industrial parks (for the period from 1997 to 2000), have been step by
step developed through more plentiful ways such as contributing and founding
new companies, investing in securities in privatized enterprises and being
projects’ investor (co-investor) under policies of HCMC People’s Committee.
HIFU is joining force with HCMC People’s Committee to operate some
projects that directly serve the City’s main point programs such as: the program

of transferring production firms that polluted environment (ex. Tan Phu Trung
Industrial Park project); water treatment supply project (Thu Duc and Kenh
13

Dong Water Treatment plants); urban infrastructure development program
(contributing capital in CII joint-stock company); trade-service development
program for the City (contributing capital in HCMC Securities Company)
2.4.3 Trusted Fund management
From its foundation time to date, HIFU has been authorized to manage a
trusted fund of VND 1,335.689 billion from such different sources as state
budget, proceeds from state house sales, privatization. The most efficient and
largest project is clearance and rehabilitation of Nhieu Loc – Thi Nghe Channel,
building residential areas for low income people, investment of the construction
of rural roads, clean water supply project for the people of the city, and HCMC
electric network renew project.
2.4.4 Authorized municipal bond issuance
From 2003 to now, authorized by the City’s government, HIFU
successfully issued municipal regular bond to raise fund for local budget on the
purpose of financing key projects of HCMC.
2.4.5 Financial services
Providing financial services such as issuing corporate bonds for
corporate customers, capital structuring, investment consulting, and project
preparation consulting.
2.5 Monitoring and evaluation of outcomes/ results
A present monitoring system has been established in HIFU to monitor
and evaluate the projects activities and operations leading to the project
objectives. The monitoring system has three components:
1. HIFU internal system will provide the baseline data and report on
results as follows: HIFU Department of Appraisal will collect information
about the progress made in implementing the project preparation and appraisal.

HIFU Department of Investment as well as HIFU Department of Trusted
Funds, and HIFU Department of Planning and Promotion will collect
14

information about the process of implementing the project in terms of their
respective management objectives. HIFU Department of Credit will collect
information about the loans, disbursement, loan collection, outstanding loan.
2. Quaterly and six-monthly unaudited financial statements will be
made by HIFU Department of Accounting and sent to HCMC People’s
Committee; yearly audit report of the financial statements – prepared by an
independent auditor to conduct international standard financial audits – will be
provided to the relative entities.
3. All project information will be compiled by HIFU management and
discussed with the HCMC People’s Committee in a meeting to be held yearly.
The meeting will provide an opportunity to discuss project progress and any
outstanding issues, including the need to refine or adjust any project
components.

15

Chapter 3: Literature Review
3.1 Public investment
Anderson et al. (2006) defined public investment as public expenditures
that add to the public physical capital stock. They include the building of roads,
ports, schools, hospitals, etc. This corresponds to the definition of public
investment in national accounts data, namely, capital expenditure. Seven main
investment-and-policy clusters are identified in the areas of rural development;
urban development; health systems; education; gender equality; environment;
and science, technology and innovation (Anderson et al., 2006).
The purposes of public investment include its resource allocation

function, income reallocation function, and stabilization of economic activity,
and consideration for future generations, and the value of public investment
assessed as its ratio to GDP includes values intended to achieve these goals. It
is essential to always remember that public investment is done not only to
create infrastructure, but to achieve other goals such as social security and the
stimulation of business, and that the percentages of total public investment
intended to achieve each of these goals is closely related to policies and
conditions of each country. Therefore, there is nobody to deny that the nature
of public investments is multi-objectives.
Investment activities in public sector are usually implemented by State-
owned enterprises or public organizations called the agent under the objectives
assigned by the Government called the principal. These organizations do not
base profits as a means of evaluating and controlling their performance.
Performance is thus defined by the extent to which the agent(s) fulfil(s) the
objectives assigned by the principal (Pestieau, 2009).
3.2 The performance of the public organizations/funds
Organization’s success, specially, public sector organizations (PSOs),
depends on the extent to which organization performance is evaluated and the
approach used.
Approaching the performance in public sector is a new issue
16

and has not reached highly the consensus of researchers as well the
management yet. Some people approach the performance of public investment
in aspect of efficiency, some others approach the performance of public
investment in aspect of effectiveness or the both. Since the 1970s, the public
sector has been continuously pushed to improve the efficiency and
effectiveness of its performance. Thus, efficiency and effectiveness are two
different aspects of performance (Figure 3.1).

Figure 3. 1 The performance of public investment

It is important to understand the difference between efficiency and
effectiveness. Efficiency is understood as a ratio of output to input (Greiling,
2004). In line with this, according to Crawford et al. (2003), measuring an
organization’s efficiency is about the relationship between the outputs it
produces and the inputs it uses. In that sense a public service is efficient if a
defined output is reached by minimizing the input factors or given a defined
amount of input factors an output maximum is reached. In his part, the process
of trying to measure an organization’s efficiency can therefore be broken down
into three steps. First, its inputs and outputs need to be defined and measured.
Secondly, it is necessary to define what is feasible – in other words, what
outputs could be achieved for any given set of inputs. Finally, the
organization’s actual inputs and outputs are compared with the set of feasible
inputs and outputs. In contrast to efficiency measures, effectiveness measures
are directed at determining how well a service is provided or how successful a
Effectiveness
Efficiency



Performance