CHAPTER II: THEORETICAL FRAMEWORK ON INVESTMENT AND

ECONOMICS OF INVESTMENT
I. Concepts:
- “The sacrifice of current consumption to increase future
consumption”
- Vietnam Investment Law 2014: “Investment means the investor’s
spending in business activities through (1) establishing of (an)
economic organization(s); (2) contributing to the capital, purchasing
shares or capital contributions of economic organizations; (3) investing
in the form of contracts or executing investment projects”
II. Classification: 7 bases
1. Based on the object invested:
- Tangible assets: factories, equipment, facility,...
- Intangible assets: intellectual assets, technology, training
programs for labor force, copyrights, trademarks …
- Financial assets: shares, bonds,... -> do not create new assets
for economy, just increase individual assets

2. Based on the investment scale (Article 7-10 in Law of Public

Investment 2014)
- National Important Projects
- Projects group A, B or C

3. Based on the sector of investment: investment on business

operation, investment on technology, investment on R&D…

4. Based on the technical features of the investment process

- Basic investment: for fixed assets reproduction. Basic
investment is a long-term investment because it requires
complicated technical processes and a huge investment source.
- Operational investment: for working assets formation. It
contributes a small proportion of total investment capital, simpler
technical processes and shorter payback period
5. Based on the time duration: short-term and long-term
6. Based on the investment resources:
- Domestic capital
Domestic investment is investment activity in which investment
capital comes from the national budget and domestic
organizations or individuals
- Foreign capital
Foreign investment is investment activity in which investors in
one country bring capital or other forms of assets to another
country.
 7. Based on the relationship between investors and projects:
- Indirect investment: Investors do not supervise/ manage the
projects
- Direct investment: Investors supervise/ mangage the projects
+ M&A: not new asset formation, only transferring
ownership among investors
+ Investment for development: new asset formation for the
economy

III. Objectives of investment:

a. For private investors:
The most important objectives of private investors is profit. However,
depending on the current situation of each company, they can have other objectives
such as: lowest cost, market share, existence, …
b. For the government:
- Economic objectives: in tangible forms such as increased
output, increased quality, increased national budget, …
- Social objectives: in intangible forms such as: increased
quality of labor force, environment protection, public facility, …
IV. Features:
- All investments are related to capital.
- Investment is an economic activity related to profitability.
Investment must be profitable. The primary profit of national investment is
socio-economic benefits, while private investment is profit.
- Investment usually lasts for a relatively long period of time.
According to the Vietnam Investment Law, the duration of investment projects
within the economic zone shall not exceed 70 years, and the duration of
projects outside the economic zone shall not exceed 50 years.
- Investment is a risky economic activity.
Investment activities usually last for a long time and therefore pose risks.
When conducting investment activities, objective or subjective factors may
lead to investment results that differ from expectations. Therefore, investors
must be willing to take risks.
- Investment activities are carried out through investment projects.

V. Impact of investment on economic growth:

- The impact of investment on aggregate demand is short-term. When aggregate
supply has not yet changed, the increase in total investment causes aggregate
demand to increase, leading to an increase in equilibrium output and price.
- When investment pays off, short-term aggregate supply will increase, leading to
increased output and decreased price. Short-run increases in production boost long-
run aggregate supply.
Vẽ hình
=> Investment is the source of capital and available capital is the determinant of production
factor.
=> Investment is the source of the economic growth of every country, making a positive
contribution to the growth of industrial production value, income, and gross domestic product
(GDP)
- Investment also contributes to economic restructuring and growth of job opportunities
- Other implications:
+ Investment depends on both private and public sectors
+ The increase in government spending will reduce the private investment (G
và Sp trái dấu)
Reasons:
Y=C+I+G+X-M
Y = C + Sp + T
=> I + G + X - M = Sp + T
=> I = Sp + (T - G) - (X - M)
trong đó: Y = GDP
C: Consumption
I: Income
G: government spending
X: export
M: import
Sp: Saving of private sector
T: tax

VI. Investment theories:

1. Economic growth and measures
- Def: Economic growth is the increase in output produced by an economy in
a given period of time
- Indicators:
+ GDP: value of all finished goods and services produced and sold in a
country in a specific period of time
+ GNI: value of product produced by enterprises owned by a country’s
citizen
+ GDP or GNI per capita
+ PPPs: the rate of currency conversion that equalize the purchasing
power of different currencies.
- How to measures:
● Phân biệt với economic development:
○ Def: the sustainable increase in the overall standard of living for
individuals within a country
○ Including both qualitative and quantitive indicators:
+ Economic growth
+ HDI: healthcare, education, …
+ Environmental issues
2. Investment theories
a. Classical theories
● For the mercantilists:
- The national output is measured by the supply of money generated, in terms of gold
- The government should encourage business people to increase exports and
reduce imports => to achieve a “favourable” balance of trade that would bring more
silver and gold into the country
- The relationship between the government and merchants was rather
complicated:
+ Government levied taxes for armies and battles among capitalist nations
+ Merchants expect the government to protect them from competition
● A. Smith - The Wealth of Nation
- Free trade in an open market benefits both sellers and buyers
- The involvement of the government in the economy is minimum because the
collusive relationship bw the government and industry was harmful to the general
population
- The division of labor -> increase in productivity -> improve economic growth
+ Labor is equipped to perform specialized actions and wages can be raised
above the subsistence level with more capital
+ The increase in number of worker
+ The increase in efficiency of the workers
- Capital accumulation depends on the allocation between consumption and
investment: investment should be directed towards productive activities
- The manufacturing is a generator of surplus although agriculture is still of vital
importance
● Ricardo doctrine
- Economic growth depends on capital accumulation which eventually relies on the
reinvestment of profit.
- Profit earned by capitalists depends on the growth of agriculture output
Income division = land rent + wages + profit
- The average wage is determined by the ratio of fixed capital and working capital to
population. As long as profits are positive, capital reserves will increase, and average
wages increase. But as wages rise above livelihood levels, the population increases.
More people need more food supply, so if imports are not allowed, agriculture must
be expanded on less fertile land. When this situation occurs, rent increases, profits
decrease, and eventually reach a static state.
- In other words, an increase in profit earned by economic growth leads to an increase
in wages and land rent which then leads to a decrease in capital for reinvestment and
as a result, the economic growth falls into a static state because it relies on
reinvestment capital.

b. Neoclassical theories
■ Solow model
- Assumptions:
+ There is full employment
+ Two production factors: labor and capital
+ Capital is subject to diminishing returns in a closed economy
+ Capital accumulation = saving - depreciation
+ The economy is in a position of minimal capital stock
+ Consumption increase in association with capital until reach steady state
c. Implications:
- Intensive investment in R&D for sustainable growth in long-run
- Human capital:
+ Learning by doing
+ Technological externality
+ Knowledge spillover effect
- Suitable institutions:
+ Property right
+ Competition encouragement
- Economic integration
- Creative destruction
 CHAPTER IV: INVESTMENT PROJECT MANAGEMENT
I. Projects
1. Concepts
A project is a sequence of unique, complex and connected activities that have
one goal or purpose and that must be completed by a specific time, within budget
and according to specification
2. Characteristics: 5
- Specific goal
- Unique and unrepeated
- Human’s proactive interference
- Risk and uncertainty
- Budget/cost and time contraints
3. Program >= Project > Task
- A program is a long-term plan that includes projects and works on a
regular basis, sometimes both terms are interchangeable
- A task is a short-term effort carried out to complete a project, it can be
implemented with other tasks
4. Requirements:
- Legal status
- Scientific and systematic requirements
- Practical requirements
- Standardized requirements
- Estimation
5. Classification:
- Based on the nature of investor:
+ Private project
+ Collective project
+ National project
+ International project
- Based on the nature of project:
+ Production project
+ Social project
…
- Based on the project time duration: short-term, mid-term, long-term projects

II. Project management

1. Concept
Project management is an organized common-sense approach that
utilizes the appropriate client involvement in order to meet sponsor
needs and deliver expected incremental business value
- The only one concept explicitly refers business value which is clients’
responsibility through their requirements
- common-sense approach: one size could not fit all -> project
environment is changeable
2. Planning
● Requirements:
○ The prj is suitable for social-economic development policy
○ Market is promising with low competition
○ Investor’s affordability
○ High feasibility
○ High financial and social-economic efficiency
● Benefits:
○ Decrease risk and uncertainty
○ Increase understanding
○ Improve efficiency
● Steps:
○ Building work breakdown structure (WBS)
○ Estimating time, cost and resource requirement
○ Constructing prj network diagram
○ Writing project proposal
■ Executive summary
■ Background
■ Objectives
■ Approach to be taken
■ Detailed work
■ Time and cost summary
○ Gaining approval to launch the prj
3. Launching:
● Recruiting team members
● Conducting the prj kick-off meeting
● Establishing rules of team operation
● Managing team communication
● Assigning resources and tasks
○ Pre-implementation: survey, cost estimation, machinery preparation,
labor employment plan, bidding, site clearance …
○ Implementation: construction of works, installation of machinery and
equipment, test, handover, warranty, etc

4. Monitoring and controlling

● Establishing progress reporting system
● Applying graphical reporting tools
● Building the scope bank
● Buiding and maintaining the issues log (nhật ký sự cố)
● Managing prj status meetings
● Defining problems arising
● Gaining approval to close the prj

5. Project constraints:
 - Scope (features, functionality)
- Cost (resources, budget)
- Time (schedule)

6. Project evaluation: 13
● Investors
● Application for business registration
● Product: name, trademark, specification
● Output and market: the 1st thing concerning the market is market
research (what structure it is)
● Technology, machinery and equipment
● Production demand: demand for raw materials and semi-products
● Sites and location, construction
● Organizational structure, management and salary
● Project implementation progress
● Investment capital structure by year
● Financial analysis
-> Financial efficiency: payback period, break-even point, internal
return rate, …
● Socio-economic outcomes
-> Social-economic efficiency: tax contribution, tech development,
export value, job creation, …
● Self-evaluation and recommendations

III. Project financial analysis

1. Important reports
- Balance sheet

Assets Equity and Liabilities

Current assets: Owner’s equity

- Inventory
- Receivables
- Cash

Fixed assets Liabilities:

- Tangible assets - Payables
- Intangible assets - Short-term liabilities
- Financial assets - Long-term liabilities

- Financial statement
- Cash flow statement
 - Income statement
2. Important decisions
- Investment decisions
- Financing decisions
- Asset management decision
+ Cash management
+ Inventory management
+ Receivables management

3. Investment capital components

● Opinion 1: fixed capital + working capital
○ Fixed capital: is fixed assets of the prj in terms of money
○ Working capital: is current assets of the prj in terms of money
○ Asset features
■ Being controlled by enterprises
■ Generating future benefits
■ Being cost calculation
● Opinion 2: fixed capital + working capital requirement
○ Working capital requirement = Inventory + Receivables -
Payables

4. Investment capital source

- Owner equity (vốn chủ sở hữu): capital stock or retained profit
- Share issuance (phát hành cổ phiếu)
- Credit (nợ): bond issuance, commercial borrowings, …
- Leasing
=> Selecting investment capital source based on: risk, ownership,
future cash flow, capital mobilization
CÂU 1:
Theo quan điểm trường phái cổ điển, có thể có các kết hợp các yếu tố vốn và
lao động khác nhau để tạo ra cùng một mức sản lượng, bạn hãy cho biết ý
nghĩa của chúng đối với Việt Nam là nước có nhiều nhân công chưa qua đào
tạo?

1. Theoretical basis:
● Traditional Production Function:
Y = f(K, L, R, T)
Where: Y is the output quantity, K is capital, L is the labor force, R is natural
resources, and T is technology.
● Cobb-Douglas Production Function:
Y = T.K.L.R
=> Through the production function of the neoclassical perspective, we can see that
there are multiple ways to combine different input factors to produce the same unit of
output, one of which is the combination of capital and labor.
2. in Vietnam:
Currently, to improve and optimize the stages of business production, it is not
only reliant on manual and intellectual labor but also on modern machinery and
equipment.
In Vietnam, the percentage of unskilled labor is still substantial, accounting for
more than 70% (according to the General Statistics Office). If production continues
with such a labor force, productivity will decline. In such cases, the use of modern
machinery, along with a highly skilled workforce, is necessary to achieve the
expected output. Over the past 30 years, Vietnam has been actively embracing and
importing modern machinery and equipment and applying soft technology in the
production process.

● The role of capital in business production in Vietnam that labor cannot

fulfill:
○ Capital has a positive impact on labor productivity and can easily
optimize the business production process, reducing the manual labor
and shortening working time. It can also contribute to creating new
materials and higher-value products (with the same quantity but with
increasing quality).
○ Capital can enhance the competitiveness of businesses by increasing
production efficiency, thus reducing production costs and improving
product quality. This provides the basis for cost reduction and helps
Vietnamese businesses compete effectively in the market.
○ Capital increases retained earnings, generating more capital for
reinvestment, facilitating business expansion and entry into different
markets, thereby enhancing the reputation of businesses.
○ When capital is substituted for labor, it can drive economic structural
transformation, providing momentum for strong industrial development.
 ● The role of labor affecting the capital factor:

However, if there is a sole focus on increasing capital, production efficiency

will not reach an optimal level. This requires adjustment and control by human
resources. Everything originates from human intelligence. In an economy with a lot
of capital accumulation, there is an increasing demand for high-quality human
resources to manage and use resources most effectively with the goal of further
capital accumulation. Therefore, despite having a large percentage of unskilled labor
in Vietnam, the government still implements policies to focus on training high-quality
human resources. Additionally, for industries with a shortage of domestic labor, the
government creates conditions to hire skilled workers and engineers from abroad for
production.

3. Conclusion:
Although capital plays a crucial role in production, it is not enough to focus
solely on increasing capital without considering the influence and synergy of skilled
labor. Both capital and labor are required to unleash their full potential and stimulate
economic growth in Vietnam.
It is evident that the neoclassical economic perspective aligns perfectly with
current business production activities.

CÂU 2:
Nhiều quốc gia châu Á bao gồm cả Việt Nam đang phát triển khu công nghiệp và khu chế
xuất để thu hút nguồn đầu tư tư nhân bao gồm trong và ngoài nước. Bạn hãy phân tích vai trò
của các khu công nghiệp, khu chế xuất đến tăng trưởng kinh tế các quốc gia này. Hãy cho
một ví dụ cụ thể.

In the process of reform, our country has continuously developed both the quantity
and quality of industrial zones. Thanks to the presence of these industrial zones,
export capacity has been enhanced, attracting significant domestic and international
investments, and contributing to rapid GDP growth. It is evident that the role of
industrial zones and export processing zones is particularly crucial for both nations in
general and Vietnam in particular.

● Creating Favorable Conditions for Attracting Domestic and Foreign

Investments:
○ Industrial zones are equipped with modern infrastructure, making them
ideal for attracting and combining capital resources from both domestic
and foreign investors. The presence of these zones attracts domestic
investors and instills confidence in foreign investors. This requires a
 harmonious combination of both sources of capital to produce high-
quality outputs that contribute to the national economy.
○ Unified management mechanisms along with preferential policies have
created an attractive investment environment for foreign investors.
○ The establishment of industrial zones helps businesses achieve high
production efficiency, cost savings, increased profits, and creates more
opportunities for reinvestment and market expansion. Both domestic
and foreign investors are interested in this matter, and this helps
promote economic growth.
● Boosting Exports and Increasing Government Revenue:
○ With modern machinery and equipment, businesses operating within
these zones become increasingly efficient. This leads to enhanced
exports, generating foreign exchange earnings and significantly
contributing to the state budget. Therefore, industrial zones play a vital
role in the economic structural transition towards industrialization and
export orientation.
● Accessing Advanced Technology and Promoting Industrialization:
○ Industrial zones facilitate the development of scientific and
technological capabilities, creating new production capabilities,
industries, technologies, and products. This is essential for a market-
oriented and internationally integrated economy.
○ Creating Employment, Reducing Unemployment, and Developing
Human Resources:
● Creating jobs, reducing unemployment, poverty, and developing human
resources:
○ The establishment of industrial zones attracts a significant labor force,
reducing unemployment rates and social issues associated with
joblessness.
○ Industrial zones are instrumental in the training of highly-skilled labor,
matching the needs of new technologies. This results in a modern
workforce that enhances business competitiveness and increases
economic efficiency.
● Accelerating Urbanization and Modernizing Infrastructure:
○ These zones allow businesses to expand and increase their production
capacity, which may lead to relocation from densely populated areas.
This creates space for localities to address environmental issues.
○ Industrial zones encourage the construction and development of new
residential areas and infrastructure for the benefit of the local
population, thereby improving their economic, cultural, and social lives.
● Eco-friendly Industrial Development:
○ Industrial zones aim to efficiently use natural resources and protect the
environment, ensuring sustainable and responsible industrial growth.
Example:
 In Hanoi, industrial zones such as Me Linh Industrial Zone and Hanoi
Biotechnology Industrial Zone have been established, with plans to create more in
the future. The Hanoi People's Committee is actively working on improving the
economic efficiency of the region, increasing export turnover, competitiveness, job
opportunities for the workforce, and improving the overall quality of life for the
citizens. This is contributing to the national GDP growth.

In conclusion, industrial zones and export processing zones have played a

significant role in the development of Vietnam's economy, providing a conducive
environment for investments, boosting exports, improving technology and human
resources, promoting urbanization, and ensuring eco-friendly industrial growth.
These zones are essential components of Vietnam's economic development
strategy.

CÂU 3:
List the advantages and disadvantages of mobilizing state budget funds.
Relate to Vietnam.

● Advantages of state budget funds:

○ They can be used for a long term without the need to pay interest (or if
interest is required, it is very minimal).
○ They avoid the constraints associated with borrowing funds.

● Disadvantages of state budget funds:

○ Limited budget resources:
Some developed countries have significant expenditure needs, resulting in
budget deficits (spending on infrastructure, transportation, public investment, etc.),
while budget revenues may not be sufficient to cover these expenses.
● Low efficiency in fund utilization:
Many infrastructure projects financed by state budget funds may lack quality
and deteriorate quickly. For example, the Thang Long Bridge repair project in Hanoi,
with a total budget of 100 billion VND, developed cracks within a month.
Some projects waste funds, invest in the wrong purposes, misallocate
resources, or are not executed in the right place at the right time, leading to
significant delays in project completion. For example, the Cat Linh-Ha Dong urban
railway project was significantly delayed due to resource misallocation.
● Slow disbursement of state budget-funded projects.
The reasons for this may include slow investment preparation, land clearance
issues, which lead to some projects being implemented without secured funds,
potentially resulting in a debt crisis. Moreover, some projects with budget allocation
may have very slow progress, causing financial bottlenecks.
● Loose financial management in investment projects, leading to
fund losses from the state budget. There is a focus on quantity rather
than quality.
Vietnam can relate to these advantages and disadvantages in its own context.

CÂU 4:
Is the issue of state-owned enterprise capital in Vietnam trending downward
nowadays?

● Current situation:
The structure of state-owned enterprise capital in Vietnam was under 20%
during the period from 2010 to 2019 (according to the General Statistics Office), and
it has been trending downward. The structure of state budget capital had a
decreasing trend before 2014 but an increasing trend afterward. On the other hand,
the structure of state-owned credit capital has been moving in the opposite direction
compared to the structure of state budget capital. However, in general, both state
budget capital and state-owned credit capital have shown an increasing trend over
the years.

● Reasons:
Due to the impact of free trade agreements (FTAs) and international
economic integration, state-owned enterprises are trending toward privatization to
attract private sector investment. Private enterprises tend to utilize capital more
efficiently, making a greater contribution to the economy compared to state-owned
enterprises.
As state budget capital and state-owned credit capital continue to increase,
the demand for state-owned enterprise capital is gradually limited.
Therefore, the issue of state-owned enterprise capital in Vietnam is indeed
trending downward, with a shift towards more privatization and a greater reliance on
private sector investment.

CÂU 4:
Mobilizing private investment capital

Mobilizing internal capital sources: This involves accumulating capital from within
the company, including initial owner's equity, retained earnings, and annual
depreciation.

● Advantages: Companies can have autonomy in their business

operations, reduce credit risks, and avoid the barriers of debt.

● Disadvantages: When companies start their business operations,

retained earnings are usually minimal. The initial owner's equity is
limited as well. In today's highly competitive business environment,
companies often need to expand into new markets. However, if a
company relies solely on initial owner's equity and retained earnings, it
may not have the capacity to expand its operations.
Mobilizing external capital sources: This includes borrowing through financial
intermediaries or directly from the stock market.

● Advantages: It helps address the issue of limited capital.

● Disadvantages: Borrowing may involve collateral requirements, such
as when borrowing from commercial banks. Additionally, borrowing
comes with credit risks. Not all businesses can easily access capital
from the stock market; it depends on the company's actions in the
market and its reputation.

=> Companies need to combine equity capital with borrowing to overcome limitations
and leverage their strengths, particularly in expanding their profitable business
operations and accumulating capital for future investment.