Local veteran economists have called on the Vietnam government to change its strategy to lure foreign direct investment (FDI
) as a bunch of sizable projects have remained on paper or simply never been materialized.
According to statistics from the Foreign Investment Authority under the Ministry of Planning and Investment, FDI pledges in Vietnam have topped $293 billion since 1987 when the Law on FDI came into force. However, disbursements have totaled some $140 billion so far.
This means that around $150 billion worth of FDI has not been realized yet. Where has that capital gone?
In the southern province of Ba Ria – Vung Tau only, the registered capital of foreign-invested projects on paper amounts to $13 billion. Among them, the investors of the $4.1-billion Saigon Atlantis Hotel project, the $4.5-billion Long Son Petrochemicals project and the $900-million Dragon Sea exhibition center project have yet to kick-start their construction.
The list of mega projects that are awaiting a kick-off includes the $2-billion Berjaya Nhon Trach property project in Dong Nai province, Berjaya’s university township project worth $3.5 billion in Ho Chi Minh City and First Solar’s $1-billion solar power project also in HCM City.
The majority of these projects remain on paper due to numerous reasons, either slow site clearance, financial shortfalls or infeasibility.
Authorities of the central province of Binh Dinh has removed Thailand’s Victory Nhon Hoi Oil Refinery and Petrochemical Complex project off its master plan after long periods of delay. State-run PTT had cut the initial capital of the project from $28 billion to $22 billion and cited falling oil prices for the delay.
Another notorious case of foreign investors’ failures is the $3-billion steel mill project of Taiwan’s E-United. The project has recently had its license revoked due to a standstill after ten years of delay.
Inflating Projects in Exchange for Big Incentives
According to economist Nguyen Minh Phong, committed capital of FDI project usually exceeds the real amount as overseas investors seek for a quick “green light” and huge preferences.
“This practice is dangerous because investors do not implement their projects even after land has been allocated to them, leaving bad socio-economic effects on Vietnam,” Phong said.
Sharing the same view, economist Pham Chi Lan, a former advisor to the government, said that the size of FDI projects is inflated because local authority would grant preferential treatment and shorten the approval period.
Several foreign players declare the cost of imported machinery and equipment much higher than the real value. This practice will help them raise operating costs, make losses and enable them to avoid income tax.
Foreign investors exaggerate capital to get more land, causing waste of resources to Vietnam, and to evade tax. Dangerously, this improper practice results in illusory data and hinders honest players from entering Vietnam, Lan said.
“Given the presence of other big investors here, honest ones will see Vietnam less attractive. Accidentally, we reject good investors and invite opportunist ones in,” Lan added.
Changes to FDI Policy Needed
The Ministry of Planning and Investment should ask provincial authorities to review unimplemented projects to cancel those with low feasibility and speed up those that can be carried out in 2016, said veteran economist Nguyen Mai
, chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE).
Abandoned FDI projects will erode Vietnam’s investment climate. Therefore, the government needs to tighten the regulations on deposit by owners of large projects. “Local government must not easily grant a license without forcing the investor to make a deposit,” Mai noted.
Tran Dinh Thien
, director of the Vietnam Institute of Economics, proposed imposing higher tax rate on delayed FDI projects.
“Changes are needed for Vietnam’s FDI attraction strategy, with more importance given to quality rather than quantity. Investment promotion agencies should find good investors and strategic partners instead of luring investment massively and rampantly,” Thien suggested.