Investment Decentralisation Should Be Clearer

 

The Vietnamese government has decentralised investment, including empowering localities and industrial park management boards to grant investment licenses. The government only licenses sensitive projects like setting up a university or a foreign-invested bank.

 

A series of foreign-invested projects has been licensed by people’s committees of cities and provinces as well as industrial park management boards over the past two years in line with the new investment law, helping to increase the foreign direct investment (FDI) inflow into Vietnam. However, the decentralisation has impacted the national economy as a range of well-compiled and costly plans for developing economic sectors have become meaningless. Many steel projects worth dozens of billions of USD, which are in fact not named in the planned project list, have been published.

The negative impacts are also seen in localities. Fierce competition is taking place in localities, which can result in law violations. This fact is proved in many cases, including the Nguyen Duc Chi scam in the central province of Khanh Hoa. Massive licensing and incentives will push the natural resources to speculators. Therefore, it is necessary to have regulations on responsibilities of investment licensing.

 

Education is a typical example for investment licensing. Since the Investment Law became effective two years ago, the number of newly-built private universities has reached 20, three times higher than the number between 1998 and 2004. Le Dang Doanh, a senior economist, expressed his concern about the effectiveness of investment decentralization. Doanh added, the decentralization is proper and necessary. However, it will lead to negative impacts if licensing is not controlled. “I do not think that the record FDI of more than US$60 billion last year shows foreign investors’ confidence in Vietnam. The country has seen a rise in the projects in the year, which use much energy and natural resources, but generate little wealth. Are foreign investors taking advantage of Vietnam, which is home to a cheap and abundant labour force and lax investment regulations and particularly weak planning for regional development? Doanh noted.

According to many economists, the local government will “simplify” several contents of investment decentralisation. For instance, cities and provinces will not be entitled to grant licenses to big projects influencing national and regional development. Appraisal from ministries and central agencies will also be tightened.

 

Localities should consider their policies. A number of big projects should be sped up before the decentralisation regulations are adjusted. The government also needs to reconsider this.

 

There will be two ways for the investment decentralisation. Firstly, the authority to license current small projects will be turned into decentralising in cities and provinces. Secondly, it is the expansion of decentralisation to license projects capitalised between US$20 and US$40 million in big cities.

The government recoganises many problems related to investment decentralisation. Provinces will have to submit projects to central agencies for appraisal. Despite stipulated in legal documents, the investment decentralisation’s positive impacts on the administrative reform are not clear.

 

Many localities do not obey regulations on sending reports to the Foreign Investment Agency to be checked. Recently, the Agency has announced the official FDI figure of 2008. In 2008, the country’s nearly 400 projects worth over US$7 billion were not reported.

 

In reality, the investment decentralisation shows many problems. The decentralisation must be different, depending on project scale and importance. For example, the dencentralisation in Hanoi must be different from Ha Giang. Previously, a steel project was carefully considered and experts from many ministries had to gather to discuss it. However, at present, only the Ministry of Planning and Investment can appraise steel projects capitalised at billions of USD.

 

Economists were also concerned whether or not the People’s Committees can ensure the entire licensing process. Thus, the important thing now is to adjust the decentralisation, not only discussing it.

Decentralisation is important, but it should be considered to match the real situation. The current problem is considering decentralisation conditions. Firstly, it is vital to work out proper development plans for regions as well as sectors. Secondly, it is necessary to have united policies and measures to carry them out. Thirdly, it must have a good apparatus of government at localities. Finally, localities should pay attention to human resource training, particularly capacity of cadres.

Previously, Quang Tri did everything to attract as much investment as possible, but did not pay due attention to helping investors deal with difficulties. Complicated investment procedures have affected project implementation. The province has not yet applied strong enough measures to help slow projects. The locality has only focused on the number of projects, not investors’ capital capacity and business strategies, causing delayed or project transfer to other investors.

 

Under the government’s new policies on investment decentralisation, the province will concentrate on solving businesses’ difficulties related to capital, land and trademark promotion; checking underway projects; withdrawing licenses of idle projects; developing material areas of wood, coffee and rubber. Quang Tri will also tighten investment at industrial parks and handicraft villages to raise project effectives. In addition, it will focus on infrastructure development at industrial complexes and parks. As for key projects, the province will help investors to accelerate construction pace. The provincial People’s Committee has asked the Ministry of Planning and Investment to survey and assess one-door licensing mechanism.