Creating Favourable Environment to Attract FDI into Agriculture

 

According to the FIA’s statistics, there are over 16,910 licensed FDI projects with a total investment capital of US$243 billion now. However, there are only 512 projects in agriculture, forestry and fishery, with a total registered capital of US$3.39 billion which represents 3.03 percent of the total number of projects and 1.4 percent of a total registered capital. Annually, there are 20 FDI projects worth at US$130 million attracted in the agriculture. FDI in the agriculture sector has dropped by 30 times within 15 years. On the other hand, the structure of FDI in the sector is also unstable.

 

Investors are now only directing their FDI projects in the short-term fields of processing and manufacturing of agricultural and livestock products, rather than long-term projects. Another paradox is that most of the investors come from less developed Asian countries like Thailand, Taiwan, and Indonesia. While other investors who come from countries with developed agriculture and industry like European countries, Japan, and the United States show less interest in the agriculture sector of Vietnam.

 

Another barrier is that there are a few high- quality FDI projects in high technology. Most of the projects are small scale. It is estimated that while the average size of an investment project is US$14.7 million, the average size of FDI projects in the agricultural sector is only US$6.6 million.

 

With the desire to attract capital flows to agricultural sector, Cao Duc Phat, Minister of Agriculture and Rural Development, confirms that the Ministry will review entire legislation, policies and mechanisms to create an open investment environment to attract foreign investors. The Ministry is formulating a scheme to attract and manage FDI in agriculture, forestry and fisheries from 2015 to 2020, and by 2030 the Ministry will fill the gap between policies and practice.

 

According to Do Nhat Hoang, FIA Director, poor investment in the agricultural sector is due to the lack of strategies to attract long-term foreign investment in agriculture and rural development and to explicitly estimate budget allocated to development of agricultural sector, specific projects with strong agricultural potential to attract investors, as well as a non-transparent legal system, mechanisms and policies for foreign investors to determine their investment in the agriculture.

Nguyen Van Toan, Vice President of the Vietnam Association of Foreign Invested Enterprises, said another reason that leads to shortage of FDI in agriculture for a long time comes from the reluctance of investors to invest in the less profitable agricultural sector. There are many risks from natural disasters, weather and unsustainable market development that investors may face with if they invest in the sector.

 

On the other hand, transport infrastructure is weak and many local authorities arbitrarily change management policies that discourage investors from entering the sector. Nguyen Van Toan said that although Vietnam has reformed tax incentives and restructured infrastructure systems, these incentives are not attractive enough to draw investors' attention.

 

Dr Dang Kim Son, Director of the Institute of Policy and Strategy for Agriculture and Rural Development, said that FDI projects in agriculture are still unsustainable and small scale. Projects in high-tech agriculture by investors of the U.S. and the EU are limited. Therefore, more effort is required from the agriculture sector to effectively attract FDI in the upcoming time. In addition, the Ministry of the Agriculture and Rural Development should also focus on projects that are based less on natural resources and more on high technology content, and projects investing in seed production, processing industry, and machinery for manufacturing agriculture. Besides, to attract more FDI, the Ministry also needs to conduct research on the PPP model to create more options for foreign enterprises to engage in the agricultural sector.