Foreign Investors Gain Increasing Trust in Vietnam Business Environment

4:39:08 PM | 10/10/2018

“Foreign investors gain increasing trust in Vietnam business environment,” said Mr Hoang Cong Doan, Chairman of the Board of Directors of Thai Nguyen Industrial Park Infrastructure Development Joint Stock Company, the infrastructure developer of Song Cong I Industrial Park, the first centralised industrial district in Thai Nguyen province. Song Uyen reports.

Well-prepared internal resources for investment projects

From the perspective of an industrial park infrastructure developer, what do you think about FDI attraction and FDI project quality in Vietnam in the last 30 years?
Vietnam’s foreign direct investment (FDI) attraction has obtained remarkable achievements in the past 30 years, thus contributing positively to promoting sustainable and stable economic development. According to statistics, the country had nearly 25,000 FDI projects with a total registered capital of nearly US$320 billion by the end of 2017, of which about US$180 billion had been disbursed. Many billion-dollar FDI projects resulted in enormous and synchronous infrastructure facilities. The FDI sector has become the most dynamic sector driven by higher year-over-year growth and higher growth than the national average. The scale of FDI projects in recent years has increased dramatically, proving the growing trust of foreign investors in the Vietnamese investment environment.

However, FDI attraction has also produced certain limitations. For example, FDI funds are centrally channelled to lucrative sectors, capable of utilising low labour costs in Vietnam. Foreign investors lack interest in agriculture and food processing, while Vietnam still exports raw and fresh items which have much lower value than highly processed ones. FDI firms have reportedly transferred pricing and evaded taxes. FDI quality in some projects is lower than the target due to backward, environment-polluting technologies. Some projects are mainly engaged in commercial activity and slow at product localisation.

Many localities have tried to attract FDI projects at any cost and they willingly introduce preferential policies beyond regulatory frameworks. They focus on luring projects rather than their quality. What do you think about this reality? How about this in Thai Nguyen province?
Effective FDI attraction will importantly contribute to local socio-economic development, employment and human resource quality. It will directly and indirectly facilitate technology transfer and development, promote local technical and social infrastructure development, and motivate local business development. Nevertheless, if localities only look at good points of FDI attraction and introduce attractive incentives beyond regulatory frames to draw investors at any cost without preparing internal forces to absorb FDI funds, the outcome will not be as good as expected and they will even have to pay a dear price.

In 2004, the Thai Nguyen Provincial People’s Committee hosted a large-scale investment promotion conference in Hanoi and introduced many preferential policies, but not many foreign investors came. When the new National Highway 3 was built, the old National Highway 3 was upgraded, the power grid and the water supply system was constructed or upgraded, together with breakthroughs in administrative procedure reform, the Provincial Competitiveness Index (PCI) of Thai Nguyen province rose to top rankings of the nation and its FDI attraction made progress. Since the first FDI project came to the province in 1993 with over US$21.7 million from Singaporean investors, Thai Nguyen has licensed 131 FDI projects with over US$7.29 billion from nine countries, making it one of the most attractive destinations for big FDI projects.

In this changing world, driven by the Fourth Industrial Revolution, designing a policy system that not only attracts FDI fund but also takes full advantage of it is a challenge to authorities. From the perspective of a business, do you have any suggestion to the Government?
I am now working for my own business and I used to work for the Department of External Economics under the Department of Planning and Investment, I have worked with many foreign investors and I personally recommend some solutions to enhance the FDI outcome as follows.

First, to exercise positive FDI aspects and limit its shortcomings, Vietnam’s current FDI policy needs to be changed from extensive to intensive approaches or focus on quality, technology, ripple effects on the economy and support for local enterprise development rather than the quantity. To catch up with international economic integration and the Fourth Industrial Revolution, Vietnam should attract FDI projects that have advanced technologies, require high labour skills and production chains.

Second, FDI attraction must be in line with overall sectoral and regional development plans, not let localities draw FDI projects at their wish. If their internal forces are limited, localities should build up their internal forces to take on new projects. They are strictly forbidden from luring FDI at all costs. They should not accept FDI projects whose investors only utilise preferential policies and make use of cheap labour. Local leaders are responsible to the central government once FDI projects are detrimental to national socioeconomic development.

Third, to prevent the adoption of backward, environment-polluting technologies, we need to be better conduct investment promotion, project appraisal, investment project licensing, post-licensed project management, and personal responsibility for official staffs in case of having projects using such bad technologies. In addition, information technology must be used to monitor project operations in order to prevent transfer pricing, resolutely reject the expansion of loss-making projects and issue regulations on termination of project activity after certain years of loss.

Fourth, spillover effects of technology, skills, management levels and productivity of the FDI sector on domestic enterprises are weak. The limited scale and competency of domestic companies to accept ripple effects from the FDI sector are cited as one of reasons for this reality. Besides, some FDI projects want to transfer pricing and they only want to import components and raw inputs from their parent corporations and delay their localisation commitments. To prevent this, the Governments need to introduce policies that strengthen the linkage of domestic enterprises with the FDI sector. Furthermore, it should provide support for capable domestic enterprises to become satellite vendors for FDI projects in addition to prevent transfer pricing, resolutely requesting them to adhere to localisation roadmaps as committed and encouraging joint venture investments.

Song Cong I Industrial Park – In which investors can place their whole trust

How did Thai Nguyen Industrial Park Infrastructure Development Joint Stock Company invest in infrastructure system in Song Cong I Industrial Park to make it attractive to investors? Could you tell us more about Song Cong I Industrial Park as well as your new blueprint infrastructure projects?
Lying near to two major cities - Song Cong and Thai Nguyen, Song Cong I Industrial Park was established under Government Decision 181/1999/QD-HTKCN on September 1, 1999. To date, the park has completed building infrastructure systems and housed more than 50 domestic and foreign investment projects which hire thousands of workers and significantly contribute to local industrial, export and tax growth.

To have a safe production environment and avoid environmental incidents in the industrial park, we invested in a modern wastewater treatment plant with a daily capacity of 2,000 cubic metres, consisting of two stably operated physiological and biological modules. Furthermore, we invest in around-the-clock automated wastewater monitoring stations.

We realise that the availability of rentable space is not everything and we must support tenants to bring investment projects into full play. Once investors are assured, they are ready to advance capital for us to prepare investment locations for their projects. Thus, tenants at Song Cong I Industrial Park will receive the highest regulatory support with quick, public and transparent investment procedures, have a fair competitive environment for businesses of all classes, and have their difficulties and obstacles resolved in the course of carrying out their projects. At present, the 100-ha Song Cong I Industrial Park is not yet fully occupied. We welcome domestic and foreign enterprises and investors to cooperate in building infrastructure facilities or building factories with us to turn Song Cong I Industrial Park into the most modern, advanced industrial park in the northern mountainous area in which investors can place their whole trust.

Thank you very much!