Foreign investment increase cannot hide serious quality problems: experts

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Vietnam has attracted US$211 billion in foreign direct investment (FDI) over the past 25 years, but more than half this amount has not been disbursed

A worker works in a car assembly line of a Mercedes Benz plant in Ho Chi Minh City

A rise in FDI this year is welcome news in an otherwise gloomy economic landscape, but Vietnam still has many things to do before it can attract quality projects, economists say.

According to the latest report from the Foreign Investment Agency with the Ministry of Planning and Investment, Vietnam attracted FDI worth US$8.2 billion in the first four months, an increase of 17 percent against the same period last year.

However, several economists told Vietweek that there is a need to look beyond figures. 

They noted that in many localities, authorities have recently revoked the licenses of many projects, as investors failed to start them as they had committed.

Authorities in the southern province of Dong Nai, for instance, in March withdrew the license of the Nhon Trach new urban area, in which Malaysian-owned Berjaya Leisure (Cayman) Ltd., Co. had pledged to invest $2 billion.

Work on the biggest-ever foreign investment project in Dong Nai was supposed to begin 12 months ago, but nothing has happened so far, with the investor reportedly troubled by the global economic downturn.

A report in the Dong Nai newspaper quoted the province's Department of Planning and Investment as saying that the urban area was among 311 FDI projects that local authorities have suspended so far.

It said the value of scrapped projects totaled $4.37 billion, adding that Dong Nai currently hosts 1,007 FDI projects with a total investment of over $18.6 billion.

Early this month, authorities in the central province of Binh Dinh said they would revoke the license of the $125-million Emerald of Vietnam resort project if its investor, the Russian-owned ALT Company, fails to present them a detailed design of the structure for approval by June 30.


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The project was licensed in 2010 but nothing has been done since then.

Previously, in 2011, a $9.8 billion steel project was also canceled in the central province of Ninh Thuan. The project, which was the biggest of its kind in Vietnam when it was licensed in September 2008, was invested in by state-owned shipbuilder Vinashin and Malaysian-owned Lion Corporation.

The same situation applied to the $11.4-billion project to build a hi-tech city in the central province of Phu Yen. US-owned Galileo Investment Group, Inc. had its license revoked in 2011.

At a recent meeting reviewing Vietnam's FDI activities over the past 25 years, the Foreign Investment Agency pointed out that while the total registered investment was $211 billion, just 47 percent, or nearly $98 billion, has been disbursed.

Prime Minister Nguyen Tan Dung said at the meeting: "The reality is not as we expected."

Economists say this situation has developed because the investors could not get enough funds for the projects as pledged, and/or they were land speculators.

However, Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises, said it was one of the consequences of poor checks on the projects' quality.

Other consequences, he said, are environmental pollution and transfer pricing manipulations the payment made between affiliated companies for transactions of goods, services and assets that allow multinational corporations to allocate its profits among its companies in high and low-tax countries to avoid paying due taxes.

Post-license checks play the most important role in improving the quality of FDI, Mai said.

Economist Pham Chi Lan said FDI projects were delayed also because local authorities were late in clearing sites for the investors, or failed to give them incentives as pledged.

Foreign investors are still complaining about the investment environment in Vietnam, she said, adding that problems relating to infrastructure, human resources and regulatory framework have yet to be solved despite being discussed frequently.

Meanwhile, countries like the Philippines and Indonesia have made "considerable" improvements to their investment environment over the past two years, she said.

Other countries in the region, like Thailand, Malaysia and most recently, Myanmar, are considered more attractive by foreign investors, she said.

"Thus, Vietnam needs to make many more strong changes to continue attracting FDI, as investors now care more about the quality of investment environment, not cheap costs as they did before," Lan said.

She also said that to avoid licensing FDI projects that are registered with huge sums but later fail to disburse funds as pledged, the government needs to pay more attention to project assessment and make rational conclusions about a project's feasibility.

In the first four months of this year, 37 countries and territories have invested in Vietnam, according to the Foreign Investment Agency.

Japan was the top investor with registered investments of over $3.63 billion, followed by Singapore and Russia with about $2.33 billion and $1.1 billion, respectively.

Vietnam hopes to attract FDI worth $13-14 billion this year.

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