The proposed site of First Solar's US$300 million thin film module plant in Ho Chi Minh City. A source said the US solar panel maker has pulled out of the project.
The recent exits of foreign investors from several high-profile projects have once again raised concerns about Vietnam's business environment and the country's ability to compete against other investment destinations in a worsening global economy.
Expectations were high when American firm First Solar Inc., one of the world's top solar panel makers, broke ground on a module manufacturing plant in Ho Chi Minh City in March 2011. The US$300 million facility was scheduled to begin commercial production in the second half this year, with its officials aiming to capitalize on the project in a plan to double its production capacity.
But last November, the company decided to delay the project, citing weak market demand as the main reason.
Now a source has told Vietweek that the company has completely pulled out from the project after huge losses forced it to stop production in Germany and lay off around 2,000 workers.
While the departure was mainly because of an oversupply in the solar panel market and a prolonged global downturn, analysts warn that it could very well have been due to unfavorable investment policies in Vietnam, which have so far failed to support green energy projects.
The exit came right after Taiwan-based Teco withdrew from a $1.2 billion IT project, also in HCMC, even though the company had secured a land lease for 50 years. The company said it decided to move the project to China to take advantage of free land lease and existing infrastructure.
HCMC is looking for another investor to resume the project, which includes software development and chip production, but it will be a difficult task for the city given current business conditions.
In 2010, Vietnam lost out to Thailand in attracting a $450-million project developed by Ford Motor. Analysts say the neighboring country was more appealing to the American auto giant thanks to better incentives and a more developed car industry.
Of course, there are several projects where foreign investors have pulled out because of their own weaknesses. Many property projects, for instance, have been revoked after their developers repeatedly delayed construction or failed to raise the required capital.
However, analysts also say Vietnam needs to review its own investment policies to make sure it has given investors all the support they need. Every time an investor leaves, the country loses some of its attractiveness, they say.
Economist Le Dang Doanh said there is strong competition between Vietnam and other countries to attract capital. If Vietnam cannot retain the interest of investors, it would hurt the country's reputation as a favorable investment destination, he said.
To prevent further withdrawals, Vietnam needs to reduce risks for investors and make its policies more transparent, he said.
Pham Chi Lan, a former government advisor, told Vietweek that there have been negative developments in Vietnam's business environment in recent years which could put off investors, including high inflation and constantly changing policies.
Furthermore, it usually takes too long to complete site clearance, making original investment plans outdated by the time the construction can really get started, Lan said, noting that infrastructure and labor quality are also problems that have yet to be resolved.
"Many other countries are emerging as better destinations than Vietnam with low-cost and highly productive labor, rich natural resources, and reasonable input costs. So some investors may sacrifice all the initial expenditure they have made in Vietnam and look for a new place that can earn profits the fastest," she said.
According to the Ministry of Planning and Investment's Foreign Investment Agency, new foreign direct investment pledges dropped by 25.3 percent to $4.12 billion in the first five months of the year.
The European Chamber of Commerce in Vietnam said earlier this month that the international climate for investment was not very good.
"Following 20 years of a credit bubble, we are now facing an unknown number of years where money whether from FDI inflows, bank lending, or aid is far more restricted than in the past," it said in a report prepared for a meeting between investors and policymakers.
The chamber said amidst these conditions, Vietnam has to work harder to attract interest from investors "who are far less patient and forgiving" than in the past. "These are uncomfortable facts, but they are realities which have to be faced," it said.
Lan said Vietnam must realize that it is not the only destination that can offer a chance to make money. Investors will not accept wasting their time and want to know if they can seize every business opportunity when they choose a certain market.
"When it comes to attracting hi-tech FDI, Vietnam has to be quick because only early birds catch the worm," she said.