Glut of coastal economic zones stunts growth

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A part of Dung Quat oil refinery in the central province of Quang Ngai. The refinery is the mainstay of the Dung Quat Economic Zone.

Coastal economic zones have developed strength in numbers, but failed to pull their weight. They are characterized by sluggish development, low occupancy rates, modest investments and very small contribution to the state budget.

"The investment policy has not had a focus. Thus, coastal economic zones have not yet taken full advantage of their geographical position and natural resources to develop well," says Nguyen Quang Thai, vice chairman of the Vietnam Association of Economic Science.

Since the first coastal economic zone (EZ) was established in 2003, the number of zones has risen to 15, covering over 662,000 hectares of land and sea, or 2 percent of Vietnam's total acreage. However, the average occupancy in the zones is only 40 percent.

The area covered by the 15 EZs is 10 times larger than that of industrial parks nationwide, but their contribution to the state budget is much lower.

In recent years, annual turnovers at the coastal EZs has been between US$6-8 billion, and their annual contribution to the state budget, $500-600 million, of which 60-80 percent has come from the Dung Quat refinery located in the Dung Quat EZ, according to the Ministry of Planning and Investment.

Dung Quat, considered the most successful EZ in Vietnam, has also seen a slowdown in its development, and not been able to find a way to reverse it.

Le Van Dung, deputy head of the management board of the zone, said: "Dung Quat has showed signs of slowdown over the past two years. Some large-scale projects with investments of hundreds of millions of dollars have been put off due to difficulties in financial issues and site clearance."

The EZ, located in Quang Ngai Province, has attracted 112 projects with a registered capital of $8.3 billion. However, only $4.9 billion of the capital has been disbursed.

The operation of the zone mainly depends on the Dung Quat refinery, but even the plant has failed to have a major impact on the province itself.

"The rural area has not much changed compared to 15 years ago. It means that the refinery has not accelerated urbanization in the zone. Local residents have given up their land for industrial development, but the benefits they have from the development are insignificant," Dung conceded.

Some other coastal EZs such as Chu Lai in Quang Nam Province, Nghi Son in Thanh Hoa, and Vung Ang in Ha Tinh have faced difficulties in attracting investment, while many projects with investments of hundreds of millions of dollars or more have been licensed, but not been implemented.

The coastal EZs nationwide have attracted 130 foreign invested projects with a total investment of $25 billion, and 65 local projects with a similar investment, according to the Ministry of Planning and Investment.

Chu Lai, the first coastal economic zone in Vietnam, has 66 projects with a registered capital of $1.7 billion. However, only 45 projects with a capital of $600 million, mainly those invested in by local firms, have come into operation.

"Due to shortcomings in the policy of infrastructure development and investment incentives, the zone has not yet attracted projects of multinational firms or projects with big investment," said Do Xuan Dien, deputy head of the Chu Lai EZ.

The sole mainstay of the zone is the auto firm Truong Hai, he said.

Tran Ba Duong, chairman of Truong Hai, said it is difficult for the zone to attract investment, as investors have to invest in both production and infrastructure.

Under the government's master plan for coastal EZs, the construction of EZs should happen in tandem with the development of seaports, urban areas, service establishments, and human resources.

"However, this has not been done with Chu Lai," Duong said.

Scaling back

Vu Dai Thang, head of the Department of Economic Zones under the Ministry of Planning and Investment, said the establishment of some EZs has not been based on the country's needs or benefits.

Vietnam plans to open three more coastal EZs in the coming years, raising the total number to 18 by 2020.

However, the head of the Vietnam Economic Institute, Tran Dinh Thien, said coastal EZs have been established en masse in recent years, creating fierce competition among localities in attracting investment.

Worse still, the development of the zones has been weak due to careless preparation, he said. "The cases of Vung Ang EZ, which still faces shortage of fresh water, and of the Van Phong EZ, which lacks supporting industries, are typical cases."

Thai of the Vietnam Association of Economic Science said Vietnam should reconsider its EZ development plan, as it will not be able to develop all of the 18 coastal economic zones by 2020 because of state budget limitations.

"We should have developed just three coastal EZs, instead of 15, helping them better attract foreign and domestic investment," he said.

Citing similar reasons and adding the issue of human resources, Thien said Vietnam only needs four coastal EZs.

Duong of Truong Hai said coastal EZs should focus exclusively on attracting investment into some key industries like automobile and petrochemicals, in order to set themselves apart from industrial parks around the country.

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