Nokia building plant amid concerns over its health, general FDI gloom

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Samsung and Nokia's advertisements are displayed at a shop in Hanoi. Samsung Electronics opened a mobile phone plant in Vietnam in 2009 while Nokia began building its first factory in the country in April. Photo: Reuters

Finnish mobile phone maker Nokia has begun construction of a plant in Vietnam, but there are concerns about its feasibility since the company is in turmoil and foreign investors, caught up in the global recession, are pulling out of the country.

Nokia began the construction in the Vietnam-Singapore Industrial Park in Bac Ninh Province on April 23, and the 17-hectare factory is expected to begin operation early next year.

Nokia lost its exalted position long ago, and Chief Executive Stephen Elop, in January 2011, even compared the company to a "burning platform."

Its revenues are sharply down. In the first quarter of 2012 Nokia's sales were down 29 percent, to US$9.7 billion. It is now losing ground to the likes of Huawei and ZTE, which sell inexpensive smartphones.

Dau Tu, a newspaper published by the Ministry of Planning and Investment, said last month that there are concerns about whether Nokia would go through with its plan in Vietnam, with one expert describing the future of the plant as "fragile."

There are also other reasons for concern, with many other investors delaying or selling off their projects in Vietnam because of poor business caused by lower demand amid the global recession, an expert told Vietweek, asking not to be named.

First Solar is one such example. The American manufacturer of solar power panels is pulling out of Vietnam and has said it is selling its factory in Ho Chi Minh City.

Brandon Mitchener, its director of foreign affairs, said the decision was due to the low global demand for solar power.

Its factory in the Dong Nam Industrial Zone in Cu Chi District was just completed in April. First Solar, one of the US's three largest solar panel manufacturers, had invested around $300 million out of an estimated total of $1.2 billion.

But Vu Duc Quyet, then head of the Bac Ninh Industrial Zones Authority when the Nokia plant was licensed, said the province had carefully considered all aspects, including the possibility of failure.

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The Ministry of Planning and Investment had also set up a team to assess the project before licensing it, he said. "Now, the project is being implemented on schedule."

Mary McDowell, executive vice president, mobile phones, Nokia, said: "Thanks to the valued support from the Vietnamese government, our manufacturing program in Vietnam has been progressing well.

"The new Nokia manufacturing plant will produce and provide new devices"¦ particularly in the growth markets."

Licenses canceled

In recent years many localities have joined the scramble to attract FDI, with some even exceeding the tax incentives and land price discounts allowed by the government.

They have also been sloppy in assessing projects, licensing low-quality and infeasible ones, the chairman of the Vietnam Association of Foreign Invested Enterprises, Nguyen Mai, said.

Not surprisingly, the licenses of some projects have been withdrawn following failure to begin work and delays.

Last year Bac Ninh canceled licenses for 16 delayed projects worth a combined $48 million, while neighboring Bac Giang Province canceled 12.

Quang Nam pulled the plug on a $4.15 billion resort project after the investor failed to complete investment formalities. Dragon Beach Group, a joint venture between two US companies, neither submitted the paperwork nor made the deposit required to demonstrate its financial capacity.

"Revoking licenses of tardy and inefficient projects will ensure the quality of foreign investment flows into the province," the director of the Quang Nam Department of Planning and Investment, Tran Van Tri, said.

Some localities, hoping to attract FDI at any cost, failed to carefully consider projects, Mai said, while others licensed foreign projects worth billions of dollars despite lacking the conditions to house such large projects.

"The withdrawal of licenses of delayed projects is necessary. We cannot let the situation continue, causing big wastages of land, and screwing up FDI plans."

Blaming the situation to poor project evaluation, Nguyen Tran Bat, chairman and general director of the Invest Consult Group, said: "Assessment should be done on a scientific basis.

"Earlier, when the State Commission on Cooperation and Investment, and then the Ministry of Planning and Investment were in charge of licensing major FDI projects, the assessment was good.

"But, since we tasked provinces with doing it, this has not been the case, because the localities are inexperienced or do not have the capacity."

Lower FDI

FDI dropped 27.7 percent year-on-year to $6.4 billion in the first half of this year, according to the Foreign Investment Agency.

The government has said Vietnam may fail to achieve its goal of attracting at least $15 billion this year.

Do Nhat Hoang, head of the agency, said: "We are facing domestic economic difficulties, fueled by unfavorable developments in global markets that have negatively impacted foreign investment in Vietnam this year."

The economy grew at 4.38 percent in the first half of the year, down from 5.63 percent a year earlier.

Kenneth M Atkinson, managing partner at Grant Thornton Vietnam, an auditing and business consultancy firm, said: "The level of FDI in terms of remitted capital has been fairly constant over the last few years at $11-13 billion. I think investors still believe in Vietnam. However, you must realize there is competition from Indonesia, Cambodia and Myanmar."

Vietnam needs to be looking at measures to make the legal environment more predictable and increase transparency, he said.

The most common challenges faced by investors are economic policy changes, poor infrastructure, currency issues, and corruption, he said.

"These issues are of course not just issues faced by foreign investors but by local companies as well, and many of them cannot be fixed overnight."

According to the seventh quarterly EuroCham Business Climate Index (BCI) survey, done in April/May 2012, business confidence and outlook among European businesses in Vietnam continued to hover around the "neutral" index midpoint of 50.

Respondents assessing their current business situation as "not good" increased to 29 percent, up from 19 percent last quarter and only 12 percent a year ago. Around 34 percent of companies described their current business situation as good.

EuroCham executive director Paul Jewell said: "The continuing low level of EuroCham's BCI can be explained by slow progress on many of the issues that were addressed in our Whitebook, coupled with some new issues that are eroding confidence in the business environment in Vietnam: macroeconomic uncertainties, high rates of inflation, corruption, and administrative burdens.

"European investors are increasingly looking for alternative investment destinations in ASEAN. Therefore Vietnam has to increase its efforts to remain competitive in the region."

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