Vietnam central hub gets more central funds, but analysts call for change in model

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Experts urge the city to diversify investment outside the boom-and-bust real estate sector and tourism

A bridge in downtown Da Nang City. Experts have called for Da Nang to balance its investments in property, tourism and industry. Photo by Bao Nghi

The Politburo, the Communist Party's decision-making body, has instructed the government to support the municipality of Da Nang with preferential policies to continue growing the city's controversial economy, which has been hailed as a model for the future even as a budget deficit halts major developments.

It recently issued a decision that ratified several proposals made by city authorities, including the issuance of several "specialized policies and mechanisms" and a cut in the amount of city funds that will be contributed to the government coffers in order to have more money to spend locally.

Da Nang will now be allowed to mobilize more annual investment funds and will be supported by the government in obtaining official development assistance (ODA). The city will also have the right to decide infrastructure projects without consulting central authorities.

Other favorable policies will include government help in mobilizing funds for the Da Nang Hi-tech Park, offshore fishing projects and other developments that affect the central region like a new obstetric pediatric hospital, an upgrade of the Da Nang airport, and building an underground metro line.

According to the Politburo, good planning and management in Da Nang have resulted in rapid infrastructure development and improved social welfare.

Tran Tho, Da Nang's Party chief, told Tuoi Tre (Youth) newspaper that the new decision offered many opportunities by which the city may develop even quicker and more sustainably.

"Da Nang will have more development breakthroughs once it has these specialized mechanisms," he said, adding that his agency is going to discuss the issue and begin assigning personel to carry out the decision soon.

Property balloon, no parachute

After being separated from Quang Nam-Da Nang Province to become a national-level city nearly 17 years ago, Da Nang's economy soared alongside rapid infrastructure development based on a booming property market. This became a model for many cities.

On November 24, a project to build a 140-km expressway connecting Da Nang and Quang Ngai Province broke ground. The project costs nearly US$1.5 billion, with a significant portions funded by Japan and the World Bank.

But large projects have been scarce in Da Nang recently as the city's budget deficit has forced it to halt several major infrastructure developments.

In the first half of this year, the city's total revenue was VND5.2 trillion, while it spent VND7.6 trillion. Last year's budget deficit was VND2.7 trillion.

In 2011, Da Nang earned up to VND5.1 trillion ($242 million) from the property market. Last year, this fell to VND1.3 trillion, much lower than the targeted VND3.5 trillion.

Unsustainable gains?

While many analysts said Da Nang's excessive reliance on the now-frozen property sector to drive its growth was like a chicken coming home to roost, others said the focus on the property market has significantly improved the city's infrastructure for future development.

Infrastructure projects over the past ten years have totally changed the central city. Some 150,000 new households have been added while thousands of people have been relocated to make way for projects.

Observers said many other cities have failed to learn the lesson of taking advantage of "property fever" for development.

In a recent article, Thoi Bao Kinh Te Saigon (The Saigon Times) newspaper said Da Nang had significantly gained from past "fevers" by expanding the city, building large bridges and improving social welfare.

"7,000 apartments rented at low rate, of VND300,000 ($14) a month, to people with low income and a modern cancer hospital offering free treatment for the poor are among the major accomplishments the city has built thanks to revenues from propery," it said.

Da Nang, which used to be a gateway to Hue and Hoi An, has become a popular tourism destination on its own thanks to tourism investment.

On the other hand, experts said investments in property, tourism and industry were not balanced enough in Da Nang to be considered sustainable.

Dau Anh Tuan of the Vietnam Chamber of Commerce and Industry said by focusing on tourism development, a city cannot develop heavy and non-environmental friendly industries.

"Tourism in Da Nang has not contributed much to the city's revenue except for creating jobs," he was quoted by Thoi Bao Kinh Te Saigon as saying.

Lam Quang Minh, director of Da Nang Investment Promotion Center, said many investors have offered to invest in production industries.

"A big investor in production industry needs infrastructure, labor, a consumption market and convenient transportation. The latter two are unavailable in Da Nang," he said.

An economist who requested anonymity said Da Nang had not attracted investors in fields other than property and tourism.

"The [leaders] have not paid attention to the preparation for sustainable production investors," he said.

But Pham Phu Ngoc Trai, chairman and CEO of Global Integration Business Consultants Company, said Da Nang's "determined" economic management had created development opportunities.

"The city only needs to modify its development strategy by balancing economic sectors for sustainable development," he said.


Prime Minister Nguyen Tan Dung has instructed Kien Giang Province to work with the Ministry of Construction and Singaporean investors to draft a development plan for the island district of Phu Quoc.

The plan will include high-quality tourism complexes and socio-economic infrastructure projects.

Any modification to previous plans must ensure effective investment and sustainable development with the protection of the natural resources and environment on the island, which has been recognized by UNESCO as World Biosphere Reserve.

Dung also instructed local authorities to facilitate transport construction projects, including a north-south highway and another surrounding the island.

Phu Quoc is Vietnam's largest island with an area equal to Singapore, with beautiful natural landscapes and beaches.

However, the island has not taken advantage of this to promote tourism, the government website reported.

Socio-economic infrastructure and services have not met the demands of an increasing number of tourists to the island, it said.

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