Infrastructure problems slow Vietnam industrialization

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Shipments are delivered to Song Than Industrial Park, Binh Duong Province. Vietnam plans to double the land allocated to industrial parks by 2015. (Photo by Nghia Pham)

Vietnam's plan to double the amount of land allocated to industrial parks has met roadblocks in the form of poor infrastructure, stalled site clearance and compensation procedures.

Marc Townsend, managing director of real estate services CBRE, said Vietnam's industrial parks were less attractive to foreign investors because they were developed in areas with weak infrastructure, poor roads, a lack of seaports and minimal logistics to support manufacturers and businesses in the areas.

"These become more important than rent and prices for developers and investors," said Townsend, who added Vietnam has the advantages of an abundant population and improved taxes, and the parks still offer reasonable rent for investors.

He said Vietnam should improve on its weaknesses like infrastructure and launch more effective marketing campaigns, at home and abroad, to woo investors.

Dang Huy Dong, deputy minister of Planning and Investment, said the government planed to develop an additional 40,000-50,000 hectares of land for industrial parks throughout the country over the next five years, totaling 60,000-80,000 hectares. He said the goal for 2020 was 120,000 hectares of industrial parks.

"Developing the parks also supports the national economic development plan that the government is focusing on," said Dong.

Dong said the ministry's goal was to lure US$45-50 billion in investment capital from local and foreign investors at the parks who would hire more than two million workers in the next five years and over three million workers by 2020 to contribute 25 percent of the nation's total GDP.

He said the government had asked investors to help meet the goal via public-private partnerships to develop the parks with effective waste treatment systems and skilled human resources.

Pham Minh Hiep, deputy general director of Idico, an industrial park (IP) developer under the Ministry of Construction, said Vietnam would lure more investors if it had good infrastructure both inside and outside the parks.

Hiep said foreign investors who wanted to set up factories in Vietnamese parks sometimes raised concerns about travel times and traffic jams in particular.

Tran Tan Sy, marketing director at Long Hau Industrial Park, said IP developers should base their policies on their competitive advantages.

He said such policies which may include helping investors set-up procedures, waste treatment or labor development would help to remove "barriers" in the eyes of investors.

FACTS ON VIETNAM'S IPs

- About 250 industrial parks (IPs) were licensed with a total land area of 63,170 hectares, of which 162 parks were operating on 38,000 hectares while others were building infrastructure so far.

- The parks lured 3,600 projects worth US$46.9 billon from foreign investors, accounting for 25 percent of the country's total foreign investment last year.

- Businesses generated revenue of $12.2 billion and VND67.9 trillion to the parks and earned $12.3 billion and VND2,6 trillion from export last year.

Source: The Ministry of Planning and Investment

Long Hau Industrial Park developed by Taiwanese invested IPC, which developed the country's first Ho Chi Minh City-based processing and exporting zone Tan Thuan, was successful with a 77 percent occupancy rate, only one year after its licensing in 2006. The company credits its success to its "3S" policy: save costs, save time and stable development.

The policy focuses on labor development for investors. The park is developing a vocational center to train workers in textiles, mechanics and electronics, the jobs sought most by factories.

It has also provided dormitories for workers and other utilities like day care centers, mini supermarkets, health clinics and entertainment areas to retain workers.

Land clearance, compensation

Korean industrial park developer HSDC was licensed to develop a 310-hectare project in former Ha Tay Province three years ago. The developer hoped to implement the project a year later, but it was not that easy.

HSDC's CEO Hong Sun said the company had to put the project on the back burner as it waits for the province to complete the administrative procedures needed to merge with the municipality of Hanoi in line with a recent government order.

"Now, we are waiting for land rental regulations from the local authorities while we plan to pay for compensation on site clearance next quarter," said Sun. "However, it won't be that smooth because new regulations on prices for compensation will be hurdles for IP developers like us."

The government issued new pricing policies last year that demand compensation rates 1.5 to five times higher than previously regulated.

The decision aims to help people living nearby major projects and speed up the site clearance process.

But Sun said the move would raise investment costs for IP developers like HSDC, which aims to call on investors in low-cost industries mainly from Korea. However, the low-cost investors would not be able to pay the higher costs, he said.

Sun added the higher cost would make infrastructure investors and manufacturing businesses stay away from the parks, which were also short on skilled workers.

IP developing takes a long time and is expensive in Vietnam, he said.

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