Expected first half lift in FDI fails to materialize

Last update 16:15, Tuesday, 10/08/2010 (GMT+7)

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VietNamNet Bridge – Foreign direct investment (FDI) flows have decreased substantially, although the number of small FDI projects has soared recently.

According to the Foreign Investment Agency (FIA), an the arm of the Ministry of Planning and Investment, one hundred less projects were registered in 2010’s first seven months compared with the previous year. Newly-registered capital fell to 68 percent of the preceding year . Meanwhile, $6.4 billion was actually disbursed, $100 million more than in the same period of 2009.

Alarmingly, few commitments to manufacturing sector

FIA reports that in the first seven months of 2010, only 35 provinces and cities landed FDI projects. Nine provinces attracted only one project each, and most localities bagged less than 10 projects. HCM City continued to lead in the number of projects attracted (165), followed by Hanoi (135).

Notably, many of those projects are small ventures in import-export, real estate and services.

Law firms in HCM City that provide investment consultancy services say that they do not have many clients this year. “Early last year, we were very busy serving a high number of clients, one consultant said, “but we are sitting idle now. One investor has refused to pay his consultancy fees, because we set up companies in Vietnam for him, he changed his mind about doing business here!”

According to the prominent economist Nguyen Mai, the biggest problem is that FDI capital is not going into the manufacturing sector. “I think government agencies need to review the FDI picture,” Mai says.

Reports by the management boards of industrial zones (IZs) showed that very few new investment projects have been attracted. For example, in the first half of the year, Hai Phong attracted only five new projects, four outside IZs.

Almost two-thirds of the FDI capital flow to HCM City has been into real estate, while industry won only 6.2 percent of the new capital, and trade 15.2 percent. HCMC industrial zones have attracted less than 15 projects.

Implementation of projects nationwide is also considered unsatisfactory. Only ten out of the 50 big FDI projects licensed in 2006-2008 have been initiated. Additional paid-in capital in the first seven months of the year was only $715 million only. Mai says theis shows that the nation’s ability to attract FDI is problematic.

“In principle, when projects go smoothly, investors always try to expand investment and increase capital. The low level of capital increase means low investment effects,” Mai said. “It is necessary to reconsider our approach when a report shows that more than 50 percent of FDI projects have reported losses.”

Trend toward smaller projects

An official from the HCM City Planning and Investment confirmed that the scale of newly registered investments is notably smaller. Some represent less than $100,000 in foreign capital. Many are to set up trading companies. In the trade sector, for example, in 2007, HCM City licensed 17 projects only, while the number rose to 72 in 2008 and then to over 100 in 2009. In the first half of 2010 alone, 70 projects were licensed.

For example, HCM City has licensed a foreign-invested company which provides customs declaration services and has registered capital of only $62,500 only, and a fashion institute which has the modest capital of $30,000. The appearance of small projects, capitalized at just several tens of thousands dollars, has raised worries.

“Should we license foreign investors who come to Vietnam to repair motorbikes? We have a lot of technicians already who can provide this service to the market,” said Nguyen Vinh Nhung, Deputy Director of the HCM City Industry and Trade Department.

At the Binh Duong province Planning and Investment Department, Deputy Director Le Viet Dung said that recently many foreign investors have sought permission to operate in the fields of construction and installation with the capital of only a few hundreds of thousands of dollars.

“We need technology transfer, but such projects do not bring the technologies Vietnam wants,” Dung said.

Mai: Vietnam needs to rethink its approach

Mai does not think that the decrease in registered FDI capital is a big problem. “The most important thing is the disbursement rate,” he says.

“What worries us most is that many real estate projects have been licensed. Investors just register to get the use of large areas of land and then let them sit idle for several years,” Mai said.

In Hai Phong, Planning and Investment Department Le Thanh Son also thinks that Vietnam should reconsider current policies in order to have more effective capital disbursement.

uoi tre