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Forestry sector scorched by FDI drought
Despite big potential, Vietnam’s agricultural sector is failing to lure many foreign investors. Thanh Tung looks at what remedies can be prescribed to improve the sector’s health.
Steve Chang, founder and chairman at Tokyo-based Trend Micro Incorporated - a global internet content security leader, decided to invest in forest plantations in Vietnam. Chang, who is also chairman of Taiwanese-backed InnovGreen Group, since 2006 has invested in six forest plantation projects covering 319,000 hectares in Vietnam worth $284 million and the group is the country’s biggest foreign forestry investor.
“It is not a problem of business, but a strategy which can bring long-term benefits to Vietnamese people and stable development,” Chang said. He said Vietnam boasted great potential in developing forestry resources and wood processing.
Ministry of Agriculture and Rural Development (MARD) statistics show that Vietnam is home to 12.61 million hectares of forests with total wood reserves of 813 million cubic metres. Some 94 per cent of Vietnam’s forests are natural and the remaining 6 per cent planted. Vietnam is close to the world’s biggest paper consumer China and Chang said its economy would strongly develop, pushing up demand for wood, paper and pulp.
However, Chang is not a happy man as his company’s business faced big hurdles in implementing projects in Vietnam. Part of InnovGreen’s $40 million project in Quang Nam province, which kicked-off in July 2008, cannot be implemented in the province’s Bac Tra My district, said Nguyen Van San, InnovGreen Vietnam Company’s Planning Department director. In another case, the company’s $60 million project to plant 70,000ha of forests in Nghe An province and another $105 million project in Thanh Hoa province has gone nowhere.
However, InnovGreen’s plight is better than Kien Tai International’s, a joint venture between Centre Trading and Development Corporation, Taiwanese Castro Enterprises Corporated and Kien Giang Agriculture and Forestry Products Import-Export Company. The joint venture was granted a licence in 1991 to grow 60,000ha of forests to provide paper materials in Kien Giang province. In seven years, the joint venture developed 22,300ha of eucalyptus forest.
However, the project proved to be unfeasible due to changes in land-use programming. The joint venture did not build a paper production factory as promised, while Kien Giang’s authorities could not relocate local residents in order to allocate enough land to the enterprise. The Ministry of Planning and Investment (MPI) had to release a decision to stop the operation of the joint venture before its scheduled end.
InnovGreen and Kien Tai International are typical examples of the delays and failure of foreign direct investment (FDI) to take root in agro-forestry.
Many reasons have been produced to explain project failures, including changeable policies and the local authorities’ shortcomings in assisting investors in site clearance.
San said InnovGreen’s plight was down to local authorities disagreeing with one another in attracting FDI and providing forest land. “For example, the project in Nghe An, which was granted a licence in July 2007, could not receive production land even at its first stage of implementation,” San said.
“Thanh Hoa authorities wanted us to build a wood processing mill in the province as a condition to allow us to plant forests here. However, since the mill was built, we have yet to receive production land, though we were granted a business licence in 2006,” he said.
On a downward trend
MARD Deputy Minister Diep Kinh Tan said foreign investors were running away from the forestry-agro-aquatic sector and investment in agriculture was on a downward trend. At 2008’s year-end meeting on a FDI attraction programme, Tan said Vietnam once witnessed high FDI in the sector, especially in 1995 when FDI registered capital was $570 million. However, FDI had decreased over the last three years.
Nguyen Viet Manh, MARD’s International Cooperation Department vice head, said the ratio of agro-forestry-aquatic FDI of Vietnam’s FDI occupied 6 per cent in 2006, but reduced to 5.24 per cent in 2007 and only 3.2 per cent in 2008.
According to the MPI, since Vietnam issued its Foreign Investment Law in 1988, just 976 FDI projects have been invested in the agro-forestry-aquatic sector with total registered capital of nearly $4.8 billion, occupying just 9.9 per cent of Vietnam’s FDI projects and 3.2 per cent of the nation’s total registered capital. Only $2.3 billion has been disbursed.
Some 30 per cent of total projects have been dissolved before scheduled, especially projects that were granted investment certificates before 1992.
“Many projects are very slowly implemented and suffering from losses. At present, one-third of the sector’s projects are just at a stage of mobilising capital and completing investment procedures,” Manh said.
In 2008, while the total number of FDI projects of Vietnam was 1,171 with total registered capital of $60 billion, the projects invested in the sector were only 45 with total registered capital of $252 million.
Cultivation and processing projects occupy 37 per cent of total registered capital and 51 per cent of the sector’s total realised capital. Livestock projects respectively occupy 21 per cent and 23 per cent of the sector’s total registered and realised capital, while forest plantation projects account for 35 per cent of total registered capital and only 17 per cent of total realised capital of the sector.
MARD’s Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD) said most of agro-forestry-aquatic FDI projects were of small scale, with average capital of less than $2 million.
Causes of FDI attraction failure
“Vietnam’s agro-forestry-aquatic sector needs potential investors from nations having developed agriculture such as the US, Australia and Canada. However, investors in this sector cannot be seen in Vietnam,” Tan said. A recent IPSARD survey found that cumbersome administration procedures, lack of production sites and output markets, scarcity of skilled workers, local authorities’ unattractive policies, and poor infrastructure were major obstacles to forestry projects.
“Foreign investors are facing delays in production site provision. They said in order to access production sites, they had had to wait for two to four years before they could receive sites,” said Nguyen Dinh Hung, an IPSARD expert.
“Despite registering our business in tea production and trading in Ha Giang province in 2004, we have yet to be granted land because the locals have refused to transfer land to the province, whose authorities have promised to provide us with land,” said a representative of Vietnam TFB Company.
“Meanwhile, authorities have done nothing to help us,” he said.
Lai Chang An, director of Truong Thai Vietnam Company in Lam Dong province, said his company registered $1 million for its business in 2004, but it could disburse less than $570,000 in 2006. Huang Cai Fang, director of Nong Suc Truc Dien Company, also said his company registered $500,000 for its business in 2000, but could only disburse $375,000 in 2005.
Hung attributed the retarded disbursement to complicated investment procedures. “Investors said there were 15-20 procedures snagging them. While they are in dire need of production land, local authorities paid no attention to them,” he said.
Nguyen Minh Tri, representative of Cargill Vietnam Company, said: “Investment procedures are very complicated and inconsistent among localities. An application dossier for an investment project can be approved in this province but cannot in another province.”
According to IPSARD, foreign investors do not want to pour their money in the agro-forestry-aquatic sector due to risks caused by natural calamities, which can upset their projects overnight. “Foreign investors are also complaining that rural infrastructure is too poor and obstructing their investment,” said Hung.
In search of remedies
Vietnam has set the target of mobilising VND144.79 trillion ($8.5 billion) for agricultural development in 2006-2010, of which FDI accounts for 11 per cent. However, Tan admitted that the goal would be difficult to attain and it was even difficult to attract domestic investors to agriculture.
MARD is drafting a 2009-2015 programme on attracting FDI in agriculture and rural development. The programme will be submitted to the government in early 2009. The programme, which involves the participation of many ministries, sectors and municipal and provincial people’s committees, will use attracted FDI for bio-technological development to create new high-quality varieties of trees, plants and domestic animals.
It will also aim to improve processing and post-harvest technologies, helping ensure food hygiene and safety and improve product competitiveness globally. “The government has committed to investing much more into the sector through its historical Programme on Rural, Agricultural and Farmer Development, which is expected to comprehensively change the nation’s agro-forestry-aquatic sector,” Tan said.
Tan said his ministry had recommended several measures to the government, including simplifying banking procedures, lowering taxes and preferential policies to make credit more accessible for agricultural projects.
Nguyen Van Toan, general secretary of the Vietnam’s Association of Foreign Invested Enterprises, said: “The sector should focus on enterprises having a long-term target because it takes years for them to begin earning profits. For example, it will need seven years for an investor to earn profits from his forest plantation project.”
Thus, he said the government needed to clearly stipulate the advantages of each area in order to coax investment.
nterprises would not be hurt by unexpected changes in land use programming which causes the loss of material growing areas. “For example, sugar manufacturer Bourbon Tay Ninh, a joint venture between Vietnam and France, was seriously influenced several years ago when a remarkable area of its sugar-cane materials faced a change in land use programming,” Toan said.
VietNamNet/VIR
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