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Hidden cost of FDI
Recent events are revealing some drawbacks to industrialization
Foreign Direct investment (FDI) in Viet Nam has brought in much needed capital, helping to boost development and create jobs.
But now, some are seriously questioning the true value of a number of these projects in light of grave environmental violations and threats to resource sustainability.
For a developing country like Viet Nam, it is vitally necessary for the economic betterment of the country to seek FDI. The country attracted US$47.15 billion in registered FDI in the first eight months of this year, more than double the figure for all of 2007.
The questions are what factors are taken into consideration for project selection, and what associated costs are okay.
Both economists and environmentalists have argued that with FDI comes negative environmental effects, especially in a developing country like Viet Nam which has lower environmental standards. This could cause Viet Nam to be a haven for polluting factories and might arguably turn Viet Nam into a dumping ground of out-of-date technology.
This issue has become more critical as several serious cases of environmental destruction have recently been brought to light.
Shocking facts
The latest case of gross environmental violation to make the news was the monosodium-glutamate producer, Vedan, being charged with killing Thi Vai, one of the biggest rivers in the south of Viet Nam.
The Taiwanese-invested company, among other violations, allegedly released nearly 110,000 cu.m of post-fermentation molasses waste and other solid substances each month into the Thi Vai River over a 14-year period through a sophisticated underground pipeline.
These violations were reported to have helped the Taiwanese investor save $30 million per month, with the result that nearly 40km of Thi Vai River is now seriously polluted with 15km of river unable to sustain any form of life.
Vedan would face charges and large fines for its violations, said Minister of Natural Resources and Environment Pham Khoi Nguyen.
However, these consequences are likely to amount to no more than a slap of the hand, as fines will probably not be large enough to seriously affect Vedan’s profits.
Another recent well-known example comes from the case of Hyundai Vinashin Shipyard Co Ltd, a joint venture between South Korea’s Hyundai Group and the Viet Nam Shipbuilding Industry Corp (Vinashin), which has been operating in Viet Nam since 1999.
In late July authorities intercepted 5 trucks with 60 tonnes of toxic waste Hyundai Vinashin intended on illegally dumping. Authorities are currently investigating other potential dumping violations over the past two years. Environmentalists had suspected violations from the company were steadily increasing over the whole time of its operations.
This situation is not unique and is faced by most provinces and big cities. Local authorities most times know about potential risks to the environment from FDI projects, but still give the green light as the only important target has been the quantity of FDI capital.
Steel and golf
Before granting licences, the authorities should thoroughly examine FDI projects’ environment-protection plants, said Pham Chi Lan, former economic consultant to the Government.
"Recently, there are too many steel and golf projects granted licenses, and authorities seem not to have considered or measured carefully enough the effects of these projects on the economy or their bad impacts to the environment," Lan said.
Even the cleanest production process comes with environmental effects. This is especially true for steel production, which is linked to a large range of environmental impacts, such as air emissions from smelting, as well as water and soil contamination from wastewater containing heavy metals and arsenic.
No one knows exactly how much steel plants pollute the environment in Viet Nam, because no data about this have been available.
To make the pollution situation worse, many companies do not apply technologies they officially register, but instead use out-dated, sometimes even prohibited machines and technology, said an official from the Viet Nam Steel Association who asked to stay anonymous.
Golf courses are another type of increasingly popular FDI project in Viet Nam with great potential detriments to the environment.
The Ministry of Natural Sciences and Environment reports there are 123 current and pending golf course projects covering 38,445ha of land.
Lan said that regional Governments such as China, Thailand and others had started refusing golf course projects, because golf course construction and operation could have a significant impact on streams, causing alkalinity and high nitrogen concentrations.
In golf course construction, large tracts of land must be deforested which could lead to erosion and water contamination, reported Japanese environmentalist Gen Morita.
An 18-hole-golf course consumes 5,000 m3 of water everyday, equivalent to the water demand of 2,000 households, not to mention the costs with piping in the water.
With 123 golf course projects in Viet Nam, how much water would be used inefficiently and how much valuable forest would be cut-down?
To maintain golf turf, a large amount of fertilizer is used per ha, relatively speaking, more than used on farmland. Morita said many fertilizers applied to the course even contained cancer-causing elements.
A number of researchers have proven that golf courses also damage waterways through pesticides, nitrogen and phosphorus fertilizers.
In the midst of golf course project fever, Prime Minister Nguyen Tan Dung has ordered provinces to reassess license granting practices to ascertain if these projects are the best use of Vietnamese land.
Macro management
FDI projects seem to be concentrated in certain sectors and lacking in others.
Economists assert that this problem lies with who has the power to grant licences. Previously, FDI project licenses were granted by the State, but with efforts to decentralise authority, municipalities were given the right to grant investment licenses.
There are two key problems with the decentralisation of licensing authority, according to Nguyen Mai, a well-known economist. The first problem is that 63 cities and provinces are simultaneously able to grant foreign investment licences without co-ordinating or consulting with each other. Secondly, provinces and cities did not have enough time or capacity to evaluate a project for its potential local, national and investor interests.
The Government should only have given power to municipal authorities when authorities had proven to have sufficient capacity to make these decisions, said Mai.
Another shortcoming with the current system, according to Mai, is poor administration by national ministries due to difficulties in co-ordinating and controlling projects on a macro-level. Likewise, local authorities struggle to manage sectorial and regional relations. He said the Ministry of Industry and Trade should have a master plan for inter-sector and inter-area economic development.
In comparison, the Chinese Government only allows local authorities to grant investment licences for projects worth less than $30 million, otherwise authority remains at the national level.
Economic consultant Lan asserted that especially for 100 per cent foreign invested projects, authorities must know intimately what investors were doing. "Those investments are in Viet Nam’s territory and should be in compliance with local regulations," she said.
VNN
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