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The triumphs and pitfalls of decentralisation
Vietnam’s foreign direct investment management decentralisation policy has contributed to the attraction of a greater FDI inflow into the country since it took effect in 2007.
However, a dearth of master plans and capable local authorities is putting the policy under the question of whether it is harming the national sustainable development.
Time is the key to unblock FDI inflows into Vietnam. The country has witnessed a boom in FDI since 2007. Registered FDI capital increased dramatically from around $21 billion two years ago to nearly $80 billion in 2008. Despite the global financial crisis, the committed FDI in Vietnam so far this year still reaches around $10 billion, close to the $12 billion attracted in 2006.
The Foreign Investment Agency (FIA) under the Ministry of Planning and Investment (MPI) claims the greater FDI inflow is due partly to the adoption of the investment management decentralisation policy, which has shorten appraising and approving processes. FIA director Phan Huu Thang said if the government had not introduced the policy, Vietnam’s FDI attraction would not have seen such good results.
“A lot of FDI projects had to wait for a long time to obtain an investment licence before the full decentralisation took effect in 2007. The policy notably shortened the time it took to approve the investment applications of foreign investors,” said Thang.
Prior to 2007, the MPI was responsible for appraising and approving most FDI projects in Vietnam, particularly all investments capitalised at $40 million upwards and considered politically and socially sensitive.
It was really a big burden for the ministry’s concerning department, including the FIA.
“We did not have enough time or staff to deal with so many investment applications from foreign investors. A lot of the applications therefore got stuck for a long time,” Thang recalled.
Gavin Davidson, director of communications at the Asian Coast Development Company, said full decentralisation in investment management was a sound and suitable policy that he described as “the key to unlocking administration procedures” for foreign investors.
Last year, Asian Coast Development Company obtained an investment certificate for developing a $4 billion casino and resort on the Ho Tram Strip in southern Ba Ria-Vung Tau province.
Policy side effects
While full decentralisation reportedly helps improve Vietnam’s overall investment climate, the policy has ignited an unhealthy race between provinces in luring FDI. Vu Xuan Tien, general director of the investment consulting company VFAM Management JSC, said the race was resulting in severe problems. “Many provinces just want to lure FDI, but they don’t pay attention to investors’ abilities or the effectiveness of the projects,” said Tien.
A Central Institute for Economic Management (CIEM) report recently warned of the poor quality of FDI projects in Vietnam. The report indicated that provinces had granted investment certificates for too many ineffective and low-quality projects. Many investors have even not started construction on their projects despite having received investment certificates for years.
For example, a joint venture between Taiwan’s Tycoons Group and E-united Group has not started building its $1.8 billion steel-manufacturing project in Dung Quat Economic Zone, even though it received an investment certificate in 2007. A similar situation occurred at a $500 million steel manufacturing project in Ba Ria-Vung Tau province.
The mushrooming of golf course projects over the past three years, many of which were facing economists’ criticism and public protests, is cited as a consequence of the decentralisation policy. According to the FIA, roughly 154 golf courses have been licenced or approved in principle nationwide. Southern Long An province’s authorities alone granted investment certificates and agreement in principle for 13 golf course projects.
The province last year had to rip-up 10 golf course proposals due to public protests. Hanoi People’s Committee last week had to knock back 10 golf course projects. The CIEM’s report said that golf courses and other ineffective FDI projects were threatening the country’s food security, as they occupied large amounts of agricultural land.
Economists are also ringing alarm bells over the recent booming of steel manufacturing projects nationwide. Since 2007, many billion-dollar steel projects had obtained investment certificates. Earlier this year, the government had to put a temporary ban on the construction of new steel mills to end the nation’s reliance on foreign raw materials and to avoid a glut of products in the domestic market.
Phan Dang Tuat, head of the Industrial Policy and Strategy Institute, said the abundant steel projects could cause a severe shortage of energy and excess environmental pollution in the country. “I think many provinces just granted investment certificates without thinking about how they would impact on the economy,” Tuat said.
Lack of conditions
Nguyen Mai, chairman of Vietnam’s Association of Foreign Invested Enterprises, said that a full decentralisation policy needed more conditions to reflect its effectiveness. “Decentralisation is the right policy, but I feel the government has not prepared well enough conditions for implementing it,” said Mai. He said most provincial authorities in charge of appraising and licencing investment projects did not have the relevant ability or knowledge.
According to an MPI report, 4,241 investment projects had violated government regulations. The report said that the main cause for this was the weak abilities of provincial officials. Vo Thanh Hung, director of Can Tho Export Processing and Industrial Zones Authority, agreed that it would be hard for provincial officials to appraise FDI projects “because they do not have adequate knowledge”. “Provincial officials need to be properly trained before being granted the right to manage FDI projects,” said Hung.
However, the CIEM report said the main reason behind the approval of low quality and inefficient FDI projects was the lack of detailed guidance for the implementation of development master plans for each region and for each business sector.
Under the Investment Law, one of the investment appraisal criteria is the project’s suitability to the master plans of land usage, construction and natural resources exploitation. “We have master plans for the economic development of each region, which explains why a province like Long An agreed to the construction of 13 golf courses,” he said. But he said there would not be an abundance of golf courses, steel manufacturers or even poor quality FDI projects if ministries detailed the master plans.
Time to review
The FIA has announced it is investigating the implementation of the decentralisation policy to find out what could be continued and what could be curbed. “Each policy needs time to review how it work and now is the time to review the full decentralisation policy,” said Thang. He revealed that the government could limit decentralisation if the quality of FDI projects could not be improved.
VietNamNet, VIR
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