The Foreign Investment Agency under the Ministry of Planning and Investment (MPI) is conducting a survey on the outcome of the implementation of the decentralisation mechanism in investment.

The survey has not been finished yet, but it is clear already that local authorities, who are given more power, prove to be very dynamic in attracting foreign direct investment to their localities. An official from MPI, a member of the survey team, said that there seemed to be competition among localities in investment attraction.

In the first quarter of 2007, Vietnam successfully attracted US$2.5 billion worth of foreign direct investment (FDI) and had US$1 billion worth of capital disbursed. Some 20 other investment projects are being negotiated.

In Hanoi, Malaysia’s Gamuda group plans to inject US$1 billion in a hotel and high-grade apartment project. Japan’s Riviera will build and develop a five-star hotel worth more than US$500 million. The UK’s Pacific Land Limited plans to develop Nam Thang Long Biological Park, capitalised at US$1 billion.

In the northern province of Vinh Phuc, Taiwan’s Compell is moving ahead with its plan to pour US$500 million in a project on electronics production, while Korean investors are seeking permission to build a horse track.

Taiwan’s Foxconn plans to spend US$5 billion to build two high-tech cities in Bac Ninh and Bac Giang provinces in the north with the initial capital for the first phase of US$1 billion Sumitomo plans to inject US$3.5-4 billion in Van Phong economic zone to build a 2,640 MW thermo plant and two international transit seaports.

Worries raised by decentralisation mechanism

Since the decentralisation mechanism came into operation, officials at MPI find it hard to compile statistics about investment projects. In the past, when MPI had the right to approve big projects and local authorities made periodic reports, it did not take much time to collect and classify figures. However, the situation is different now, and it will take time for reports on investment to come in from local authorities

However, the biggest concern does not lie in the difficulty in compiling statistics, but in the possible overlapping in investment promotion.

As every location has the right to take initiative in promoting investment, it is possible that many Vietnamese will promote investment in one market which will cause overlapping and waste in investment promotion.

An official from MPI said that as all localities are rivals in attracting investment, they will ignore the common investment master plan.

The official recounted the story about sugar cane growing area development several years ago, when every location tried to develop its sugar cane growing area, leading to the oversupply of material for sugar processing plants.

He said that steel projects are being licenced in many localities. Chu Lai and Dung Quat Economic Zones all have licenced steel mills. There are also two big steel projects in Vung Tau province and others in Dong Nai province. Steel mills exist in many provinces as provincial authorities all have the right to licence steel projects, but too many steel projects may spoil the master plan on the steel industry and local economic development.

Officials from the Ministry of Trade have also reminded local authorities to refer to the WTO commitments and consult relevant agencies when licencing projects. For example, under WTO commitments, Vietnam will have to open the retail market to foreigners. However, foreigners must get approval from state management authorities to open second distribution points. If local authorities, who are trying to attract investment, give preferences to foreign investors, they could kill domestic production and business.

Excessive investment incentives given by local authorities in an effort to attract more investment once gave the Government and central management authorities a terrible headache. Experts fear that the lesson will repeat itself when local authorities, empowered by the decentralisation mechanism, try to lure more investment, ignoring the national benefit.

Source: VietnamNet