Although registered foreign direct investment (FDI) reached a record high of US$20.3 billion in 2007, experts worry the fledging Vietnamese economy may not be able to make the most of it.

The 2007 FDI figure was “superb”, according to Phan Huu Thang, head of the Foreign Investment Department in the Ministry of Planning and Investment.

“We are witnessing an unprecedented influx of foreign investments,” Thang said.

The record figure, which surpassed a mere $12 billion in 2006, proved how positively foreign investors regard Vietnam’s investment environment, he said.

Another sign of foreign investors’ optimism is the 40 new FDI projects, valued at $50 billion, awaiting government approval, Thang said.

Thang said most of these projects were within categories the Vietnamese government particularly encouraged, such as: electricity and electrical part production, high technology, seaport construction, transport infrastructure; urban development, hotel and entertainment complex development, and steel and high-value manufacturing.

Big foreign corporations and multinational companies have also invested or shown keen interest in Vietnam.

Singapore-based infrastructure developer Ascendas Corporation, for instance, has recently teamed up with Protrade Vietnam to build a 500-hectare industrial park in Binh Duong Province.

Ascendas Director in Southeast Asia Ong Beng Kheong said Ascendas would explore opportunities in other provinces such as Dong Nai, Binh Phuoc, Long An or Bac Ninh.

In many provinces, experts say local authorities have improved the management of foreign investment projects since being given responsibility for licensing the projects in 2006.

Some provinces have rejected projects that are land- or labor-intensive, harmful to the environment or of low economic value.

Binh Duong, Dong Nai and Ba Ria-Vung Tau provinces, for instance, take great pains to review investment projects.

Binh Duong Department of Planning and Investment said it turned down hundreds of labor-intensive and environmentally-unfriendly projects last year.

Da Nang City has also recently rejected two projects, a steel plant and a pulp mill, worth a combined $2.5 billion.

In other provinces and cities, local authorities revoked licenses for projects for lengthy delays in starting work.

Unfounded optimism?

Despite its potential, experts say there is reason to fear Vietnam will be unable to absorb all the foreign direct investment that keeps pouring in.

Though it achieved a record high level of registered FDI last year, the actual FDI level was much lower, according to experts.

Only $4.6 billion (or 30 percent) of the registered $20.3 billion in FDI was actually spent.

In previous years, actual FDI rates were higher.

In 2006 40 percent of registered FDI was put into use.

“Slow FDI implementation is a major concern for Vietnam,” said Doctor Pham Dang Doanh, a leading FDI expert.

Inadequate infrastructure, human resource shortages and management problems were identified as major causes of slow implementation and ineffective use of FDI in Vietnam.

Foreign investors including Intel, Renesas, Foxcom, Compal and Cannon say they are plagued by a lack of qualified workers.

Most Vietnamese university graduates have to be retrained before being able to work in real-life environments, according to many investors.

Foreign investors said after months and even years of re-training, new employees were still likely to leave them for better positions and higher salaries in other companies.

“When investing in Vietnam, companies working in the fields of design and high tech like Renesas have nothing to worry about except for the fierce competition for qualified staff and workers,” said Renesas Vietnam’s Vice President Tran Ngoc Cang.

Doctor Doanh said despite its advantages, the decentralized management of FDI projects also posed major challenges.

“It is wise and time-saving to hand over the management of investment projects to whom they matter most: local authorities,” said Doanh.

“But local authorities may lack the skills and capacity needed to effectively process these projects, especially big ones.”

According to the Ministry of Planning and Investment, local authorities in Vietnam are yet to efficiently carry out pre-implementation work, such as clearing residential areas for their projects.

Another expert, Doctor Tran Dinh Thien, said besides attracting new investment projects, facilitating existing ones should be a priority.

“If Vietnam doesn’t offer timely help to investors with existing projects, it will soon lose its appeal as an investment destination,” he said.

Source: TBKTSG.