What are FIEs doing in Dak Lak?

The only thing that the foreign invested enterprises (FIEs) in Dak Lak province, the “Vietnam’s coffee metropolis” are doing, is making corrupt use of the legal loopholes to try to control the coffee material growing areas.

For a long time, Vietnamese people firmly believed that foreign direct investment (FDI) was very necessary to help develop local industries, because foreign investors would bring profuse capital and modern technologies. However, in fact a lot of FIEs only aim to take advantage of the cheap labor force in Vietnam and exploit the materials in Vietnam, rather than making contribution to the development of Vietnam’s industries.

A lot of FIEs in Dak Lak province, for example, have only been focusing on exploiting Vietnam’s coffee areas. They have been only exporting unprocessed coffee which brings low added value, and clearly does not help Vietnam develop the industry, while the State fails to collect tax from them.

Big guys regularly report loss

The first coffee export FIE in Dak Lak is Dakman, which got the investment license from the Ministry of Planning and Investment in 1995. This is a joint venture between the British ED&FMAN VIETNAM HOLDING B.V and Vietnamese Simexco, which holds 66.4 and 33.6 percent of stakes, respectively.

The problem is that since 2008, the joint venture has continuously been reporting a loss, which means that it does not have to pay corporate income tax. And if it continues taking a loss, Dakman may become a 100 percent foreign owned enterprise – the thing that occurred with many other joint ventures, in which the foreign partners tried to oust the Vietnamese partners to become the only investor.

If this scenario occurs, Vietnam will not only lose capital, but also the advantages in geographical indication, clients and the brand.

With the appearance of a series of coffee FIEs, Vietnam’s coffee exports remain unprocessed products with low values.

Beside Dakman, there are seven more FIEs and FIE’s branches, including Nedcoffee, Ngon Company, the branch of VInh An Coffee Company, Armajaro’s branch, Olam’s branch, Neumann Gruppe’s branch and Louis Dreyfus Commodities’ branch.

The above said FIEs have been reportedly “dodging the laws”, scrambling for collecting coffee materials directly from farmers. Under the current regulations stipulated in the Decree 23, FIEs can only collect farm produce materials from domestic enterprises, while only domestic enterprises are allowed to collect materials directly from farmers.

However, in fact, FIEs have still been buying coffee from farmers, competing with domestic enterprises by paying higher for coffee. Neumann Gruppe and Olam branches, for example, reportedly collected 125.28 tons in 2009 and 226.6 tons in 2010 directly from farmers.

In fact, local authorities know well that FIEs are collecting materials directly from farmers, not through any Vietnamese companies, but they said they cannot do anything because the investment law does not prohibit foreign enterprises to collect goods directly from farmers.

Money does not flow to state budget

According to the Dak Lak provincial People’s Committee, in the 2010-2011 crop, FIEs purchased 180,000 tons of coffee materials, or 50 percent of the total coffee output in the province. Especially, the volume of coffee purchased by FIEs has been increasing very rapidly year after year with the purchase volume of the next year two or three times higher than that of the previous year.

Vinh An Company, for example, in 2009 bought 4029 tons, while the figure jumped to 14,018 tons in 2010. The figures of Armajaro were 7096 tons and 19,698 tons, respectively, while Olam bought 23,936 and 58,177 tons, respectively.

According to the Dak Lak provincial Department for Planning and Investment, the province encourages FIEs to process coffee materials to create valuable products for export. However, most of the processing factories of FIEs in the locality just simply collect, classify and then polish coffee beans for export. As such, the money does not go to the state budget.

Source: Lao dong

Tags: Vietnam companies, Vietnam enterprises