When localities compete to attract FDI

Commenting about the competition of local authorities to attract foreign direct investment (FDI), Tran Dinh Thien, Head of the Vietnam Economics Institute, noted that investors expect the improvements in the institutional environment more than the investment incentives.

What do you think about the current stiff competition among localities to attract FDI?

It is true that the competition has been going very fiercely since the decentralization in licensing was set up. There are many “motive powers” for the competition, because all the cities and provinces want to attract investment to develop their economies.

However, the stiff competition has brought some problems. Especially, a lot of projects licensed by local authorities have broken the national programming. So, a question has been raised that what should we do to both attract FDI and ensure the consistency of the national development program.

Another question which seeks an answer is that–is it necessary to find out for what to attract FDI, for short term or long term purposes? Short term proves to be the current tendency.

This explains why local authorities have been trying to offer best incentives in order to attract FDI most quickly. Meanwhile, as for investors, what they expect more is the reform in the business environment.

What are the consequences the stiff competition with overly high incentives can bring?

When localities lower the requirements, this means they devaluate themselves. The move can bring some short term benefits, including the increase in the local budget collection, or the higher job percentage.

However, the national economy will have to bear the consequences from the decisions by local authorities. The continued offering of incentives may lead in the fact that investors, especially big and long term ones, do not feel confident, and they may not enter Vietnam. As I said above, they expect the improvement in the business environment more.

Foreign investors now tend to negotiate directly with local authorities on the development of the projects. What would you say about that?

It is the right of investors to conduct negotiations. And I have to say that this way has been followed in the world. However, the most important thing is to ensure the harmonization between the benefits of investors and the national benefits. It would be a danger if the national benefits cannot be ensured, while the benefits fall to the hands of someone.

A lot of investors have asked for big investment incentives. Hyundai, for example, has asked for leasing 20 hectares of land at the Chu Lai Economic Zone for 70 years at one dollar. What would you say about this?

We should find the answers to the questions: What will Vietnam get if it agrees to offer such incentives? It is a rule: you need to pay this to get that. What technologies the investors plan to use in their projects? Will the investor lead satellite investors to Vietnam?

China also offers incentives, but it asks investors to clarify when they have to transfer technologies to Chinese partners, and asks the investors to let Chinese enterprises to get involved in the production.

Will the crisis in the world affect Vietnam’s FDI attraction and how?

It is true that big economies in the world are facing big difficulties. There is instability in the US economy. The European and Japanese economies are also facing difficulties. China is seeing high growth rate, but it also has a lot of problems.

However, I still believe that opportunities always exist. What Vietnam needs to do now is to create the best institutional environment to grab opportunities.

TBKTVN

Tags: invest in Vietnam, Vietnam FDI, Vietnam FDI 2011, Vietnam investment