More than a few industrial zones stand empty

Industrial zones (IZ) symbolize the modernization and industrialization process in Vietnam. Many are succesful, filled with companies churning out export goods. However, many others have failed to attract investors. VietNamNet Bridge excerpts a long article from Tuoi Tre.

The marketing director of a big IZ in Binh Duong province has been to Japan, South Korea, Taiwan and then to Europe in the last few months, calling on companies thinking of setting up operations in Vietnam. “In the global economic crisis, all investors have had to reconsider their investment decisions,” he said. “We must seek out potential investors. That wasn’t necessary in the past – they hired consultants for that sort of thing. Now we’ve found that we must persuade them to make an investment, and update information for them.”

A marketing officer of an IZ in HCM City hunts for information about workshops and conferences for potential investors, opportunities to persuade such investors to consider building a factory in his IZ. No investor has come to his IZ since the beginning of the year.

In the last six months, the twelve IZs and export processing zones in HCM City have succeeded in landing only twelve new tenants.

In Ba Ria-Vung Tau province, southeast of HCMC, of twelve operational IZs in the province, only one IZ is fully occupied. Three have no tenants, while others remain half empty. In the first six months of 2010, only nine new projects – five foreign-invested and four domestic-invested projects – were licensed in Ba Ria-Vung Tau.

In Dong Nai province, on the eastern edge of the southern metropolis, 55 hectares of land have been leased so far this year. That’s not much, but it’s three times as much as in the first half of 2009.

On Vietnam’s central coast, many billions of dong have been invested in IZ development. More than 50 percent remain incomplete, with only partial infrastructure.

Pham Viet Hung, Head of the Da Nang IZ and EPZ Management Board, said that five the city’s six IZs remain incomplete. They cover an area of 1170 hectares.

In the last six months, the Danang City IZs have landed ten new tenants, eight of them domestic. The licenses of three other projects were revoked because of the slow implementation.

A Ministry of Planning and Investment inspection tour to nine provinces in the Central Highlands to check seventeen IZs there, using some 3000 hectares of prime land, found out that only ten were operational, with an average occupancy ratio of 70 percent.

Some investors leaving

Truong Tu Phuong, developer of the Dai An IZ in Hai Duong province, said she has witnessed investors leaving for other countries. It’s because many investment incentives have been removed, she says. The provisions of a new regulation, Decree 69, and higher tax rates have made the land leasing fee in Vietnam higher than some other countries.

Foxconn, the big Taiwanese electronics group, once said that it would invest five billion dollars in five years. However, it lost interest in Vietnam after it inspected Tan Phu Trung IZ in HCM City. The leaders of the group could see with their own eyes the rough, pot-holed road linking the IZ to ports and airports.

A big US energy group came recently to HCM City to survey the market and find a suitable place to set up its factory. However, HCM City has not found a 70 hectare plot that meets the investor’s specifications.

The marketing officer of an IZ in Quang Ninh province said that local labor shortages are causing some South Korean investors to reconsider their investment plan in his IZ, though the two sides signed a memorandum of understanding last year.

Meanwhile, Dang Thanh Tam, President of the Saigon Investment Group, predicts that only 20 percent of IZs will be consistently profitable. He anticipates a strong wave of merger and acquisition will result.

IZs must evolve or perish

Experts from the Centre for Economic and Policy Research (VEPR), a unit of Hanoi National University, the main reason so many IZs stand empty is that Vietnam has licenced too many cookie-cutter IZs.

“Vietnam needs to follow a new way of thinking in developing IZs. They should be centers of modern management technologies, organised to produce goods for a modern and globalised market economy,” the experts argue.

VEPR says the most serious problem of Vietnam’s IZs is the weak connection between domestic and foreign enterprises. VEPR said that though the enterprises want to cooperate with each other, supply-chain organization and support capabilities are underdeveloped. Talking to press agencies, leaders from Intel Vietnam frankly said that it will take another fifteen years for domestic enterprises to develop fully as supplementary suppliers in Intel’s value chain.

VEPR warns that Vietnam may see more investors leaving if it does not implement comprehensive policies to build up the relations between domestic and foreign enterprises.-Tuoi tre

Tags: Vietnam industrial zones