Vietnam’s fdi disbursement pace remains weak due to low capital absorption: experts

Vietnam has a high volume of registered foreign direct investment (FDI) capital but the disbursement pace remains weak due to the country’s low capital absorbing capacity.

This is an irremediable problem of the Vietnamese economy because of two major reasons, experts said.

The first reason is that foreign invested enterprises (FIEs) registered to occupy their parts initially so the amount of pledged FDI is virtual figure. The second reason is the limited capacity in absorbing capital.

Vietnam Association of Foreign Invested Enterprises estimated that total FDI attraction of Vietnam in 2010 reached $216 billion while the actualized volume was only $77 billion, meaning that remaining $139 billion has not been disbursed. Meanwhile, 2011 actualized FDI till November also rose 1% year on year to $10.05 billion.

Factually, Vietnam’s economy recorded the great contribution of the investment capital source, particularly FIEs contributed over 25% of total social investment, accounted for 55% of total export turnover. Besides, FIEs transferred new technologies and created jobs for millions of employees.

However, experts said, the country’s capacity to absorb foreign capital is very low due to low management capacity. Many FDI projects could not be conducted because investors did not have capital for disbursement, which was attributed to the gap in managing, supervising, examining and appraising the capacity of authorities despite the government and Ministry of Planning and Investment were determined in tightening up the management over FIEs. Especially, in the recent past, many municipal governances had to revoke and cancel virtual FDI projects to re-arrange FDI investment.

Yet, Vietnam is facing difficulty in capital absorption. A representative of FIEs community said that the administrative procedures for foreign investment in Vietnam were very complex. Even after finalizing the complex procedures, the ground clearance phase is much more difficult. There were few billion-US dollar projects postponed because of ground clearance problems, for instance, Saigon Atlantic Hotel $4.1 billion project of Winvest Investment VN Co Ltd under US Winvest LLC Group in Ba Ria Vung Tau province or Guang Lian Steel project capitalized at $4.5 billion have not been started because investors have not received enough pledged land from Vietnam.

In fact, the improvements in administrative procedures, business environment and ground clearance have been done very slowly. In Tata steel project (Ha Tinh province), despite the joint venture with Tata group had accepted to advance around $30 million to pay for ground clearance because the project needs over 900 hectares, requiring to remove nearly 3,000 households in the location so the cost for compensation on ground clearance is estimated at 4 trillion dong.

Ha Tinh provincial budget could not afford to conduct the clearance whereas it is very hard to persuade the investor to advance more. Therefore, the $5 billion project remains idle after three years of making procedures. Representative of Tata steel maker said they might to move the capital to other country.

Furthermore, Vietnam’s disadvantages in attracting FDI are infrastructure, unqualified human resources and projection of support industries, FIEs pointed out.

Shinichi Iwana, Chairman of Japanese Enterprise Association in Da Nang said, in order to create conditions to boost FDI, Vietnam needs to focus on human resource training for saving time and training cost along with improving infrastructure and procedures. If being able to do these, Vietnam’s FDI disbursement pace will be more rapid and projects will be finished and operational early with attractive expansion opportunities.

Data shows that Vietnam’s capital absorption capacity seems to be harder, represented that the actualized volume in 2000 reached $2.2 billion, making up 90% of total pledged FDI capital but this plunged to 40% equaling to $4.1 billion, 30% or $4.5 billion only. Dr Le Dang Doanh assessed, the data indicated the inefficient disbursement of Vietnam.

Till November 20, 2011, total pledged FDI to Vietnam was $12.69 billion, equivalent with 84% of the same period of 2010. Processing and manufacturing industries led the FDI attraction with 382 projects with extra $6.24 billion (including both increased and newly granted capital), followed by electricity production and distribution with $2.53 billion. Hong Kong (China) was the biggest investor of Vietnam in the reporting period with $3.09 billion, Japan $2.12 billion and Singapore ranked the third with $1.58 billion.

Source Vietbi24

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