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The Ministry of Planning and Investment (MPI) is searching for the best scenarios for the country’s foreign direct investments (FDI), on the back of international analysts’ predictions that a rebound could be postponed until 2011.

During this process, a slow down of licenced foreign-invested projects and a growing rivalry for drawing new capital are critical concerns for economic planners. The MPI’s FDI planners are scratching their heads over the long list of foreign-invested projects facing the axe. Also projects, each of which has billions of dollars in registered investment capital, are hitting the wall as a result of either investors’ financial inabilities or market losses due to the continued global financial crisis.

Vietnam’s biggest FDI project, the $9.8 billion Ca Na steel-making facility, is now on the rocks and the government of southern Ninh Thuan province, where the project is located, has given investors an ultimatum to get developing or get out.

Nguyen Chi Dung, chairman of Ninh Thuan People’s Committee, said it was waiting for the investors’ pledge to keep to its investment plans, otherwise the project’s investment certificate would be revoked.
The Ca Na steel-making facility, to have an annual capacity of 14 million tonnes of products, is being jointly developed by Malaysia’s Lion Group and Vietnam’s state-run Vinashin, received an investment certificate in September last year and broke ground for construction two months later. Under the joint venture’s initial development plan, the project was scheduled to finished in 2010.

Dung said Vinashin had paid VND84 billion ($4.7 million) for site clearance while Lion Group, the 70 per cent stakeholder, had done nothing to develop the project. Figures showed that the Ca Na project alone made up a major slice of Ninh Thuan’s registered FDI, amounting to $9.99 billion from 23 licenced projects by August, 20 this year. “The loss of such a large-scale project will be a great loss for the province. Last year, when the project was licenced, it lifted Ninh Thuan into one of the year’s best FDI locations,” said Dung.

Nguyen Duc Minh, director of northern Thai Nguyen Planning and Investment Department, shared the blues since its two largest FDI projects, $147 million Nuiphaovica mining venture and the $100 million Xuong Rong Lake property complex, are now both on the edge of bankruptcy.
Meanwhile, Minh said the local government had been unable to find eligible investors to replace Japan’s Intra Group in the province’s latter ill-fated FDI project amid the ongoing global economic downturn. Malaysia-based Intra Group confessed that the crisis had hit its pockets hard, and so it could not keep going with the project.

Licenced in January of 2007, Intra Group aimed to turn Thai Nguyen City’s Xuong Rong Lake and surroundings into a highly-furnished tourism area with high quality services and public facilities, including villas, bungalows, semi-detached houses, a shopping complex, apartment and condominium blocks, an office block and a four-star hotel.

“Without the Nuiphavica and Xuong Rong projects and without the presence of new FDI, we are upset to see Thai Nguyen drop among the country’s lowest FDI localities,” said Minh.

Gloomy figures

MPI deputy minister Nguyen Bich Dat said that the list of delayed FDI projects was longer because foreign investors tended to shelve investment plans to wait for the global economy to recover. Other significantly slowed FDI projects were the $7.9 billion Formosa steel and port complex, which hit bumps in land clearance, the $6.2 billion Nghi Son oil refinery and the $3.77 billion Long Son petrochemical complex, both of which were affected by the crisis, the $1.2 billion Thu Thiem Software Park and $550 million STX ship-building yard, whose investors were no longer capable of keeping up with the projects.

Dat admitted that with slow disbursement of licenced projects, a sharp decline in new FDI funds since the beginning of this year had caused a double-blow to FDI planners. The MPI’s FDI reports for the first eight months of this year, released last week, indicated Vietnam’s newly registered and expanded FDI funds between January and August had fallen 82 per year-on-year, to stay around $10.4 billion.

According to MPI reports, the nation’s new FDI fund had recently decreased on a monthly basis, with newly registered capital of $2.2 billion in June down to $1.7 billion in July and just $300 million in August.
“While all of the nation’s FDI hotspots like Hanoi, Bac Ninh, Vinh Phuc, Ho Chi Minh City, Dong Nai, Binh Duong and Ba Ria-Vung Tau are feeling the pinch of the capital downturn, in less popular FDI localities, the pictures are extremely gloomy,” said the MPI’s report.

Declining FDI funds across the country have resulted in worsening capital inflows in the country’s industrial parks, with a reported 40 per cent drop to a registered amount of $1.6 billion for the first half of the year.
The MPI’s Department for Economic Zones Management made an alarming report that industrial parks of at least 20 provinces in the country did not receive any new FDI licences in the first seven months of this year.
“We must be realistic, and know that the remaining months of this year and even the whole of next year will be very difficult in regards to FDI. To fit the situation, should we refresh our investment incentives to catch the attention of new investors who are searching for investment opportunities ahead of the economic recovery?” asked Tran Hong Ky, head of the department.

External competition

The World Investment Prospects Survey 2009-2011, released by the United Nations Conference on Trade and Development (UNCTAD), found that the global crisis would probably lead to a “decrease-then-rebound” pattern - a short decline in FDI expenditures in 2009, followed by recovery in 2010 and rebound in 2011.

“One of the major reasons for an expected recovery in FDI in 2010-2011, after its decline in 2009, is that respondent companies intend to pursue their strategy of internationalisation, albeit at a slower pace.”
“For the developing countries for which FDI is an important source of external financing, the major challenge is to improve their local business environment in order to enhance their attractiveness for transnational companies,” the report stated.

As far as the international predictions for a future FDI rebound were concerned, Dat said that neighbouring countries for new FDI funds had grown. “We have heard that neighbouring countries were trying to lure investors that have had large-scale investment projects licenced in Vietnam, by providing the investors with much better incentives. I’m afraid that these investors, like the world’s leading IT contractors Compal and Foxconn, will tend to delay their project implementations in Vietnam,” Dat told participants at a recent MPI meeting to discuss the nation’s FDI scenarios for 2009 and 2010.

In 2007, Compal Electronics, the globe’s second largest contract laptop PC maker, received an investment certificate to build a $500 million facility in northern Vietnam with a monthly production output of 500,000 laptops.

Two years ago, Foxconn announced that it would pump more than $5 billion into Vietnam within the next five years to make it one of its largest manufacturing bases in the world. Although UNCTAD’s 2009-2011 survey ranked Vietnam among one of the top 15 most FDI-friendly countries in the world, the nation’s ranking fell to number 11 from its sixth position in the 2008-2011 survey.

Some solutions

Taking both internal and external factors into account, the MPI planners’ initial forecasts aimed to see the country’s registered FDI funds across 2009 at around $20 billion, a sharp decline of 70 per cent in comparison with last year’s figures. At the same time, the nation will be able to reach $9-$10 billion in disbursed FDI capital – an equal amount to 2008.

Meanwhile, the earlier scenarios of Vietnam’s FDI attraction next year may see a 10 per cent growth on this year’s projections of both registered and disbursed funds. “We are still very cautious to see these forecasts while waiting for localities to report their actual situations,” said Dat, adding that cities and provinces had been asked to immediately make reports on the implementation and licencing of their FDI projects.

“The MPI is also strengthening FDI investigation tours to cities and provinces to ensure that any difficulties with any specific projects will be timely resolved,” he added. The MPI was also now urging relevant agencies and local governments to stick with six remedy packages to be implemented until the end of next year in order to lift FDI inflows in cities and provinces.

The packages were introduced in government resolution No13/NQ-CP issued in April this year, which aims to give priority to enhanced investment policies, improved infrastructure networks and labour skills and increased dialogues with foreign business communities.

Approved measures also included transparent announcements of land-use plans and industrial development strategies at both national and local levels, timely introductions of the nation’s wish-list of strategic foreign-invested projects and positive changes in investment promotional activities.

Among these measures, better coordination between central and local governments in FDI licencing and management would also be vital. Despite all these challenges, the MPI has been upbeat that Vietnam’s strategy to draw FDI funds between 2006 and 2010 will still be within reach. Between 2006 and June of this year, disbursed FDI funds were reported at $28.7 billion, or 92.8 per cent of the five year plan.

Source: Vietnam Investment Review