Jan 25, 2013

Vietnam - Local authorities fight each other to scramble for foreign investors

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VietNamNet Bridge – All localities have geared up for the race to lure more foreign investors, especially when economists have predicted a new foreign direct investment wave heading for Vietnam.

The local authorities’ stiff competition

When Ninh Binh provincial leaders finished the investment promotion conference in late November 2012, they granted the investment registration certificate to a special project – Kyoei project, capitalized at VND3.9 trillion dong.

In fact, the project kicked off eight months prior to the event. However, the local authorities still decided to hold a ceremony on granting the license in a move to highlight the provincial achievements in promoting FDI to the locality.

In early 2012, Quang Ninh also once organized an investment trade promotion conference with the participation of nearly all the members of the government. Unlike Ninh Binh, Quang Ninh provincial authorities did not have any opportunities to grant investment license to any FDI projects on the occasion.

However, Quang Ninh reaped the fruits at the end of the year, when the FDI capital by the end of 2012 had reached $412 million, a 15 fold increase in comparison with 2011.

Ninh Binh and Quang Ninh are the two of the few localities in the north which organized big conferences in 2012 to promote FDI. Though the advantages of the two provinces lie in tourism, they also want to attract FDI projects in industries, like the ones which have brought big benefits to the neighboring Vinh Phuc province.

Vinh Phuc, when it was just split from Phu Tho province a decade ago, the province’s budget was very modest, about VND100 billion a year. Meanwhile, the figure jumped to VND14 trillion in 2011 and 12 trillion in 2012 thanks to the development of foreign invested industry projects, including Toyota’s and Honda’s.

Industry projects have also brought benefits to many other provinces, including Dong Nai and Binh Duong in the south, where foreign invested enterprises make up nearly 80 percent of the industrial production value. This is the thing other localities also strive for.

The competition among localities to attract FDI began in 2006, after the government started the decentralization mechanism, giving the power to license FDI projects to local authorities.

Attracting FDI has been written down in provinces’ resolutions as one of the most important tasks. In Thai Nguyen province, for example, steering committees have been set up just to pave the way for a big investment project.

Especially, the race has become so serious that 52 provinces and cities have offered overly high investment incentives which go beyond the frames stipulated by the Ministry of Finance, in order to attract more investment.

When asked if local authorities demand “under-the-table” fees when licensing FID projects, Minister of Planning and Investment Bui Quang Vinh said though he does not know exactly about this, he does not think the problem exist at a serious level.

Vinh said all the localities now compete to scramble for investors; therefore, they would not be foolish enough to demand underground fees from investors. Especially, some local authorities offered overly high incentives to attract investment, while they were not sure how the incentives would affect the provincial budget.

The leaders of Ha Tinh province, for example, have recently entreated help from the government, because it could not arrange the site clearance for the $5billion dollar steel project developed in Indian Tata Group.

The provincial authorities have to spend some $300 million for the site clearance to allocate 400 hectares of land to the investor. The local authorities asked Tata group to advance $300 million for the site clearance, which would be deducted later to the sums of tax Tata has to pay. However, Tata said it can only “lend” $50 million to the local authorities, which are in charge of the site clearance.


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