Tight rein on local governments

Ministry of Planning and Investment’s (MPI) Foreign Investment Agency (FIA) figures indicated Vietnam’s registered foreign direct investment (FDI) capital has doubled on a year-on-year basis since 2006, which saw the new Investment Law came into effect.

Vietnam’s registered FDI capital in 2007 alone was reportedly a little higher than the result of $20.8 billion made during the 2001-2005 period. Meanwhile, FIA forecast that the nation’s registered sum could exceed $50 billion for the entire year of 2008.

MPI deputy minister Cao Viet Sinh did not hide his appreciation for decentralisation which streamlined power to local authorities to deal with both domestic and foreign investment activities. “Together with Vietnam’s levelled attractiveness to foreign community, the decentralisation move is straightforward and contribute to the nation’s drastic rise of FDI capital in the last few years,” Sinh said, adding that the MPI was considering decentralising the issuance of Vietnam’s outbound investment projects to local governments.

On the other side of the coin, concerns have been raised about whether local governments were abusing their power resulting in rampant issuance of new investment projects. Vietnam’s 144 golf-related projects, which have been licenced and given in-principal approval across the nation’s 39 cities and provinces, are an exemplified case.

Between July 2006 and June 2008, cities and provinces’ governments licenced 106 golf-related projects – three times more than the number of licences issued by the MPI for the previous 16 years, according to an inter-ministerial investigation findings.

The United Nations Conference on Trade and Development’s (UNCTAD) general secretary Supachai Panitchpakdi is concerned with the harmonisation of licenced FDI projects and the economy’s needs. “I have seen local authorities give out a lot of investment licences for all kinds of projects without keeping in mind their actual ‘absorption capacity’.

Vietnam should immediately need to think about national priorities for investment projects,” Panitchpakdi said.
“At the moment, for Vietnam, the amount [of FDI] is not important, but the quality of investment projects is the most important,” he added.

FIA figures reflected that despite a certain growing pace, Vietnam’s disbursed FDI capital remained at unsatisfied levels of $4.6 billion in 2006, $8 billion in 2007 and projected up to $12 billion in 2008.

“We [line ministries] will need close cooperation with local governments in accelerating the nation’s disbursed FDI amount rather than looking cities and provinces compete to draw as many new foreign investors as possible by using their streamlined power,” Sinh said, adding that a specialised workshop would soon be held to discuss the pros and cons of the decentralisation process.