Investment onus falls on Vietnam's private sector
HANOI - To double the country's gross domestic product (GDP) in the
period 2001-2010, an objective set by the recent 9th Party Congress,
investment estimated at 30 percent of gross domestic product will be
required, says Le Dang Doanh, head of the Central Institute of Economic
Management (CIEM) under the Ministry of Planning and Investment
(MPI).
However, as foreign investment flows remain relatively low, the needed
investment will mostly fall be on the domestic sector's shoulders,
including non-state enterprises, which are set to double their spending.
Economic experts estimate that to achieve the 6 percent GDP growth
last year, Vietnam had amassed development investment tantamount to
25-29 percent of GDP. Of the amount, foreign direct investment (FDI)
made up 15-18 percent (or 3-5 percent of GDP) and the rest was
attributed to the state budget, the state-owned sector, the domestic
private sector and investment credit.
During the 1990s, the state budget contributed an average investment
equivalent to 6 percent of GDP every year while the foreign-invested
sector poured in 9-10 percent and the private sector 7 percent of GDP.
In a World Bank report on Vietnam's development in 2001, it predicted
that FDI flows in Vietnam will slow down to 3-5 percent of GDP in the
next five years unless the country can prove the advantages of its
investment environment over those in other Association of Southeast
Asian Nation countries and its biggest economic rival, China.
Investment from the state budget is expected to stand at an average 6.5
percent of GDP per year in the period because the government is likely
to slate a huge funding for the reform of state-owned businesses and
banking sector. Spending of the state sector will then be minimal,
estimatedl at around 7 percent of GDP. That will leave the private sector
a heavy task of contributing 11-13 percent of GDP to the nation's
development investment, nearly double the current figure.
In the first four months of this year alone, some 5,000 businesses had
been established with a total registered capital of VND6,000 billion,
joining the powerful fleet of 14,400 businesses formed last year with a
combined investment of VND24,000 billion (roughly US$1.7 billion)
after the new Enterprise Law came into full effect. The growth is
expected to be even much bigger as macroeconomic strategies for
2001-05 focus on the development of a multisector economy,
encouraging investments from every economic sector.
Despite hindrances in investment, land allocation and even mistreatment
of some management organizations, Vietnam's non-state sector is
growing fast, posting a record industrial growth of 10 percent higher than
other economic sectors in the months to April. However, to maintain this
pace of development is not challenge-free. Lack of under-law legal
frameworks, restricted operation fields and different policy treatments
between state and non-state businesses have discouraged investment
from the public which is estimated of great potential.
Le proposed that the government grant more incentives to draw in more
private investment to diversify trades, products and services, improve
product quality and sharpen the private sector's competitive edge,
especially when the regional and international integration process has set
in.
According to MPI officials, major solutions to boost up the private
sector's investment include a fair treatment between state and non-state
businesses, an expansion of trade restriction and improvement of market
policies. The MPI will tailor amendments to the Law on Encouragement
of Domestic Investment to submit to the government for approval. The
move is set to ensure a leveled playground for businesses of all economic
sectors and encourage investment in development projects in remote and
poor rural areas.
Last year, 1,641 domestic investment projects were granted the
Investment Incentive Certificate with a total registered capital of VND25.
9 trillion. Of the amount, the State sector had 20.7 percent of the
projects and 32 percent of the investment value, leaving the rest to the
non-state sector. However, investment incentive policies still appeared
insufficient as it failed to drive investment flow in northern mountainous
provinces. According to the MPI, economic achievements resulted from
the implementation of the Law on Encouragement of Domestic
Investment were still way below potentials of economic sectors and
modest in response to the country's socio-economic development
demands.
To support private investors, Le made a suggestion that the government
expands the list of investment priority, cut or exempt land-use tax, apply
special corporate income tax for prioritized projects, increase investment
credit for private projects, further simplify administration procedures and
speed up the issuance of land-use right certificates for private investors.
He added that provincial and municipal People's Committees under the
central government should be authorized to license investment-prioritized
projects. According to Le, MPI, the Ministry of Finance and the Land
Administration should work closely to clear obstacles for investors and
prepare a shortened investment licensing procedure for announcement in
July.
Hanoi, meanwhile, had by May's end licensed 15 foreign-invested
projects capitalized at a total $98.8 million while the city approved 37
projects worth $51.6 million in the whole of last year, local officials
reported.
The largest project of all, valued at $76.7 million, is a wholly Japanese
investment in printing machines for export with an annual capacity of 7
million units. The Thang Long Industrial Park-based project, which is
under the city's special investment priority, was licensed in a record short
time of seven days.
Hanoi had by mid-May operated 376 FDI projects of nearly $7.5 billion
in combined capital, including 180 projects worth $1.3 billion in
industry-construction and another 194 worth $6.2 billion in
trading-service. Joint-ventures were the most favored investment form
with $5.7 billion and 221 projects while business cooperation contracts
registered a highest average investment of $44.5 million/project.
In addition, the Vietnamese government has decided to launch additional
incentives, especially in taxation, agricultural restructuring, import-export
and investment to push for the fulfillment of this year's socio-economic
goals.
Under its Resolution 5 of May 24, the government has decided to give a
farmland-use tax relief to poor farmer households which were defined
under Decision 1143 of November 1, 2000 of the Ministry of Labor,
War Invalids and Social Affairs [Molisa] and those under the National
program on Socio-Economic Development for the Most Difficult
Communes in Remote and Mountainous Areas, or program 135. The
government has also halved the land use tax for rice and coffee growers.
The government will also subsidize VND50 billion for farmers to acquire
plant and animal strains and increase investment for seed nurseries to
improve productivity and quality. It has instructed provincial
administrations to switch part of the rice-growing area in the Mekong
delta to other crops of higher profitability and having outlets.
Provincial authorities, especially those of coastal areas, are ordered to
zone off and develop aquaculture while coffee-growing areas are
directed to shift part of the Robusta coffee acreage to Arabica coffee
cultivation.
The government has assigned the Ministry of Agriculture and Rural
Development (MARD) to design projects on plant and animal
production and adopt incentives for rural craft development, to be
submitted to the Government in the third quarter. MARD is also working
with the MPI and Ministry of Finance (MOF) to submit for the
government approval the investment expansion scheme next month.
The government has given bonuses to businesses of all economic sectors
obtaining larger export earnings from rice, coffee, canned vegetables and
fruits and pork, apart from the current bonus mechanism governed by
Decision 195/1999/QQD-TTg.
The MOF has been appointed to work with the Ministry of Trade
(MOT), MPI, the Government Pricing Committee and other related
agencies to specify bonuses for each export item and make them public
next month. The bonuses are aimed at encouraging not only local
exporters but also diplomatic representative agencies overseas to seek
export outlets. An exclusive commission scheme for overseas diplomatic
agencies involved in the activity is to be outlined by the MOF in
collaboration with MOT.
The resolution regulates that investment allocation be strictly reviewed
and that allocation priority be put on projects slated for completion this
year and Official Development Assistance (ODA)-financed projects
lacking counterpart capital. The government has requested concerned
ministries to submit to the prime minister next month on investment
expansion plans for projects of the Poverty Reduction program, program
135, the program on Improvement of Irrigation Works and Rural Roads
and the program on Aquacultural Development.
The resolution sets interests on state lendings for investment and
development at 5.4 percent per year, effective as of June 1. A 3-percent
rate is fixed for borrowers under special preferential treatment.
The government has asked the MOF to work with the State Bank of
Vietnam to design a scheme on credit guaranty for small and medium
enterprises, to be submitted to the prime minister sometime this month.
The Asia Times - June 5, 2001.
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