Economic Sector

Last updated: Tuesday, March 26, 2019


“Bottleneck” Hindering FDI in Agriculture

Posted: Wednesday, December 26, 2018

Despite being considered a driving force of the economy, Vietnam’s agricultural sector faces a “bottleneck” in attracting foreign investment.

Out of a total of about 7,600 agri-businesses, 89 per cent are non-state owned, 8 per cent belong to the state sector and only 3 per cent of FDI sector, said Dr Nguyen Dinh Cung, President of the Central Institute for Economic Management (CIEM).

The potential of Vietnam's agricultural sector is huge. Vietnam's agricultural exports are ranked second in Southeast Asia, 15th in the world and currently there are 10 groups of export items, each with a turnover of US$1 billion or more per year. Yet FDI investors are not interested in Vietnam’s agriculture.

Ms Duong Thi Trang, University of Finance - Business Administration, said that current capital inflows of FDI into the agriculture sector in Vietnam is very limited. In 2017, the agriculture, forestry and fishery sector are ranked 13th with US$0.163 billion, accounting for 0.49 per cent of total FDI. Up to now, the amount of FDI investment in the agriculture sector accounts for only one per cent of total FDI investment in Vietnam. There are more than 50 countries and territories investing in agriculture, forestry and fishery in Vietnam, in which Japan is the biggest investor.

Regarding restrictions on attracting FDI into agriculture in Vietnam, Ms Trang considered that there were some major limits, for example, preferential policies such as infrastructure support and human resource development which applied only for domestic small and medium enterprises and not for FDI enterprises. This led to the limited investment from the outside. The small size of farm land leading to difficulties in applying mechanisation and synchronous technology is also a constraint, besides the poor quality of human resources. Another significant difficulty is that administrative procedures are still cumbersome, and the connection of households and businesses is limited.

Regarding FDI investment in the aquaculture sector, which is considered the strength of Vietnam, Dr Nguyen Van Sanh, Mekong Delta Development Research Institute, Can Tho University said that so far there had been 70 FDI projects with more than US$310 million registered capital focusing on the sector of aquaculture, seafood processing, feeding and aquatic species. The small scale projects, on average with only US$4.4 million each, scattered in the provinces, have the strength in the potential of development of aquaculture.

According to Mr Sanh, FDI partners from 18 countries and one territory investing in aquaculture in Vietnam are mainly from small and medium companies in Asia including Korea, China, Japan and Taiwan, account for more than 70 per cent of total registered capital. These companies are operating according to the objectives and individual needs of each one, lacking of connection in the supply and production chain.

Thus, the problem of attracting FDI of good quality and large scale to create strength for the agricultural sector still needs to be solved.

As for the experience of Thailand, Dr Dang Kim Son, Policy Specialist for agriculture and rural development, said that being different from Vietnam, Thailand developed services for production to create competitiveness for available agriculture. The POSSE provides the exporter of fruits with customs clearance, certificates of origin, phytosanitary, hygiene, irradiation services, warehousing, packaging, market advice, laws on the spot. Agricultural product processing is a key priority sector that is encouraged by the policy of income tax, business tax, and profit tax exemption. FDI projects in agriculture are entitled to 50 per cent reduction of import tax on machinery and equipment. In particular, FDI projects investing in extremely difficult sectors which export products are exempted from corporate income tax for 5 years.

Lam Dong is currently the leading province of the country in attracting Japanese investors in agriculture. Dr Pham S, Vice Chairman of Lam Dong People's Committee said that Lam Dong now has about 1,500 enterprises investing in agriculture and rural areas. In addition to attracting domestic investment projects, attracting FDI projects is always be the priority of the province. So far, 77 foreign invested enterprises have been attracted with total capital of US$326 million.

Sharing the province’s experience, Dr Pham S pointed out that the province always closely implements Decision 575/QD-TTg dated May 4, 2015 approving the master plan for hi-tech agricultural regions up to 2020 with orientation to 2030 by the Prime Minister. The province has attached importance to building the agricultural product brand; so far the province has 20 products registered to establish intellectual property rights, particularly Lam Dong has built and developed the brand: “Da Lat - wonderful magic from the land” with the investment budget of about VND11 billion This is the highest value brand of agricultural products in Vietnam.
Thus, it can be seen that in addition to the policies of the Government, the proactiveness of localities is also an important factor in attracting FDI investment in agriculture.


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