FDI into Agriculture Remains Modest

 

 

According to the Foreign Investment Agency under the Ministry of Planning and Investment (MPI), last year, Vietnam pulled in a total FDI capital of US$18 billion, a record high figure. However, the investment into the agriculture sector accounted for only 5.4 per cent of the country’s total FDI in the year. In the first five months of this year, Vietnam attracted a new record high FDI figure of US$15 billion in 324 projects, up four times on-year. The sharp increase was mainly thanks to big projects in the areas of office, hotel and apartment construction as well as tourism, but the agriculture sector still made up a small ratio. 

 

Statistic figures showed that during the five-month span, the agriculture sector lured 11 projects with an average capital scale of US$7.2 million, higher than the level of US$4.7 million in the same period of 2007, but much lower than the figure of US$45.4 million of projects licensed during the phase. Between January and May this year, foodstuff industry draw in 15 projects capitalised at more than US$153 million, up three folds on-year. However, the number is still small compared to the agro-forestry industry’s capital demand.

 

In addition, many FDI enterprises in the agriculture sector are operating ineffectively while lots of projects still see sluggish implementation, and do not use the pledged investment capital.

 

Besides, several projects have been revoked licenses due to different reasons, causing bad influences for Vietnamese investment environment.

 

 

According to a survey conducted by the Institute for Strategy and Policies on Agricultural and Rural Development (ISPARD), most of FDI firms investing in Vietnam’s agriculture sector are small and medium-sized with small capital. Their capital is mainly below US$2 million, even less than US$500,000. For instance, South Korea’s Shin Wall Ltd. Co. in Phuc Tho district, the former Ha Tay province has a total registered capital of US$160,000.

 

Companies with capital of from US$5 million account for just 18 per cent. Joint venture enterprises’ average capital scale is 1.81 times higher than wholly foreign-invested ones.

 

There is a great disparity in FDI company’s average capital between different areas of the agriculture sectors, with animal husbandry and animal feed processing having the highest capital of US$9.96 million in 2006 from US$7.99 million in 2003.

 

It is followed by farm produce business and processing with US$9.9 million in 2006 from US$3.25 million in 2003. Next is forestation and forest product production and processing with US$3.2 million in 2006 from US$1.4 million in 2003.

 

Doctor Le The Hoang from ISPARD, disbursed FDI capital in the agro-forestry sector remains very low compared to the registered capital.

 

Lai Chang An- Director of Truong Thai Ltd. Co. in Central Highlands Lam Dong province, said his firm pledged to invest US$1 million into Vietnam, but only spent US$570,000 in 2006.

 

Huang Cai Fang, Director of South Korea’s Nong Suc Truc Dien Ltd. Co. said his company committed to pour VND 8.08 billion in 2002, but the real disbursed figure was just VND 6 billion in 2005.

 

 

The modest FDI inflow into the agriculture sector is attributed to slow implementation of projects, said Nguyen Dinh Hung, an expert from IPSARD. Many foreign companies are still looking for consumption markets as well as selecting suitable technologies and several others cannot boost the disbursement due to low site clearance and complicated administrative procedures.

 

Hung said land granting is related to 15-20 procedures. Many investors have to negotiate with local residents while concerned agencies ignore this, causing the stagnant implementation of projects. He also added that enterprises often have to spend 1-2 years even, 3-4 years to have land for their projects. The cumbersome procedures also cause slow disbursement of many projects. For instance, TFB Vietnam Ltd. Co. applying for black dragon brown tea production and business in Ha Giang was granted licenses in 2004, but were not given land until 2007. This was not due to slow site clearance, but local people did not want to hand over the land to the state, meanwhile, concerned agencies ignored the case.

 

“The cumbersome, complicated and inconsistent procedures result in slow implementation of projects”, said Pham Minh Tri, personnel manager of Cargill Dong Nai Ltd. Co. said.

 

To attract more FDI into the agro-forestry sector, Hung said, the government should issue more incentive polices to boost the implementation of projects and lure big projects in less-attractive areas. Besides, it is necessary to improve administrative procedures to meet enterprises’ development. Localities should be more flexible in project appraisal to prevent time and money wastes for businesses.