Attracting Investment Projects into IPs: Flexible Financial Support Needed

Mr Nguyen Xuan Chinh, Head of Hanoi Industrial and Export Processing Zones Authority, said the capital city has eight fully occupied IPs and is building 8 new ones.

 

According to recent surveys, the construction of industrial zones in Hanoi and other big cities is facing numerous difficulties because the cost for land compensation and site clearance is too high, roughly five times higher than the rate applicable to agricultural land as stipulated in Government Decree 69/2009/ND-CP. High prices of land compensation lead to high rates of infrastructure rents, thus weakening the attractiveness of industrial parks to investors.

 

Besides, Article 16 of Decree 29/2008/ND-CP dated March 14, 2008 specifies that industrial parks are preferential investment locations enjoying preference policies applicable to locations of economic difficulties. But, the Law on Corporate Income Tax provides that industrial parks are not locations of socioeconomic difficulties to enjoy corporate income tax breaks. This contradiction inhibits investors from building industrial park infrastructure and locating production facilities in industrial parks.

This is not to mention improper capital contribution mechanisms applied to industrial parks. Dr Vu Khoa, President of the Vietnam Construction Contractors Association, said that according to the law, IP infrastructure investors must have their own capital for at least 20 percent of the total investment capital for their projects. However, in reality, some investors rely on financial leasing companies or borrow very short term loans to prove their financial capacity. The reality of their poor financial situation only comes to light when their projects are underway. This fact weighs down the interest of financially capable investors to spend their money in industrial parks in Vietnam.

 

So, to create fresh momentum for attracting investment capital into industrial zones at the present time is not easy and requires more attractive financial support strategies for businesses.

 

Mr Nguyen Xuan Chinh said under the current context, the Government should consider incentive policies to support industrial zone infrastructure investment projects, for instance providing soft loans, supporting relocation and resettlement for affected people to lower investment cost and lower rent rates. Mr Nguyen Tran Nam, President of the Vietnam Real Estate Association, analysed that by using securitisation plans for industrial zone infrastructure projects, the Provincial People’s Committee will issue convertible bonds to investors to attract their capital and then use this source of funds to carry the projects. Once the projects are completed, the Provincial People’s Committee will temporarily hand over infrastructure to joint stock companies set up by holders of convertible bonds. Investors receive preferential coupon rates since they purchase the bonds at negotiated rates. After the handover, these joint stock companies will operate infrastructure, attract investment and take a margin for a given period of time agreed with the People’s Committee. After this time, the joint stock companies will hand back the infrastructure to the Provincial People’s Committee to operate and use.

 

Moreover, industry-based capital attraction strategy will facilitate the development of target industries and the exploitation of local strengths in association with the development of public services, not just separate business supports. Financial and human resources in support of this strategy must be maintained over a relatively long period to ensure the formation of strategic industrial groups. These sectors should tap local strengths.

 

Mr Nguyen Manh Ha, Director of Housing and Real Estate Market Management Department under the Ministry of Construction, pointed out that this principle should be also applied to financial support plans for enterprises rather than just SMEs as before. Vietnam should be willing to provide financial supports for large corporations to attract their technologies, not merely their projects. Financial supports for businesses will be coordinated with regional and national development planning, Ha noted.

Urban or residential zones should be built in proximity to projects covering more than 50 ha. Compensation costs and land rentals should be carefully calculated to fix proper rates for the purpose of industrialisation and modernisation, and to ensure actual preferences for secondary investors rather than profits for infrastructure developers from land leasing. This requires the flexibility and astuteness of State management agencies in using financial supports for industrial parks.