Development of Industrial Zones: Quantity and Quality

Development of Industrial Zones: Quantity and Quality

In 1997, the average capital amount per investment project in industrial zones (IZs) reached US$23 million. In 2003, this figure fell to US$3.4 million per project. Accordingly, the land use efficiency in 2003 stood at US$1.84 million per hectare as compared with nearly US$4 million per hectare in 1994. According to Mr. Tran Ngoc Hung, Deputy Director of the Industrial Zones-Export & Processing Zones Management Department, Ministry of Planning & Investment, the project investment capital and land use efficiency have seen a dramatic decrease over the recent years.

High quantity but low quality

According to Mr. Nguyen Dinh Quan, Director of Hai Phong Industrial Zone Management Bureau, the quality of IZ planning falls short of expectations mainly because of the slack management over both micro and macro planning. The Ministry of Planning and Investment should have studied and introduced standard IZ models in terms of scope, land area, infrastructure as well as geographical location as a basis for IZ planning at both local and central level. The phenomenon of "following the crowd" in IZ development in many localities has resulted in the growing number of IZs inversely proportional to the shrinking quality of investment performance. Many IZs have been built and then stood still due to lack of capital and non-attraction to potential investors; therefore, the coverage of investment projects in these IZs is fairly low. In building IZs, many localities have attached importance to infrastructure construction rather than investment attraction. As a result, a good number of IZs have been built for nothing. Moreover, infrastructure business companies, under the pressure of rapid capital return and high profits, have sought to obtain as many projects as possible without due attention to the business scope, line of business, workforce, land use efficiency and technological requirements of projects. This helps explain why Vietnam now has only 4 specialized IZs with the rest being multi-sectoral IZs greatly varied in terms of production methods, hygienic and environmental standards.

It should be noted that fierce and unhealthy competition is going on among localities and even within localities to win IZ building projects, which adversely affects the general investment environment. Many localities have reduced the land rental to a record low, even lower than the infrastructure building market price, and regard this as a competitive advantage. IZs in the Mekong River delta are leading in this competition with the land rental of US$0.6-0.9 per square meter per year while the average infrastructure investment capital amounts to US$14 per square meter. According to experts' assessment, this competition is really "wearing out" IZs' internal resources. Furthermore, administrative procedures pertaining to investment in IZs, though considerably improved, remain inadequate and irrelevant in some respects. When it comes to legal procedures for investment in IZs, investors have to knock on many doors yet struggle to find the way in.

In many cases, investors manage to obtain land-lease but they can't afford to get an access (road) to the leased land. Quite a lot investors have got land-lease contracts in IZs for 6-8 months but failed to operate business activities due to delayed land acquisition. In seeking compensation for land acquisition and the building of technical infrastructure within the boundaries of IZs, investors have encountered numerous difficulties.

Where is the way out?

According to Mr. Tran Ngoc Hung, the Ministry of Planning and Investment, together with the relevant Ministries and sectors, are considering a number of plans aimed at enhancing the performance of IZs and completing investment incentives in this connection. First and foremost, the planning will be improved with the close combination of planning for IZs with planning for urban areas, residential areas and related services. If the construction of IZs is delayed because of infrastructure investors' under-funded investment, the investors must be replaced. Recommendations will be submitted to the Prime Minister to withdraw the investment license of IZs without credible development prospects and then change the land use purposes.

Appropriate policies and measures will also be adopted to encourage and attract investment in the projects that promote the advantages of each locality as well as environmental-friendly, capital-intensive and technology-intensive projects. Mr. Hung stressed that these measures would certainly affect the objective of filling IZ areas with projects. But this objective should be preceded by the goal of ensuring the sustainable development of IZs.

• Lan Anh