Economic and Industrial Zones Ensuring Economic Benefits and Environmental Protection

10:25:01 AM | 19/11/2020

In the context of intensive integration and vibrant Industrial Revolution 4.0, Vietnam is supposed to innovate and restructure its industrial park model to catch up with global trends. Developing industrial parks must ensure harmonization of long-term interests, socioeconomic effect, environmental protection and sustainable development.

High occupancy rate but low investment rate

After more than 30 years of development, economic zones and industrial parks in Vietnam have become increasingly favored models to attract both domestic and foreign investment funds. According to statistics, by the end of June 2020, industrial parks and economic zones in the country attracted 9,835 foreign investment projects with a total registered capital of about US$197.8 billion, and 9,650 domestic investment projects with VND2,310 trillion (US$100 billion) of investment capital. The disbursed rate is about 46.3%.

According to the Ministry of Planning and Investment, as of the end of June 2020, Vietnam had 336 industrial parks covering 97,800 ha. They had good industrial infrastructure, warehousing and logistics services to meet investment and manufacturing needs of domestic and foreign investors. In addition, the country had 17 coastal economic zones with a total land and water surface area of more than 845,000 ha, with over 40,000 ha leased to tenants. Inside economic zones, there are 38 industrial parks with a total area of about 16,600 ha, including the rented area of nearly 10,000 ha. Among them, 20 industrial parks are operational, covering about 8,500 ha.

According to CBRE, the average occupancy rates of industrial parks in the major cities of the north and the south were more than 92% and 80% by the end of 2019, respectively.

In addition, over the past two years, the supply of ready-built factories has increased significantly in Vietnam's major industrial parks. As of 2019, the southern region of Vietnam (including Ho Chi Minh City, Binh Duong, Dong Nai and Long An) had about 380,500 square meters of ready-built factories, up 18.9% year on year. Meanwhile, the supply of the northern region (including Hanoi, Hai Phong, Bac Ninh, Hai Duong and Hung Yen) was 321,420 square meters, up 25.2% over 2018.

The above figures show the great magnetism of industrial parks and economic zones. However, the average investment rate of projects in industrial parks is only US$4.61 million per hectare of rentable industrial land. This rate already increased but it remained relatively low. In addition, the slow implementation of projects, slow land allocation or excess land lease area are quite common and harmful to investment efficiency.

According to the Ministry of Planning and Investment, the quality and effect of investment attraction in industrial parks and economic zones is still below development requirements; connectivity and cooperation of tenants inside and among industrial zones and economic zones is still weak. Localities and infrastructure investors still focus on “extensive” development: Attracting secondary investors, rather than focus on “intensive” development: Attracting investors by the sector that makes high added value, uses modern technology and ensures environmental protection. At present, there are only a few separate production cooperation models in industrial parks and economic zones, but they have little impact on local industrial production. Domestic companies find it hard to join the value chain led by FDI enterprises.

There are many reasons for this reality, one of which is Vietnam’s investment incentives and investment support policies in general, and those in industrial parks and economic zones in particular, are not effective enough to woo investment flows. Meanwhile, attracting investment flows in the new context is completely different. Vietnam is also looking to direct quality investment capital flows into Vietnam and catch those flows for its socioeconomic development goals.

Ready for a new investment wave

Many international investors are shifting their production chains to Vietnam, which have been heavily affected by the Covid-19 pandemic and world geopolitical factors.

Data from the Ministry of Planning and Investment shows that foreign investment attraction in the first 10 months of 2020 in Vietnam is still relatively positive, reaching US$23.4 billion, down 19.4% year on year. The realized capital was US$15.8 billion, down only 2.5% from the same period of 2019. This decline was much lower than in other countries in the region and in the world. Additionally, the newly registered capital decreased slightly by 9.1% year on year, while the investment fund added to existing projects reached US$5.7 billion, up 4.4%.

These positive signals are showing the confidence of foreign investors in Vietnam's investment environment. The good containment of the Covid-19 epidemic, together with efforts for a better investment environment and streamlined administrative procedures, have convinced foreign investors to see Vietnam as an attractive destination.

With advantages of abundant human resources, potential markets, competitive costs, attractive incentive policies, increasingly integrated economy and a favorable geographical position, Vietnam has become a potential destination for leading manufacturers in the world to place their production facilities, and those advantages have been actively promoted.

The preparation of industrial parks with full infrastructure, or with a competitive and stable rent rate for new investment waves is a matter of concern. Not merely preparing a clean land fund, Vietnam also needs to expand its specialized industrial parks and eco-industrial parks to meet investors’ needs.

Fully aware of this, the Ministry of Planning and Investment has been reviewing the land fund, training human resources, building action programs, promoting supporting industries, and connecting with major foreign investment projects.

The ministry is also summarizing 30 years of industrial and economic zone development in Vietnam to give strategic directions for upcoming development. It has proposed many contents related to new industrial park models to the Prime Minister, like planning industrial parks together with urban and service areas, eco-industrial parks in some localities.

In addition, Vietnam will build supporting industrial parks and specialized industrial parks for certain industries such as fundamental, strategic, competitive industries; prioritized supporting industries; Industrial Revolution 4.0; research and development (R&D); industrial zones/subdivisions for small and medium enterprises and innovative startups. It will pilot some industry clusters to form production networks and supply chains to join deeper into global value chains in some localities.

These contents will be put forth to the Prime Minister at the conference on 30 years of development of industrial parks and economic zones, scheduled for late 2020, and will be specified in the Government's Resolution on implementation of innovative solutions to improve the performance of industrial zones and economic zones in the coming period.

By Lan Anh, Vietnam Business Forum