The Vietnamese industry will need some 900,000 billion (US$56.25 billion) for development in the 2006-2010 period, accounting 42 per cent of the total social demand and increasing 83 per cent compared with the 2001-2005 period, according to the Ministry of Industry. This is a huge capital volume and it accounts for 23.2 per cent of the aggregate social investment capital. The question is how to seek sufficient investment capital for the industry?
To seek the capital, according to Industry Minister Hoang Trung Hai, the industry is speeding up the creation of a good investment environment as well as the introduction of suitable policies to lure capital from both domestic sources and foreign countries.
Domestic sources:
Hai said the biggest difficulty is that the State Budget is able to meet utmost 7 per cent of the demand. Ten years ago, enterprises principally relied on State Budget to increase investment capital and ignored to widen capital mobilisation channels. However, from 2001-2005 when the enterprise equitisation was expanded, enterprises and production industries were more aware of seeking investment capital for their expansion.
In the fields of industry and construction, the total disbursed capital in the past five years was some VND530,000 billion (US$33.13 billion), accounting for over 44 per cent of the total social investment capital. The investment capital output rate (ICOR) – the profit ratio over the progressive capital increase – was 2.6 in 2005 compared with 3.7 in 2001.
According to the Ministry of Industry, to realise the objectives set until 2010, Vietnam must focus on selective spearhead industries like coal, mineral, electricity, steel, mechanics, oil and gas. These strong industries have poured investment into many projects in order to raise production capacity and renew technologies and equipment to sharpen the competitive edge of their products and take more initiative in the integration procession without the fear of the capital shortage.
Oil and gas industry: This industry will mobilise VND200,000 billion (US$12.5 billion) from related enterprises (profits collected from joint ventures, depreciation capital and share issue) and banks.
Electricity industry: Each year, this industry receives thousands of projects worth some VND20,000-25,000 billion (US$1.25-1.56 billion). In the next five years, the power sector needs VND350,000 billion (US$21.88 billion) investment capital mobilised from independent power producers (IPP), build-operate-transfer ventures (30 per cent), basic depreciation capital (36 per cent), ODA (21 per cent) and share issue (7 per cent). Besides, the project share issuance, the equitisation of power plants and the capital from non-state sectors are also important sources.
Mineral exploitation and metallurgy industry: The capital demand for these industry can be easily seen at recent investment projects like the over-US$3-billion Ha Tinh Mine Exploitation and Metallurgy Complex with an annual capacity of 4.5 million tonnes, the VND1,900-billion (US$118.75 million) Phu My Cold Steel Laminating Factory and the VND3,250-billion (US$203.15 million) Phu My Steel Mill. To provide capital for these projects, foreign investors should be allowed to invest in larger proportion.
Mechanical industry: The State should handle this industry because the investment capital recovery takes a long period of time while the investment is huge.
Consumption and food industry: To improve the efficiency of domestic mineral use and the protection of the environment, the Vietnam Garment and Textile Corp. has concentrated its investment capital on textile and dyeing projects in Khanh Hoi, Pho Noi and other industrial zones, waste treatment projects and relocation of textile enterprises out of major cities.
Foreign sources:
Half of the 94 focal national projects needed foreign capital proposed by the Ministry of Planning and Investment belongs to the industrial sector. Most of industrial projects are related to iron, steel and nonferrous metal, mechanical engineering, chemical, petrochemical, construction material, high tech and electronics, aiming to increase capital sources, renew technologies, heighten management capacity and sharpen competitiveness.
In recent years, foreign investment plays a significant role in developing Vietnam’s industrial sector in particular and its socio-economic field as a whole. Foreign investment was allowed in more than 67 per cent of the total projects, nearly 60 per cent of registered capital and 35 per cent of the production value of the industrial sector. Many new and important industries took shape and developed from foreign investment sources, such as oil and gas, automobile, motorbike industries. Many industries recorded fast growths and huge export revenues thanks to the penetration of foreign investors, including mechanics, steel and light industry (garment, textile, leather, footwear, beverage, tobacco, paper and plastics).
Fertiliser and chemical industries are the most foreign capital-wanted with such major projects as the US$156 million Dinh Vu-Haiphong project, the US$220 million soda-chloride project, the US$89 million soda project with an annual output of 200,000 tonnes, US$180 million auto tyre project with a yearly capacity of 2-3 million sets.
Measures to capital increase:
To increase the capital sources, Mr. Hai said, the Ministry of Industry will, first, tighten supervision and examination over corruption and wastefulness in order to restore public confidence when contributing their money to the projects. Then, the ministry will diversify foreign capital attraction modes and create the most favourable conditions for foreign-invested projects to operate effectively. Every industry must build and announce the FDI-calling project list. Specific industries like banking, insurance and aviation must clearly stipulate the investment percentage limit to a suitable level. Further, any restriction and discrimination between domestic and foreign investment must be totally removed.
To increase the capital sources, Mr. Hai said, the Ministry of Industry will, first, tighten supervision and examination over corruption and wastefulness in order to restore public confidence when contributing their money to the projects. Then, the ministry will diversify foreign capital attraction modes and create the most favourable conditions for foreign-invested projects to operate effectively. Every industry must build and announce the FDI-calling project list. Specific industries like banking, insurance and aviation must clearly stipulate the investment percentage limit to a suitable level. Further, any restriction and discrimination between domestic and foreign investment must be totally removed.
As to small and medium enterprises and enterprises in difficult areas, it is necessary to introduce stable investment incentive policies related to site clearance, land and capital approach. The ministry also encourages the investment size expansion, technological renewal and diversification of investment objectives.
Hai analysed that all markets, including capital and real estate markets, are developing; hence, this is the best time to strengthen the link between the producers and investors.
To widen foreign capital inflows into the country, the Vietnamese Government has frequently supplemented, changed and issued many attractive regulations and policies. Especially, the Common Investment Law, which took effect from July 1, 2006, will help perfect the legal system, create more easiness and equality among all economic sectors in Vietnam. On the other hand, national treatment (NT) and the most favoured nation (MFN) statuses must generate domino effects: the old investors will pull new ones.
Huong Ly
Vietnamese
