Vietnam's IZs and EPZs in 15 Years: Quick Successes but Numerous Weaknesses

Boosting economic development
Since the first EPZ was set up in 1991 (15 years ago), the appearance of urban zones and the industrial sector has been significantly improved. Fallow and uncultivated land have been gradually replaced IZs and EPZs where modern infrastructure and factories are built. The formation of IZs and EPZs has considerably contributed to the development of the Vietnamese economy.

The exploitation of land potential and other resources has enriched the nation. The efficiency of land use for industrial development is clearly proven. For example, a hectare of agricultural land only needs 4-5 labourers while this area in IZs or EPZs creates jobs for 80-100 people. Additionally, the formation of IZs and EPZs also improves living standards of nearby people and boosts the opening of new residential areas. As of April 2006, Vietnam had 135 IZs and EPZs with a combined area of 27,748 ha, including a leasing area of 18,615 ha. Most provinces and cities have IZs and EPZs with the Phu My I Industrial Park (Ba Ria-Vung Tau) being the largest with 945 ha and Binh Duong IZ (Binh Duong) being the smallest with 17 ha. A total of 81 IZs and EPZs, covering 17,705 ha, are in operation, including a leasing industrial area of 12,024 ha. At present, the occupancy rate reaches some 73 per cent. As many as 54 IZs are under developement.

 

As of April 2006, IZs and EPZs housed 2,400 domestic projects with a total registered capital of nearly VND116,000 billion (US$7.25 billion) and 2,200 FDI projects with a combined registered capital of US$17.7 billion. With this amount of investment capital, IZs and EPZs have affirmed its important roles in speeding up the industrialisation, modernisation and international economic integration. The total industrial production value by enterprises in operational IZs and EPZs was US$14 billion in 2005, equalling 28 per cent of Vietnam’s total industrial output value. IZs and EPZs reported an aggregate export turnover of US$6 billion, equivalent to 19 per cent of the country’s total. They paid US$650 million to the State Budget and employed 860,000 workers and created indirect jobs for over one million labourers. A hectare of agricultural land generates some VND10 million (US$625) while a hectare of land in IZs and EPZs produces VND30 billion (US$1.88 million). In 2005, the industrial production value of eight provinces in the Southern Focal Economic Zone where locates best-performing IZs and EPZs accounted for half of the country’s total industrial output revenues. Ho Chi Minh City, Binh Duong, Dong Nai and Ba Ria-Vung Tau alone contributed up to 95 per cent of industrial production value in the Southern Focal Economic Zone. The pervasive influences of IZs and EPZs have provided practical lessons in management and technology from modern and internationally standardised projects. IZs and EPZs have also hurried domestic enterprises to renovate to improve product quality and sharpen competitiveness. The construction of concentrated IZs and EPZs has also created favourable conditions for the development of material areas. Notably, the IZs and EPZs have had strong effects on administrative reforms.

 

As many as 12 industrial parks covering nearly 2,000 ha have not filled half of their lease areas although they were built before 1998. Dai Tu Industrial Park and Daewoo Hanel Industrial Park, both in Hanoi, are able to rent 5 ha, or 3 per cent of the total 200 ha. The unused land has caused huge economical losses. Several localities lack far-reaching strategies in building industrial zones. Many IZs needed expanding after several of operations or even some had to be removed to other area as it located on densely populated areas. Many IZs were chasing their occupancy target and did not pay due attention to selecting suitable industries or fields for the localities. Hence, the link between projects inside “general” IZs is very weak.

 

One of the most pressing matters is that IZs and EPZs failed to meet environment standards. On average, IZs and EPZs emit some 30,000 tonnes of solid, liquid, gas and toxic waste a day. Nonetheless, no IZ and EPZ has built concentrated waste treatment facilities and only some have wastewater treatment plants. The collection and transportation of waste is only carried out by individual factories. The community is exposed to environmental catastrophes from IZs and EPZs.

Accommodation for workers in IZs and EPZs is also a serious problem. A majority of workers in IZs and EPZs are living in rented inns while the lodging is insufficient for all workers. Overcrowded inns do not ensure standard living conditions for tenants. A large majority of enterprises pay undue attention to building houses for their workers because the investment is big but the capital recovery is long. Binh Duong Province has created the most favourable conditions for enterprises building houses for workers but only 15 per cent of workers in the province are living in enterprise houses. To cope with this burning issue, local governments should introduce incentive policies to encourage all economic sectors to build houses for the labourers.

 

The implementation of labour policies and laws is too lax and formalistic. Labour contracts are not fully observed. Salary scales or sheets rely on workloads of employees. More seriously, the salary gap between managers and workers is increasingly widened but the salary level of workers is nearly kept unchanged. This is the core reason for the large number of recent strikes and go-slows.

 

One of the most important objectives of developing IZs and EPZs is to create nucleus for the formation of modern urban zones. Hence, the infrastructure system of IZs and EPZs must be built modernly and synchronously. A further streamlined administrative procedure is needed to facilitate the licensing process. Finally, localities must have policies to train labour forces for IZs and EPZs.

 

The more quickly IZs and EPZs are developed, the more slowly rural and agricultural development and modernisation are made. In spite of attracting a large sum of finances and high quality human resources, IZs and EPZs have little products or activities directly supporting the development of agriculture and rural areas. This can be seen at the widening gap in growth between the industrial and agricultural sector. Industrial growth can treble or quadruple that of agricultural sector.

Currently, IZs and EPZs are still quite hasty in attracting investment; therefore, many localities have introduced their own investment incentive policies although they are against the higher regulations. Consequently, the State suffered tax loses while the land fund is improperly used. Worse still, many localities built IZs and EPZs before asking for permissions, causing an unattractive investment environment.

The current organisation and management mechanism of IZ and EPZ authorities needs improving in the direction of decentralisation to ensure the one-door policy. The proposed decentralisation will allow IZ and EPZ authorities to grant investment licences for projects with single values of up to US$40 million and introduce certain investment incentives. The authorities will be permitted to grant working licences for foreigners in IZs or exporting certificates for enterprises to provided countries.

Initially, the formation of IZs and EPZs was separated from urban development. In fact, the relationship between IZs and EPZs and urban zones is very close. Many cities are constituted from industrial development, including Thai Nguyen and Viet Tri. Many rural areas have turned into densely urban zones like District 7 and Tan Binh District of Ho Chi Minh City after Tan Thuan EPZ and Tan Tao Industrial Park developed. Hence, once outlining the development of IZs and EPZs, the relationship between them and residential areas and infrastructure systems should be taken into account. At the same time, the relationship between working places and living places of labourers should be settled to reduce travelling costs, avoid traffic congestions and protect the environment.