Danger of FDI backfiring
01-SEP-2008 Intellasia | Saigon Times Daily page 2
Sep 1, 2008 - 7:00:00 AM
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It is like cold water pouring down on the country's success in attracting foreign direct investment (FDI), when the local media has over the past days run stories warning against the steep surge in FDI flow. Several high-profile experts and economists have voiced their concerns that complacency and overly enthusiasm in attracting foreign funds may do more harm than good to the economy. And the warnings have good reasons at that.
It is the historic success -the way top officials in charge of FDI put it-when the country has in the year to date attracted as much as US$4 7 billion of pledged FDI. The final amount for the year is seen to easily beat the landmark US$50 billion, higher than the accumulative FDI amount for the three or four-years earlier. Much of the amount is committed to the real estate sector.
So what?
Phan Htlu Thang, general director of the Foreign Investment Department under the Ministry of Planning and Investment, emphasizes that there should be no worries upon the upsurge in the FDI flow into the real estate sector, as the country still runs short of real estate supply, according to Tien Phong.
His superior, minister of Planning and Investment Vo Hong Phuc, reassures that the worries over the FDI flow into real estate and tourism are not well-grounded. "Foreign investment is still much needed in a time like now," he is quoted by Nguoi Lao Dong as saying.
Both top officials in charge of FDI say that the huge amount of foreign investment proves the high confidence that the international business community holds of Vietnam. "The amount ascertains the fact that international investors continue to choose Vietnam as the destination to do business," says Phan Huu Thang.
The success, however, fails to convince several top economists, who have repeatedly expressed worries when looking at the FDI breakdown.
Le Dang Doanh, an outspoken economist formerly attached to the Ministry of Planning and Investment, says "the FDI flow into the realty sector in recent times fails to address radical socio-economic issues of the country," according to Nguoi Lao Dong. Doanh reasons that most of these projects do not create jobs for the people, nor promote technology transfer or export earnings.
Tran Du Lich, head of the HCM City Economics Institute, is worried that HCM City's infrastructure will become overloaded when new real estate projects by foreign investors are implemented or put to use. "The city's urban scenery will be problematic in the future," he says on Nguoi Lao Dong.
In a more critical tone, the economist Pham Chi Lan bluntly says there are many FDI projects that need to be rejected, says VietnamNet.
Lan, the ex-vice chair of the Vietnam Chamber of Commerce and Industry, says in an article authored by herself on VietnamNet that the lack of harmonisation and coordination in attracting FDI will result in a huge burden to the local economy.
. She cites numerous projects that the country should refuse, ranging from those polluting the environment or using too much local natural resource with little, export value to those occupying large areas of land or dependent on cheap labour.
If such projects are licensed, "it's possible that we will have to pour out huge investment on ourselves to create resources to cater to such projects," she writes.
In an interview with Lao Dong, Lan says that before an FDI project is licensed, the host country should look at the overall benefits that the project will create.
She especially blasts the upsurge in foreign-invested real estate projects, including large-scale tourism projects.
"Any economy will have to rely on productive sectors such as manufacturing, construction, agriculture, trading and service... If we continue to license projects of this type, sooner or later the entire master plan (on socio-economic development) will become defaulted," she raises the concern.
In fact, FDI into the real estate sector so far has accounted for half of the total pledged capital, while foreign funds into agriculture made up a mere 0.5%, says Nguoi Lao Dong.
Nguyen Mai, also a top specialist on FDI, shares the concern over the attraction of FDI in recent times. As1provincial authorities have been delegated the power to license FDI projects, there has arisen a trend of provinces competing with one another to lure foreign investors, giving licenses without looking at the whole picture on FDI in the country, according to him.
"Provinces have been authorised by the government in licensing FOI projects, but ministries from the macro-economic level have not been able to control the entire situation," he says on Sai Gon Tiep Thi.
Phan Huu Thang, head of the FOI agency under the Ministry of Planning and Investment, admits that there have been projects licensed hastily without properly taking into consideration such factors as impact on the environment and damage to the master plan on overall socio-economic development.
"However, such hiccups are merely phenomenal," he says on Tien Phong.
The Ministry of Planning and Investment is dispatching working groups to localities across the country to look into the situation of FDI attraction, promote central-local coordination, and sort out problems if any. Time will tell whether the upsurge in FDI flow will backfire as per warnings from senior economists and experts, or the dangers are unreal. However, such warnings are worthwhile in that there should be no place for complacency in FDI attraction.
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