Streamlining the foreign direct investment (FDI) approval process is a crucial step in driving the development of the Mekong Delta, a vital economic region in southern Vietnam with untapped potential. However, what is impeding FDI inflows into the region?
Unlocking the Mekong Delta’s potential
With its vast natural resources and population of over 20 million, the Mekong Delta holds significant economic, political, and cultural importance in Vietnam. The region spans an area of 40,577 square kilometers and accounts for 60% of rice production, 40% of fisheries, and serves as a major source of labor for the south-eastern region and HCMC.
Yet, despite its natural advantages, the Mekong Delta has struggled to attract significant FDI after 30 years of renovation (doi moi).
Challenges in FDI attraction
In the first quarter of this year, the Mekong Delta saw 19 new FDI projects, 22 operational FDI projects with capital increases, and 16 deals for capital contributions and share acquisitions by foreign investors, totaling over US$250 million. However, it is worth noting that 10 out of 13 provinces in the region failed to attract any FDI projects.
By the first quarter of 2023, the Mekong Delta had attracted a total of 1,694 FDI projects with registered capital nearing US$35 billion, placing it only above the northern mountainous region and the Central Highlands in terms of FDI.
Sluggish disbursement and post-licensing issues
The actual FDI activity lies not only in the registered capital but also in the realization of investments and their impact on the regional economy. However, the disbursement of FDI capital in the Mekong Delta has been modest, highlighting post-licensing shortcomings in the management of FDI projects.
For instance, the Bac Lieu gas-fired power plant project, with a capacity of 3,200MW and total capital of VND93.6 trillion (nearly US$4 billion), accounts for 90% of the total FDI in the province. Despite being licensed in 2020, the project has faced delays due to procedures under the jurisdiction of ministries and central bodies, such as planning and electricity pricing.
Similar challenges have been observed in other projects such as Long An 1 and Long An 2 power plants with total capital of US$3 billion, and O Mon 2 thermal power plant in Can Tho City with an investment of US$1.3 billion. These projects have faced delays in investment procedures and are behind schedule.
In addition to these capital-intensive projects, the disbursement of FDI capital in the Mekong Delta remains low. For example, Can Tho has attracted 86 FDI projects with total registered capital of US$2.2 billion, but the disbursed capital is only 26%. Similarly, Long An Province has attracted over 1,171 FDI projects with total capital of over US$10 billion, but less than 40% of this amount has been disbursed.
Identifying solutions
The issue of FDI attraction was recently discussed at the “Prospect for infrastructure development and economic growth in the Mekong Delta” forum held on June 10 in Can Tho. Experts at the forum highlighted several obstacles that need to be addressed to smoothen the flow of FDI.
One key aspect is providing better support for FDI projects, particularly larger-scale ones, by state management agencies. Currently, there is a lack of attention and support, which has led to obstacles and project delays.
Efforts should also be made to improve investment promotion activities, meet potential investors’ demand for accurate information on projects, conduct thorough market research, and enhance on-site investment promotion. The latter involves providing favorable conditions for existing investors to carry out their investment and business activities, which can be an effective investment promotion strategy.
Moreover, the lengthy licensing procedures during the construction, production, and business processes of FDI enterprises need to be streamlined. Although some localities have implemented the one-door system, which receives and returns files, further coordination among agencies is necessary to expedite the consideration and resolution of issues. Relying on “backyard” consulting firms should not be the norm as it can create a negative impression and hinder future investments.
Proposed solutions
In addition to being an agricultural production hub, the Mekong Delta possesses significant potential for industrial development, including offshore wind power production, processing of agricultural and fishery products, and high-tech farming and preservation. However, addressing difficulties for investors is crucial to fully harness this potential.
The Government is currently investing in transport development projects in the Mekong Delta, based on the Road Network Plan for 2021-2030 with a vision to 2050. This presents an opportunity to attract more private sector investment, including FDI, in infrastructure and logistics. To achieve this, a list of infrastructure projects suitable for public-private partnership (PPP) with concrete commitments should be determined.
Prioritizing the training of high-quality human resources is another crucial step. The region needs to address the lack of skilled workers, as this is a major deterrent for investors.
Lastly, there is a need to expedite the improvement of legislation, mechanisms, and policies to create a more synchronized and efficient investment environment. Lessons should be learned from successful investment projects that have been implemented and are currently underway.
(*) Former head of the Foreign Investment Agency
Source: The SaigonTimes