Attracting FDI crucial for Mekong Delta

By Dr. Phan Huu Thang Former director general of the Foreign Investment Agency under the Ministry of Planning and Investment

The Mekong Delta is a land with wealth in natural and human potential. Stretching over 40,000 square kilometres with a population of over 20 million, it is a key economic region in the south, as well as an important strategic area in terms of politics, economy, and the security of the whole country.

Current FDI not commensurate with potential

With many advantages in natural conditions, the Mekong Delta was expected to become a key economic region of the country. However, after 30 years of renovation, this area still has not had a strong breakthrough in attracting foreign investment.

In the first quarter of this year, the Mekong Delta region received 19 newly-registered projects, 22 added-capital projects and 16 deals of paid-in capital with a total registered capital of $250 million.

However, 10 of 13 localities in the region reported zero FDI, placing the region at the bottom of the ranking of economic regions in the country in terms of attracting overseas funding.

As of March, the region attracted 1,694 foreign-invested projects with the total accumulated capital of $35 billion, just followed by the Northern Mountainous and Central Highlands regions.

The ranking of registered capital is not the most important factor, and the real value of FDI to the host country’s economy is the quantity and quality of disbursed capital. Accordingly, I would like to review a few large-scale projects to evaluate the specific disbursement process of registered capital. From there, we can see a number of shortcomings of the state management on foreign-invested projects.

The first outstanding project is the $4 billion LNG Bac Lieu project invested by Delta Offshore Energy Pte., Ltd., which accounts for 90 per cent of the registered capital of the province.

According to the investor’s plans, the first phase of the project with a capacity of 800MW is expected to start operation in 2024 and is expected to be completed in 2027. However, today, the construction has yet to be implemented due to barriers, exceeding the authority of the province, thus having to wait for the opinion of ministries and government. For example, there is a barrier in terms of power purchase price. In the newly approved Power Development Plan VIII (PDP8), there is no power purchase price for new projects.

Another case is the Long An I&II thermal power plant projects in Can Gio district, which have the total registered investment capital of $3 billion. These projects were licensed in March 2021, but to date, they still lay motionless and the investors have yet to implement any investment procedures.

The O MON II thermal power plant project in Can Tho also has the same fate. The project was licensed in 2021, with a capacity of 1,050MW and a total registered investment capital amount of $1.3 billion, which accounts for 60 per cent of the total registered capital in the city. This plant's turbines are expected to take into commercial operation from 2026 to 2027. However, to date, the investors have just reached a compromise with state-run PetroVietnam on the gas purchase contract framework, and the other procedures are delayed compared to the initial process.

Along with the delay of mentioned foreign-invested projects, impacting the socioeconomic development of the region, the disbursement of many localities is still very modest. For example, in Can Tho, the city attracted 86 foreign-led projects with the total registered capital of $2.2 billion, but the disbursed capital was $569 million, equal to 26 per cent of the total registered capital. In addition, in Long An, by the end of the first quarter of 2023, the disbursed capital rate was less than 40 per cent of $10 billion for 1,171 registered projects.

Inadequacies

At the forum "Prospects of infrastructure construction investment - Economic Development of the Mekong Delta" organised by the Ministry of Construction together with Can Tho People's Committee on June 10, FDI was discussed. Many participants said there were still many obstacles in attracting FDI that need to be further evaluated.

Experts all agree that one of the reasons for the weakness in the disbursement of registered FDI in the Mekong Delta is the lack of close monitoring by state management agencies.

Post-licensing work for the remaining projects has been loosened. Ten of 13 localities are yet to entice any foreign-invested projects, due to a lack of formality in investment promotion activities. Besides this, localities do not provide enough information about projects as similar to the investor’s requirements, and they have yet to carefully study the demand of the market. Thus, the supply does not meet the demand.

The work of “on-site investment promotion” has not been focused. One important thing is that the stable and profitable production and business activities of existing companies are considered “swallows” to draw other “flocks of birds” to the region.

There are still delays and slow in approving administrative procedures related to licensing of all kinds of works from construction to the business of foreign-invested enterprises, despite many localities establishing a “one-window” mechanism. Many investors have to hire consulting firms to support them during the investment process.

Urgent solutions

The situation in the Mekong Delta is alarming and needs urgent solutions. Along with the potential of an agricultural production centre, the Mekong Delta also shows potential for industrial development, such as the aforementioned power projects, offshore and onshore wind power together with the ability to develop the agricultural and aquatic product processing industry for export, high-tech farming, as well as agriccltural and aquatic preservation.

Besides this, the region has an advantage in the development of waterway, and logistics transport with the basis for implementation is the country's road network development plan for the 2021-2030 period, under which 5,000km of expressways will be built by 2030.

These localities need to clearly define the list of transport infrastructure projects, which include roads, waterways, and wharves, to attract foreign-invested capital under the public-private partnership investment model. To encourage international investors, there should be specific commitments for each specific type of project. These works will contribute to quickly upgrading the hard infrastructure system of the Mekong Delta, so it can quickly reap the benefits.

Another important job is to focus on promoting foreign investment in training high-quality human resources for the Mekong Delta because it is apparent that the more high-quality human resources you have, the faster and more efficient development will be.

Finally, to draw FDI effectively, it is necessary to accelerate the completion of laws, mechanisms, and policies in a synchronous manner and improve the efficiency of state management, create conditions for foreign investors to develop infrastructure projects with diversified methods suitable for international practices and simultaneously learn lessons from the failure of implemented projects.