Free trade zone becomes lever for FDI attraction in Danang

July 10, 2024 | 15:00
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The central city of Danang will have opportunities to draw in more investment following approval to establish a free trade zone, with pilot preferential mechanisms to woo high-tech projects.

With the approval of 93 per cent of deputies, the National Assembly (NA) two weeks ago green-lit the plan to establish a free trade zone (FTZ) in Danang in connection with Lien Chieu Port, with the aim of promoting investment attraction, finance, trade, tourism, and high-quality services.

Free trade zone becomes lever for FDI attraction in Danang
The central city of Danang is set to host the nation’s first-ever free trade zone

The FTZ will include three functional areas covering production, port logistics, and trade services, and will have a defined geographic boundary.

The zone will offer investment incentives similar to an economic zone, such as corporate income tax (CIT) incentives and land rental fee exemptions/reductions, along with other benefits. Detailed plans for investment and infrastructure development for the FTZ’s functional areas will be decentralised to Danang People’s Committee.

“Establishing an FTZ is necessary to work in the context Vietnam participates in over 15 FTZs but has none in the country itself. Building FTZs has been an expectation of both state management agencies and the business community for several years,” said Phan Huu Thang, former director of the Foreign Investment Agency under the Ministry of Planning and Investment.

Minister of Planning and Investment Nguyen Chi Dung said, “The FTZ is an urgent requirement in the context of the strict competition in attracting foreign investment capital on the globe and in the region. If the investment environment is not good enough, the investors will invest in other countries immediately.”

The minister referred to the specific example of the success of a pilot FTZ in Shanghai. The Chinese zone was established in 2013 and served as a model that was later successfully duplicated throughout the country.

“Thanks to the breakthrough policy in reforming the administrative producers, US carmaker Tesla took only 11 months to take its $2 billion factory into operation there. Another investor also took 68 days to build a shopping mall. Danang needs to have a mechanism to carry out such breakthrough activities,” said Minister Dung.

“The Ministry of Planning and Investment is drafting resolutions on specific mechanisms for six economic regions of the country. The prime minister also assigned the ministry to review the policies of 10 localities with specific preferential policies to replicate effective models in other provinces,” he added.

Many NA deputies have also agreed that Vietnam has better conditions to develop FTZs with a long coastline and plans to boast more than 30 international seaports. This is a favourable point for Danang to pilot such projects, which can then be implemented in localities with similar characteristics such as Haiphong, Thanh Hoa, Quang Ngai, Can Tho, Tra Vinh, Ho Chi Minh City, and many others.

“Although the preferential policy has been approved, it will not be simple to create a breakthrough in foreign investment to localities, and Danang in particular. Incentives applied for FTZs are similar to those offered for economic zones, such as CIT, and decrease and exemption of land rent fees,” Thang said.

Thus, the localities must consider this policy as an added tool to contribute to improving the competition capacity along with the effort to reform the administrative procedures and improve the skilled labour force, among others.

“In addition, many foreign investors want to fund green and high-tech industrial parks, thus Danang should pay attention to this factor when completing the detailed mechanisms to entice effective investment capital,” Thang added.

Outwith Danang, Ba Ria-Vung Tau People’s Committee previously laid out plans to develop an FTZ associated with the Cai Mep Ha seaport system. However, the plans have yet to be implemented due to complexities in the infrastructure network.

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