VCN - From the beginning of the year until now, the total number of projects as well as the amount of foreign direct investment (FDI) in the timber industry has increased rapidly, mainly from China. However, the quality of investment is not as expected, posing concerns that this is an "underground" investment, a "hidden" investment or trade fraud.
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Large amount but small investment
The research group of Forest Trends associations and organisations has just published the report "Foreign investment in Vietnam's timber industry: Updated until the end of September 2019". This report shows: FDI into the timber industry has increased rapidly, especially since 2018. Among the investing countries, China, Japan and South Korea are countries with large number of projects and large scale. In the first nine months of this year, the timber industry received 67 new investment projects with a total investment capital of more than $581 million (the number of projects equal to 2018 and equal to 216 percent of the capital) with an average capital size of about 3-5 million USD/project. Notably, the number of projects capitalized from 1-3 million USD/project accounted for the largest number (38.8 percent); followed by the number of projects with very small scale (less than $1 million/project), accounting for 22.4 percent of the total number of projects...
To Xuan Phuc, an expert from Forest Trend Organisation, said that China is currently the leading country in the list of countries investing in Vietnam's timber industry. In the first nine months of this year, the number of FDI projects from China newly invested in Vietnam was 40 (accounting for nearly 60 percent of the total number of investment projects); next on the list are Hong Kong (China) and South Korea. “Although China has a large number of FDI projects, the total investment capital of projects from this country only accounts for 23.5 percent of the total registered investment capital. Meanwhile, the projects from South Korea and Hong Kong (China) are small but the investment capital on each project is large,” To XuanPhuc analysed.
Recently, to expand production, a number of FDI enterprises operating in Vietnam have decided to increase investment capital. In the first nine months of this year, Hong Kong (China) is the territory with the most capital increase among the countries investing in Vietnam's wood industry, with 10 times of capital increase, more than three times higher than the number of times Increasing capital from enterprises of this territory in 2018. At the same time, China is the country with the second capital raising projects after Hong Kong, with eight times of capital increase, nearly the same number of the whole year of 2018.
Capital from China has been poured into Vietnam's timber industry, in fact, there have been certain effects, causing difficulties for domestic wood enterprises, typically in Binh Duong. Nguyen Liem, Vice Chairman of Binh Duong Wood Processing Association, said: Binh Duong is the "capital" for furniture export, accounting for approximately 50 percent of the country's wood export. Wood enterprises are quite large, including both FDI enterprises and Vietnamese timber enterprises. Normally, the annual timber enterprises of the province grow about 12-15 percent. This year, businesses try to boost exports, expand factories, the expected growth rate is about 18-20 percent.
However, currently in Binh Duong, many foreign enterprises, especially Chinese and Taiwanese enterprises (China), have shifted investment to Vietnam, causing competition with domestic enterprises. Currently, the cost of premises has increased from 1.5-2 USD/m2 to 3 USD/m2. Land prices also increased by 2.5-3 times, making it difficult for domestic enterprises to expand production areas.
“Due to the impact of the US-China trade war, the timber industry has many orders. Businesses that want to have orders of 100 million USD this year will be available immediately, but the capacity of enterprises has not yet met. Currently, most businesses want to develop and expand without land fund. In some cases, the new industrial park opened up to 5 million hectares but Taiwanese enterprises (China) came in and leased them all. Domestic enterprises have no land”, Liem emphasised. In addition to the issue of space, according to the Vice Chairman of Binh Duong Wood Processing Association, domestic timber enterprises also face human resource competition. There are companies that currently can't recruit workers. FDI enterprises often pay high salaries to attract manpower, but after stabilising, they lower the salary.
To Xuan Phuc worried that he suggested that the provincial authorities coordinate with the associations and the local business community to discuss and find solutions to solve tensions in competition for input materials and labour between the two sides.
Mechanisms to reduce risks from FDI investment are needed
The author of the report mentioned above: The wood industry is witnessing the expansion of FDI in all three types: new investment projects, projects to increase capital to expand production and contribute capital through the form of buy shares.
The important question, however, is whether the expansion of FDI in the sector will create any new risks for the industry and if so, how is the mechanism to control these risks?
According to To Xuan Phuc, there have been signs that FDI investment is showing some problems. The Politburo's Resolution 50/NQ-TW stated: "Transfer pricing”, "underground" investment, and "hidden" investment are becoming more and more sophisticated and on an increasing trend...". The Government has issued Decision No. 824/QD-TTg approving the project "Strengthening State management on evading trade remedies and origin fraud" also issued warnings about "the acts of evading trade defense measures, especially goods origin fraud".
According to Nguyen Liem, the Ministry of Planning and Investment should have a filter on capital sources and investment scale of FDI projects. The wood processing industry is competitive but must have selective FDI attraction with new technology.
Some experts have assessed that the wood industry needs effective policies and mechanisms to reduce risks in FDI. Governments implementing risk control in FDI may begin by reviewing all three types; Priority to review should focus on new, small-scale investment projects, especially 15 new investment projects in 2019, including many Chinese enterprises, with registered capital of less than $1 million/project. The review can also be extended to businesses with similar capital size, registered for investment in 2018.
“The government can then expand the review to enterprises with investment capital of $1-3 million/project, and some projects to increase capital, buy shares, focus on board production projects. The review should take into account the input aspects of the source and output of the product, fuel consumption and power consumption, labour use,” To Xuan Phuc proposed.
In the next step, the research team said that the Government needs to collect information about the status of "underground" investment and "hidden" investments. Local timber associations are one of the most important and effective information channels to gather information on these forms of investment to provide to management agencies. Through its members, associations can grasp the situation of foreign enterprises hiring equipment, factories and workers from domestic enterprises to produce export wood products. The Government needs to create a channel to directly connect with representatives of associations, in order to update information on the current state of investment, providing timely mechanisms and policies to minimise risks.
By Duc Quang/ HuuTuc