Tiny foreign firms a cause of worry for HCMC
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The increasing investment of small sums in HCMC by foreign businesses is worrying experts.
In the first eight months this year 658 new FDI projects were licensed, but they only had a combined capital of $581.8 million, according to the General Statistics Office.
They include businesses investing just a few thousand dollars.
French consultancy J&P is capitalized at $3,000, computer consultancy Streamy from Ireland at $2,600 and another French firm, Evocom, at $2,200.
These firms are “too small” to benefit Vietnam’s economy but there are no regulations prohibiting them, Su Ngoc Anh, director of the HCMC Department of Planning and Investment said.
The city chairman, Nguyen Thanh Phong, had previously expressed concern about the entry of small foreign firms.
The average capital of a foreign project in HCMC is less than $1 million, too small to have an impact, he had told a recent conference.
“Why has the city not been able to attract bigger investment? What are the obstacles?”
Lack of land
One of the obstacles is the shortage of land, Dr Dinh The Hien of the Institute of Information and Economic Research (IIB) said.
The metropolis used to attract many foreign property businesses because of its abundance of land, he said.
“French consultancy J&P is capitalized at $3,000, computer consultancy Streamy from Ireland at $2,600 and another French firm, Evocom, at $2,200.”
But investing in real estate has been difficult in recent years due to challenges in finding land and completing legal procedures, he said.
Many foreign firms want to invest in the city but then move to the neighboring provinces of Binh Duong, Dong Nai and Long An which have more available land, he said.
So attracting FDI in infrastructure and technology should be the goal of the city now, he said.
Do Nhat Hoang, head of the Foreign Investment Agency, said the high land rentals are scaring investors away from the city.
Renting land for a factory in HCMC costs about $160 per square meter per year, but five kilometers away from the city, it drops to just $50-60, he said.
But he said the city should create favorable conditions even for businesses investing $2,000-3,000 so that can develop and invest further.
Singapore allows businesses to operate with $1 capital, he pointed out.
What is of greater significance is that Vietnamese firms would improve their services and capabilities when working with these foreign businesses, he said.
Over 54 percent of 1,765 foreign businesses in Vietnam reported profits last year, the lowest since 2012, according to a survey by the Vietnam Chamber of Commerce and Industry.
Almost 38 percent reported losses, 10.4 percentage points higher than in 2012.
Questions & Answers
Q.Why are experts concerned about foreign direct investment in HCMC?
Why are experts concerned about foreign direct investment in HCMC?
Experts are worried because licensed foreign projects in HCMC often involve very small sums, sometimes just a few thousand dollars. They believe these tiny firms are not substantial enough to truly benefit Vietnam's economy, despite the large number of new projects.
Q.What is identified as a major obstacle to attracting larger foreign investment in HCMC?
What is identified as a major obstacle to attracting larger foreign investment in HCMC?
A significant obstacle is the shortage of available land in HCMC, which used to attract property businesses. Also, high land rentals, costing around $160 per square metre per year, are reportedly deterring potential investors from the city.
Q.How does the investment market in HCMC compare to neighbouring provinces?
How does the investment market in HCMC compare to neighbouring provinces?
Many foreign firms intending to invest in HCMC eventually relocate to nearby provinces like Binh Duong, Dong Nai, and Long An. This is primarily because these provinces offer more available land and lower land rental costs, which are significantly cheaper.
Q.How has the profitability of foreign businesses in Vietnam changed recently?
How has the profitability of foreign businesses in Vietnam changed recently?
Last year, just over 54 percent of foreign businesses in Vietnam reported profits, which is the lowest figure since 2012. Concurrently, almost 38 percent reported losses, representing a 10.4 percentage point increase compared to 2012.