Monday, August 20, 2007

Foreign investors not keen on Vietnam’s agriculture


VNECONOMY updated: 20/08/2007


Vietnam has attracted US$63.7 billion of registered capital from foreign investors and $30 billion has been disbursed; only $3.78 billion (5.6% of the total) and $1.9 billion are the respective figures for agriculture.

The lack of a long-term FDI drawing strategy, poor rural infrastructure, low labour skills, high risks are still big barriers preventing foreign investors from accessing Vietnam’s agricultural sector.

Unattractive agriculture

The country currently has 758 foreign-invested projects in agriculture, which bring the annual turnover of around $312 million, including over $100 million from exports.

However, experts have said that investments in this sector have to face many latent risks from weather, market, low profit, and dependence on the growing periods of plants and animals.

As a result, foreign investors focus their money on projects that allow them to quickly recover their investment, such as producing animal feed and processing agricultural products instead of developing bio-technology in agriculture, creating new plant varieties by cross-breeding. Specifically, foreign investment in plantations, agricultural and animal feed processing projects accounts for 76% of the total foreign investment in agriculture.

Additionally, agricultural projects are often carried out in rural areas, where the supportive resources for investors are poor, resulting in the dissolution of up to 30% of projects.

Some investors need to use vast areas of land for their projects but provinces have allocated their land to farmers already. Agglomerating land to have a large production area is a decisive factor to attract foreign investment in agriculture but this is really a very difficult task for local governments because of the lack of a clear policy on compensation, tariff, and investment incentives.

A strategy for agriculture

The agricultural sector still lacks a strategy to lure foreign investment so one of the most important points of the “Strategy to attract and raise the effectiveness of foreign investment in agriculture”, which is being compiled by some state agencies, is defining the role of foreign investment in the needs of development investment of this sector, key projects that need foreign investment.

Accordingly, solutions to attract foreign investment in agriculture will include three major groups: raising the effectiveness and quality of planning tasks and development plans of each agricultural branch; making complete mechanisms and policies on encouraging foreign investment in agriculture; promoting foreign investment in agriculture.

Official development assistance (ODA) capital will be used to develop rural infrastructure, implement vocational training programmes for farmers, scientific research, and technology transfer in agriculture.

Foreign investors will be encouraged to invest in ago-forestry processing, afforestation-wood processing, animal husbandry and animal feed production.

This month the Ministry of Agriculture and Rural Development will issue the strategy and plan for the use of foreign investment to 2010. The government will approve and issue new policies to lure foreign investment into agriculture and forestry sectors. All of the moves aim to raise US$1.5 billion of foreign capital for the agricultural sector from now to 2010.