The Ministry of Agriculture and Rural Development is struggling to attract more foreign direct investment (FDI) into agriculture. Foreign investment in the sector has been falling during the past three years, according to Deputy Minister of Agriculture and Rural Development Diep Kinh Tan.

Investors have shied away from the sector due to its relatively high risks, less attractive policies and agriculture’s special vulnerability to the global economic recession.

Though more than US$150 billion worth of FDI has flowed into Viet Nam in the last two decades, only a small portion has been aimed at agriculture.

Tan said while the sector had gained strong profits and investment in the past, luring $570 million in foreign investment in 1988, the last three years saw a reduction in foreign funds.

According to ministry statistics, from 1988 to 2008, agriculture attracted 966 projects with a total capital of more than $4.7 billion, accounting for only 10 per cent of total projects and 3.3 per cent of FDI across the whole country. In contrast, the industrial sector attracted 34 per cent and services, 59 per cent of total foreign investment.

While the country now has more than 70 million people living on agriculture and in rural areas, the sector’s ability to lure only 3.3 per cent of FDI capital is raising serious concerns.

To make matters worse, out of the $4.7 billion earmarked for agriculture, only $2 billion was disbursed.

About a third of planned projects were dissolved due to a range of reasons, including natural disasters and fluctuating markets.

Many FDI projects were also implemented at a sluggish pace.

Compared to FDI in other sectors, investment in agriculture has continually fallen, from 21 per cent during the 1988-90 period to 8.3 per cent for the 1991-95 period. In 2007, the sector’s share of FDI plummeted further to 5.24 per cent.

According to MARD, the source of the problems are the risks associated with investment in agriculture, forestry and fisheries. Agricultural investments are small and scattered. Policies are not attractive to investors while investment promotion activities lack efficiency.

The ministry says other hindrances to FDI include cumbersome administrative procedures and a lack of infrastructure in some areas.

A survey by the ministry’s Institute of Policy and Strategy for Agriculture and Rural Development finds that 82 per cent of foreign enterprises in the sector are medium or small in size, with capital less than $5 million. Some have capital of only $500,000.

The ministry also finds eight factors that influence foreign investment in agriculture: administrative procedures, location, markets, labour, policies, availability of raw materials, social environment and infrastructure.

Red tape

Chen Jih Ho, director of the Taiwanese-owned Hoang Bao Limited Company, said his company registered to lease land to grow flowers in Da Lat at a cost of $1.5 million. But the work has been progressing at half pace due to administrative red tape.

Nguyen Truong Danh, director of Can Tho’s Trade, Tourism and Investment Promotion Centre, said investment in the agricultural and rural sector was low-profit, high-cost and highly risky.

To attract more foreign investment in the agricultural sector, MARD is drafting an incentive programme up to 2015.

Deputy Minister Diep Kinh Tan said the ministry had set a target of mobilising VND144 trillion ($8.2 billion) from 2006 to 2010 to develop agriculture, with a share of 11 per cent of the nation’s FDI capital.

“The Government has asked MARD to quickly work out master proposals to attract FDI in agriculture effectively,” he said.

According to the General Secretary of FDI Enterprises’ Association, Nguyen Van Toan, FDI in agriculture should focus on enterprises that have the most potential and the best long-term goals, as the sector is more suitable to projects aiming for long term profit rather than quick turnover.

“It is necessary to develop and abide by national planning and regional planning, to identify which region should develop specific agricultural products to avoid overlapping,” he said.

Deputy head of MARD’s Department for International Co-operation Nguyen Viet Manh said strategy and orientation to attract FDI in agriculture, forestry and fisheries were not clearly identified.

“Because development plans for the whole sector and some key products were not mapped out or slowly implemented, and also because they were based on some incorrect forecasts, we could not adequately plan for the most effective way to lure FDI capital,” he said. (VNS)