Some solutions for further attracting foreign direct investments in binh dinh province in the coming time

- Enjoying benefits from the results of expanding foreign relations between Vietnam and other countries around the world, as well as increasing improvement of the law system, mechanisms,

I UPPSALA t'NIVERSlTV OF ECONOMICS dfe 8USINFSS W i :

iUNfVKRSITET ' " ' '^

MASTER THESIS OF MPPM

Some solutions for further attracting Foreign Direct Investments in Binh Dinh

province in the coming time

Auilwrs: - Nguyen Thanh Vinh

' Nguyen Thi Lun Anh

- Do Thi Thuy Van

Superviors: - Lars Torsten Eriksson^ MSc, PhD

- Nguyen Tien Dung« PhD

Class: MPPM Intake 2, group 14

Hanoi, September 2011

province in the coming time

Authors: - Nguyen Thanh Vinh

- Nguyen Thi Lan Anh

- Do Thi Thuy Van

Superviors: - Lars Torsten Eriksson, M S c , PhD

- Nguyen Tien Dung, PhD

Class: MPPM Intake 2, group 14

Hanoi, September 2011

THESIS SUMMARY

1 Title of thesis: "Some Further Solutions for Attracting Foreign Direct Investments (the "FDI") in Binh Dinh Province in the coming time"

2 Academic level: Thesis of Master Program in Public Management

3 Author: Nguyen Thanh Vinh, Nguyen Thi Lan Anh, Do Thi Thuy Van

4 Instructors: Vietnam supervisor: Nguyen Tien Dung, PhD

Uppsala supervisor: Lars Torsten Eriksson, MSc, PhD

5 Date of completion: August 2 0 n

6 Purpose

Capital is a very important resource for development, and it is particularly needed in developing

countries to tackle the cycle of poverty: low income —*• low accumulation -^ low technology —>• low productivity -^ low income, etc Hence, the fast and efficient attraction of domestic and foreign capital

resources, especially the foreign direct investment has significance for the development of a country, particularly developing countries like Vietnam

Binh Dinh Province is a potential area in the key economic zone in the Central Part of Vietnam Seeing the importance of the FDI for the development, Binh Dinh has actively attracted the FDI by various measures but the results of attraction are too modest compared to its potentiality; therefore, it

is required to find solutions to overcome through research of the situation of FDI attraction and causes

of achievements and limitations in attracting the FDI in Binh Dinh

- Using the method of interview of some related objects for gathering more data

8 Results and conclusions

Through the thesis analysis we come to a conclusion that the FDI that has increased rapidh in Binh Dinh in recent years compared to previous periods is mainly because of:

- Having a favorable geographic location

- Having a synchronous infrastructure system

- Having advantages of setting up the Nhon Hoi Economic Zone, 8 industrial zones and 37

industrial groups

1

- Having plentiful resources and potentiality

- Quite strong development of the provincial economy in recent years with the GDP growth on average of 12%

- Issuing many policies with investment incentives, rendering administrative reforms actively; simultaneously paying more attention to investment promotion activities Political security and social order is stable

- Enjoying benefits from the results of expanding foreign relations between Vietnam and other countries around the world, as well as increasing improvement of the law system, mechanisms, general policies of Vietnam with respect to encouraging direct foreign investments

However, the amount of attracted capital is little, not corresponding with the potentiality of Binh Dinh and not contributing much to the development of the area because of:

- Binh Dinh is not really ready for planning and sites for investors

- The infrastructure of Binh Dinh is not really convenient to attract investments

- Administrative procedures in several areas relating to in\eslment remain cumbersome, troublesome, causing delays and congestions

- The location declaration is not clear

- The investment promotion is inefficient

- The analysis results of the thesis as stated above show why Binh Dinh is a province with

potential in attracting the FDI but the attraction results are modest Those are the basis for seeking

solutions to o\ercome this situation According to us the two factors namely the unclear location

declaration statement and inefficient investment promotion are the two causes of most powerful impacts which need deeper research

9 Recommendations for future study

The most fundamental limitation of the thesis is only focusing on the assessment of the FDI in Binh Dinh hardly considering impacts of this capital resource on the economy and society of Binh Dinh, especially negative ones This can affect the firmness of the subject significantly because

although the FDI is essential for the development, it is not because of which the attraction is made at all costs regardless of its negative impacts The FDI attraction also requires a selection and prudent strategies to both attract this capital resource quickly and limit its negative impacts

10 Contribution of the thesis

- The thesis adds two factors of clear positioning messages and effective investment promotion to improve the theoretical model of Nguyen Manh Toan in respect of factors affecting the FDI In our opinion, in a current globalization age with increasingly fierce competition, these two factors are important in fast FDI attraction of a region, a nation

- The thesis has raised some measures to promote the FDI attraction as a basis for policy-makers in Binh Dinh to refer in the course of making their decisions

2.1.1 The concept of Investment 9

2.1.2 The concept of foreign investment 10

2.1.3 The concept of foreign direct investment ]0

2.2 The role of foreign direct investment capital to Vietnam's economy 11

2.3 Main factors help attracting foreign investment 13

2.3.1 Economic motivation group 13

2.3.2 Resources motivation Group 14

2.3.3 Infrastructure motivation Group 15

2.3.4 Mechanisms and policies motivation Group 16

3 Analysis 17 3.1 Overview of Binh Dinh 17

3.2 Reality in attracting foreign direct investment of Binh Dinh in the period 2006 - 2010 17

3.2.1 The number and scale of projects 17

3.2.2 Investment Structure 18

3.2.3 Investment Partners 19

3.2.4 Form of Investment 20

3.2.5 Overall Assessment 21

3.3 The cause of the achievements and limitations in attracting FDI in Binh Dinh in the past time 24

3.3.1 I he cause of the achievements 24

3.3.2 The cause of the limitation 26

3.4 Some recommendations on resolutions to boost attracting FDI in Binh Dinh in the coming time 3 1

4 Conclusion 36

5 References 39

1 Introduction

For any nation to have rapid economic growth and development, that nation must have various resources such as labour, natural resources, land, science, technology, capital In these resources, capiuil is a quite important resource for developmem, and it is particularly needed in developing

countries to tackle the vicious cycle of poverty: low income — low accumulation -^ low technological level -> low productivity -^ low income ' Therefore attracting both domestic and foreign

investments, especially foreign direct investments (FDI) quickly and effectively is important for national development, especially for developing countries This can be seen in the achievements of Vietnam's socio-economic development since its renovation started in 1986: those achievements were significantly contributed by FDI and the foreign-invested economic sector In fact, FDI has become an important source of capital for investment and development that promotes the shift of economic structure towards industrialization and modernization; introduction of many new industries and products; improved management capacity and technology; more employment: expansion of the export market; and, development of Vietnam's external economic relations with the rest of the world The highly-growing foreign-invested economic sector has become part of the economy, has increasingly closer tics with the other economic sectors, and makes increasing contribution to the Gross Domestic Product Because it is legalized and encouraged to develop by the state, the Party and the State's guideline states that ^Uo facilitate the foreign-invested economic sector in its development, export-orientation, construction of socio-economic infrastructure, attraction of modern technology, and more employment The legal and economic environments should be improved to attract foreign investments strongly""

Realising the importance of FDI to its development in the context that its internal capital accumulation remains limited, Binh Dinh, a province in the economic focal area in Central Vietnam (which includes the provinces of Da Nang, Hue, Quang Nam, Quang Ngai, Binh Dinh), has been very actively attracting and using FDI in many ways However, FDI attracted by Binh Dinh over the recent years remains fairly modest, mainly in the form of small projects, which are inadequate to its potentials As a result, the positive sides of FDI have not been seen clearly, and their contribution to the provincial socio-economic development is less than expected This situation attracts much attention from researchers, the provincial leaders and its people, who all wonder why the province, with its potentials, can not attract as much FDI as expected Therefore, how to provide effective solutions to further attract FDI has become an urucnt issue in Binh Dinh especially in the context ot

' David licgg, 1992, p 403-404

' Vietnam C'ommunisl Party 2001, p 99

increasingly serious competition for FDI in the country, the region and the world and while the demands for investments in socio-economic development still largely depends on external sources

Based on this practice, we choose the thesis theme, ''Some Solutions for Further Attracting Foreign Direct Investments in Binh Dinh Province in the Coming Time", to study and propose effective

solutions for further attracting FDI in Binh Dinh for its socio-economic development in the coming years

The thesis comprises three main parts Part I shall mention theories on FDI as the fundamental knowledge and discuss the role of FDI in national development Based on the data collected through

an analysis of the reality of FDI attraction in Binh Dinh (reports, statistics, inteniew^s, etc), Part II will figure out the causes and limitations of the activity In the final part of the thesis, we shall propose feasible solutions for further FDI attraction in Binh Dinh, based on the analysis and evaluation of the achievements and limitations of its FDI attraction we have conducted in Part II

1.1 Aim of study

This thesis is aimed to find out feasible solutions for further FDI attraction for Binh Dinh Province, based on an analysis of the achievements and limitations of the province's recent FDI attraction (since 2006) and the causes of those achievements and limitations

The thesis is also aimed to emphasize the role and position of FDI attraction for the development of

a region or a nation It shall not develop more theories on FDI but further confirm the need to attract FDI for development; and, it will provide some basis for the policy-makers and governments in Binh Dinh to make feasible policies for quickly attracting this important source of capital

As a result, the main aim of this thesis is to answer the question, What solutions should be carried out lo further FDI attraction in Binh Dinh Province?

It will not be easy to answer this question if there is no basis Therefore, the thesis will answer the question through raising and answering two other equally important questions:

- What is the reality (achievements and limitations) of FDI attraction by Binh Dinh over the recent years?

- What are the causes of the achievements and limitations of FDI attraction by Binh Dinh?

The two questions are perhaps the most central in the discussion of FDI attraction in Binh Dinh and

to answer the main question mentioned above The validity of the thesis is largely dependent on answering the two questions because the two answers will be found through the FDI reports and statistics prepared by the authorities and frequently imprecise, comments of some experts It is important that the information is analysed and evaluated to serve as an objective basis for providing

feasible solutions that help readers see an overall picture of the FDI attraction in Binh Dinh and that can be applied to further the FDI attraction in Binh Dinh in the coming time

1.2 Method of study

To answer questions raised in this thesis, a variety of documents were used For the theory, in order

to discuss and provide basic knowledge to help readers comprehensively understand about foreign direct investment and its importance in developing countries, a number of textbooks and books are used to clarify such as ^^Vietnam external economic curriculum'" of Nguyen Anh Tuan, "Vietnam

external economic curriculum" of Nguyen Van Trinh, "Foreign Direct Investment in Vietnam current situation and solutions" of Tran Xuan Tung And then, the book named "Factors affecting the attraction of FDI into a locality" of Nguyen Manh Toan will help provide a theoretical model as a

-basis for evaluating the reasons of achievements and limitation in attracting FDI in Binh Dinh Relating to analyzing of FDI in Binh Dinh, data, reports collected by Binh Dinh Department of Planning and Investment, PMU of Economic Zone, Center for Investment Promotion and the book

named "Binh Dinh lO-year socio-economic development" of Binh Dinh Statistical Office are especially the key sources Finally, the articles such as "Approach to Marketing in FDI attraction" by

Mai The Cuong and interviews conducted with a number of FDI entrepreneurs, officials working in this field in Binh Dinh is a tool help us evaluate the reasons for achievements and limitations in attracting FDI in Binh Dinh and give out solutions

The most important question of the thesis is what are the causes of the achievements and limitations

of attracting FDI in Binh Dinh? To answer this question, we used theoretical model of Nguyen Manh Toan and research of Tran Xuan Tung It means we highly consider factors that Nguyen Manh Toan and Tran Xuan fung mentioned in their theory as crucial factors and concentratively use them to answer the causes of achievements and limitations of a nation or a region However, preliminary analysis of the thesis shows that there are still other very important factors besides the factors mentioned above Therefore, we will add the latter to partly complete this model

To find out solutions to strengthen FDI attraction by Binh Dinh First, sufficient information on IDI such as the total attracted FDI amount and number of projects, the capital structure, the investment partners, the provincial policy, etc should be collected to analyse and evaluate the FDI development realitv in the province We have selected the information through the statistics and reports ot the

provincial authorities such as the Department of Statistics, Department of Planning and Investment,

Centre for Investment Promotion, PMU of Economic Zones The collected infonnation is generally fairly reliable and refiects the IT)I reality in Binh Dinh

In the next step to figure out the answer to the thesis question, we shall analyse and evaluate the causes of the recent achievements and limitations of FDI attraction through the evaluation reports of the provincial investment promofion authorities, articles collected from the investment webpage and the Department of Planning and Investment webpage of the province The data collected in this step is less reliable because they are based on subjective judgments of the authors The data of this kind have not been much collected perhaps because there are certain difficukies in accessing information (e.g getting access to evaluation reports of the authorities in Binh Dinh) To overcome this, we plan to conduct some interviews of some provincial leaders, investment promotion agencies and FDI businesses of the province In our opinion, the interviews will be very important for collecting data and answering the thesis question; they will provide the most authentic picture of FDI attraction in Binh Dinh, and they will be a useful information channel for figuring out the causes of the recent FDI situation in the province Moreover, consulting the intended interviewees of possible solutions for further FDI attraction in the province will lay the foundation for the final solutions that we will provide in this thesis

To carry out the study, we shall analyse, summarize, with a fiexible combination of quantitative and qualitative analysis to answer the question The collected data shall be thoroughly analysed and then summarized to find out the answer Through quantitative analysis, we shall find out the answer through the figures of FDI gained by Binh Dinh such as the number of projects, the total amount, the IDI structure, etc and how they contribute to the provincial socio-economic development Qualitative analysis shall be very useful in evaluating collected reports and personal views on i 1)1 attraction in the province

When starting analyzing the thesis contents and collecting data, we considered using some other methods, one of which is survey through questionnaires, which can help collect reliable and objective data However, we believed that conducting such a kind of survey requires certain knowledge of developing a questionnaire that we are short of Moreover, every step from developing the questionnaire, identifying the objects, means; material, human and time resources takes so much time and effort that they may slow dowTi the progress of the thesis while the results may be low due to some reasons mentioned above As a result, we replaced it with direct inter\ievvs of some stakeholders, which is less objective and restricted in number of interviewees due to the time limit of the thesis but

easier to implement Moreover, interviewing those directlv m charge of FDI attraction and investors

will help go straight to the question of the thesis

8

us Therefore, interview, analysis and summary, quantitative and qualitative analysis, will help answer the thesis question as easily as possible We believe that they are the most suitable methods to find the answer to the thesis question

1.3 Scope and demacrations

FDI is a broad category relating to a lot of contents First and foremost, we must limit the scope of this thesis to make clear the presentation and analysis because of the lack of time and resources As a result, we only focus on the research and reports directly related to the reality of attracting FDI in Binh Dinh, such as the amount of capital, number of project, capital structure We also study factors involving to assessments about the causes of achievement and limitation in attracting FDI in Binh Dinh Consequently, we ignore the reports about impacts of FDI capital to socio-economic development in Binh Dinh where we conducted the study; otherwise, we use with a minimum amount

of it in order to emphasize the importance of attracting FDI as well as to lay the foundation for other solutions

Another limitation is the thesis only focus on analyzing and evaluating the situation of attracting FDI

in Binh Dinh in the period from 2006 up to now Actually, FDI has been attracted to Binh Dinh before

2006, but we only study from 2006 onward because this is the year the Investment Law 2005 took effect"* The research is conducted from this time onward in order to avoid making the thesis too large, rambling; making sure that the true problem and data could be comprehensively understood, furthermore, this method of study is also aim to evaluate how the performance of the Investment Law

2005 results in attracting FDI in Binh Dinh

2 Theory

2.1 Some basic concepts

In this section, we will present some basic concepts relating to FDI in order to lay the foundation tor the study and provide readers the necessary approach on the topic we will discuss in the thesis

2.1.1 The concept of Investment

There have been many concepts of investments It is often used broadly to mention to the cost, the sacrifice of the resources at present (time, effort, money ) to certain activities of people in order to get the greater benefits in the future There are some concepts of investment which are often considered as following:

' Investment Law 2005 adjusted both foreign investment and domestic investment without discrimination Before 2005, Viet Nam exits two investment laws: dome^siic investment law and foreign investment law invesimeni Law 2005 is a development in the reform of investment in Viet Nam compared lo the previous investment laws

Concept 1: the term "investment" can be understood as synonym with "expendimre", "sacrifice"

Since then, "investment" can be considered as expenditure, the sacrifices something at present (money,

labor, fortune and brainpower) to get beneficial results for the investor in the future^

Concept 2: Investment is acUvities to use invested capital and resources in a relatively long time with

an aim to get profit or socio-economic interests The period of time here is usually from 2 years to 50,

70 years or longer^

Thus, investment is to spend resources on a certain activity to get greater benefit in the future

2.1.2 The concept of foreign investment

The concept of investment is a terminology of investment activity in general, so foreign investment

will bear all the characteristics of investment in general except for some distinguish characteristics: (i)

investors have foreign nationality, (ii) the investment element is moved out of a country, (iii)

investment can be money, facility for manufacture, capital goods but in foreign currency Thus, the

fiow of capital moving from country to country is known as foreign investment

2.1.3 The concept of foreign direct investment

Foreign investment is considered in many forms such as official development aid (ODA);

commercial credit sources; capital investment from the sale of stocks and bonds for foreigners

(Foreign Portfolio Investment - FPI) and capital of foreign direct investment which is called FDI

This thesis will only focus on FDI capital

Foreign direct investment has some notable characteristics as following: (i) the foreign investors

must deposit a minimum amount of capital in accordance with the law of receiving country in order to

have the right to directly manage the operation of business; (ii) the investor directly manage, operate

and take responsibility for the operation of the project consistent with the capital they spent 1 he

division of business results for the parties based on capital contributions: (iii) foreign direct investment

is usually done through the following methods: constructing new business, buying the whole or part of

an operating entity, purchasing shares of the company stock to manipulate or merge and joint business

on the basis of business cooperation contracts

According to Tran Xuan Tung (2005 p.21), foreign direct investment can be generally defined as

follows: 'T-oreign Direct Investment is an international movement of capital in the form of capital tor

' Tran Xuan Tung, 2005, p 18

• Iran Xuan Tung, 2005, p 18

' T r a n X u a n Tung 2005, p 20

' Nguyen Anh fuan, el al 2005, p 225

' Nguven Anh luan, el al 2005, p 226

" Nguyen Van Trinh et al, 2006, p 359 ^

production Investors transfer capital to invest in another country and directly participate in management and organization of production, taking advantage of capital, technology, and management experience for the purpose of getting profit"

2.2 The role of foreign direct investment capital to Vietnam's economy

With an aim to emphasize the importance of attracting FDI capital, we use this section to generally analyze the role of FDI capital to the development of Vietnam

Many studies and statistics in Vietnam recently shown that the foreign capital investment sector have increasingly confirmed the important role in Vietnam's economy and had certain impacts to many fields of the economy, namely:

- First, Foreign investment is an important supplementary to the investment capital to meet the demand of social development and economic growth Capital is always mentioned in theories of

economic growth An economy needs more capital to grow faster If domestic capital is not enough the economy will need to attract more external capital including FDl"\ Vietnam carried out the renovation with a very low starting point Thus, in terms of capital demand, foreign investment is an important supplementary to the domestic investment capital to meet the demand of social development In the period 1994 - 1995, FDI capital has made up 30 - 3 1 % in the total invested capital

in Vietnam 1 his rate has decreased since 2004 to 15.5% of the total social investment However, from

1994 - 2004, the FDI sector has been growing in GDP proportion In 2004, the FDI sector contributed 15.2% to GDP proportion, compared with 6.4% in 1994"

- Second, Foreign investment has contributed to the transformation of the economic structure, enhancing the industrial production capacity The industrial growth rate in FDI sector is higher than

average growth rate of the country, contributing to restructure the economy toward industrialization and modernization, partly help increase the density of industry in GDP from 23.79% in 1991 to 40% in

2004 Currently, the FDI sector accounts for about 35%) of industrial production value of the country

In some localities (Binh Duong, Dong Nai, Vinh Phuc ), this ratio is 65-70% Foreign direct investment has created some new kind of industries and strengthened the capacitv of many industrial branches such as oil and gas, information technology, chemicals, automobiles, motorcycles, steel, electronics and household electronics, agricultural and food processing, footwear, textiles In the field

of agriculture - forestry - fisheries, FDI has created some new products with high technical content and many new plants and animals as well Foreign direct investment help the service sector to improve

'° Nguyen Anh Tuan, 2005, p 228-232

'' Nguyen Thi Tue Anh, 2006, p 10-1!

quality and develop faster, especially in telecommunications industry, tourism, real estate business, transportation, finance, banks '^

- Third, foreign investment promotes the advanced technology and managerial secret handover to Vietnam Attracting FDI from multinational companies will help a country opportunities to acquire

advanced technology and management secret that these companies have accumulated and developed over years with great expense Actually, FDI has contributed to speed up transferring advanced technology into Vietnam, developing some important economic sectors of the country such as telecommunications, exploration and exploitation of petroleum, chemical, electronic mechanical engineering, information technology, automobile, motorcycle The technological level of the FDI sector is generally equal or greater than that of Vietnam at present and equal to that of countries in the region Businesses in the FDI sector almost apply effective management methods connected and infiuenced by modem management system of the parent company Consequently, technology and business capabilities are transferred to almost all components of the economy thank to the connection between FDI businesses and domestic ones'

- Fourth, Foreign investment has considerable contribution to the state budget and macro-economic balances Along with the development of FDI businesses in Vietnam, the contribution of this sector

into state budget increase year by year From 1996-2000 oil revenue reached 1.49 billion USD, equivalent to 4.5 times higher in comparison with that of five years ago In the 2001-2005 periods, revenue in FDI sector was over 3.6 billion USD, averagely increasing 24%/year FDI has positive impact to major balances of the economy such as budget balance, improving current account balance, international payments balance by transferring funds and expanding the source of foreign currency indirectly through international visitors, tax on land use, buying machinery and raw materials

- Fifth, Foreign investment has contribution to improve the quality of human resources, creating more jobs As FDI businesses aim to exploit favorable conditions to reduce production costs by hiring

more local employees In the process of hiring, business will provide vocational training course which

is usually advanced and brand-new to labor in developing countries This helps create more skilled labors for host country Not only popular labor, but local experts also have opportunities to work and attend professional training course organized by FDI business According to Vietnam General

'^PhanHuu Thang, 2008

"PhanlluuThang 2008

'•'PhanMuuThang, 2008

Statistics Office, FDI sector has directly generated about 1.2 million jobs and millions jobs indirectly

in 2008, contributing to reducing unemployment and poverty in Vietnam'^

- Sixth, Foreign investment help approach and extend international markets, promote capacity to export goods and services \ Through attracting FDI from multinational companies, domestic

businesses having business relationship with these companies will also participate in the process of regional labor allocation The receiving country therefore has opportunities to participate in global production networks which are favorable to boost exports In recent years, exports growth rate of the FDI sector is always higher than the average export growth rate of the country' In 1991, export turnover of Vietnam reached 2 billion USD, meanwhile this figure was 26.5 billion USD in 2004, making 13.5 times higher compare with that of 1991 Export value of FDI sector is increasingly in total export value of the country, from 4% in 1991 to 54.6% in 2004'^

2.3 Main factors help attracting foreign investment

As mentioned above, FDI in Vietnam has played an enormous role in the industrialization and modernization of the country However, the real tendency in Vietnam recently showed that foreign investment capital fiows are concentrated in some localities with competitive condition'^ For this reason, based on theoretical models of Nguyen Manh Toan and some other studies, this section will concentrate on analyzing the factors that help attract foreign direct investment in a locality or a region

in order to answer the question why foreign investors must seek the place to invest That is the ground for assessing the causes of achievement and limitations in attracting FDI in Binh Dinh

Nguyen Manh loan's research figured out four crucial factors for foreign company to decide their investment location, including: the economic motivation group, resource motivation group, infrastructure motivation group, and policy and mechanism motivation group

2,3.1 F.conomic motivation group

As foreign investors aim to get profit, so they always pay attention to any factors that profit them

- Factor of scale and potential to develop market

This is one of important factors in attracting foreign investment This factor is calculated after population and CiDP In term of market size, the total value of GDP - a measurement index for the size

of the economy - is often paid attention Additionally, GDP growth rate is also a good signal for attracting 11)1, many investors with a strateg.v "take a short-cut, wait in front" will also bravely invest

" Nguyen Anh Tuan, 2005, p 234

'" Nguyen Anh Tuan 2005 p 233

'^ Nguyen Thi luc Anh, 2006 p I 1

" Nguyen Manh loan, 2010, p 271

" Tran Xuan Tung 2005, p 38

in fields which are expected to have more opportunities to rapidly grow in the future and extend into adjacent markets When choosing a place to invest in country, foreign investors are also aimed to the areas with densely populafion which is their potential market^^

- Factor of cost

Production cost is also factor that investors pay much attention, including cost of raw materials, labor costs and the cost of assistance services Production cost reduces lead to the increase of profit at any interest rate Many studies show that the majority of foreign companies invest abroad is to exploit the potential and advantages of cost Of which, low labor cost is often considered the most important factor for investors before making their investment decisions For developing countries, a low labor cost is an opportunity to attract foreign direct investment in the past decade When labor cost rise up, FDI lend to drop sharply In addition, the FDI activities allows the companies to avoid or minimize transportation cost, so businesses can improve their competitiveness ability; directly keeping control of raw material supply with cheap price; receiving incentives policy in investment, taxes as well as the cost of land use Besides transportation cost and other kinds of cost, the investment motivation of transnational companies is to avoid the effects of tariff and non-tariff barriers, as well as significantly reduce import and export costs ^

2.3.2 Resources motivation Croup

The characteristics of natural resources, population, and geography are important keys that affect

to profit or investment risk and attract the attention of foreign investors when seeking place to invest

to exploit human resources which is relatively young and abundant in these countries Normally, in developing countries, unskilled labor resources are always abundant and can satisfy the needs of the company However, the increasing of science and technology presently, foreign companies are eying

to countries with higher qualified human resource that can meet their needs Not only the factor of

^'^ Nguyen Manh Toan, 2010 p 271

^' Tr^an Xuan Tung 2005, p 39

Nguyen Manh t o a n , 2005, p 272

' ' Ho Chi Minh National Political Institute, 2004 p 69-70

14

quantity and quality, but also motivation and attitude of workers are important factors for investor to consider and seek place to invest^"*

- Natural resources

Natural resource is the initial physical conditions of most manufacturing industries The abundance

of raw materials with cheap price would be conditions to boost profits and actively promote attracting foreign investment For example: With Southeast Asian Nations (ASEAN), the exploitation of natural resources is an important target in the investment of foreign companies in the past decade^-\

- Geography

A country, an economic region with a favorable geographical location will help investors easily

access to adjacent market, remarkably saving transportation cost and evidently become an indispensable factor for investors when choosing their location^^

2.3.3 Infrastructure motivation Group

Except for foreign investors specializing in the field of infrastructure, the development of economic infrastructure of a country or a locality is always the physical conditions inducing investors to quickly make investment decision and implement memorandum projects, helping them reduce transportation costs, maintaining and developing normal business with their partners'^ Infrastructures system includes technical infrastructure and social infrastructure:

- Technical Infrastructure

Quality of Technical Infrastructure is very important to the flows of FDI into a country or locality A fully-constituted technical infrastructure system including roads, railways, aviation, electricity supply network, water, telecommunications and other utility services is priority of foreign investors In addition, the availability of industrial parks, export processing zones with modern infrastructure is the attractive point for foreign investors In fact, in the decade '80s and '90s many countries have built export processing zones to attract investment and Shenzhen export processing zones (China) is a successful example of this model Technical infrastructure is not just about roads, bridges, warehouses, yards but also includes other support services such as banking, auditing firms, consultants If these necessary supports are missed, the investment environment will be seriously affected Not only that,

the outcome of the local industrial enterprises, the presence of industry support, the existence of

" Nguyen Manh Toan 2010 p 272

^' Nguyen Manh loan 2010, p 272

^^ Nguyen Manh Toan 2010 p 273

^'Nguyen Thi Kim Nha 2001

15

reliable partners for foreign companies to co-operate are the very important requirements to be considered^**

- Social Infrastructure

Besides technical infrastructure, investment environment is significant influenced by social infrastructure Social infrastructure includes health systems and health care service for people, education and training system, recreation and other services Moreover, socio-moral values, custom religion, culture., also help make up the common picture of the social infrastructure of a country or locality^"^

2.3.4 Mechanisms and policies motivation Group

Foreign investment flows to countries is not only determined by economic factors, but also influenced by political factors The stability of the macro-economy, along with political stabilitv is considered very important , since political and economic stability help ensure that host government will carry out policies on capital possession, priorities and orientations policy for development (investment structure) These matters are the most concerned of investors because it remarkably influence on risk factors in investment Along with political, social stability, investors also need a stability and effectiveness of laws system A complete and reasonable system of policies that ensure the consistency of policies to attract investment, other incentives policies and support^ will made host country to be more attractive to foreign investors"

^" Nguyen Manh loan 2010 p 273

^'Nguyen Manh Toan, 2010, p 273

'" Nguyen Manh Toan, 2010 p 273

'' Tran Xuan Tung 2005 p 38

^" Tor example, tax incentives, credit supports

'' Nguyen Manh Toan, 2010 p 274

16

Figure 1: Nguyen Manh loan's model of the factors affecting FDI

Socio-poliiic slahilii)

Preference and support

Source: Nguyen Manh Toan 2010, p 2"4

3 Analysis

3.1 Overview of Binh Dinh

Binh Dinh is a coastal province in the South Central Vietnam, being bordered by Quang Ngai Province to the North, by Phu Yen Province to the South, by Gia Lai Province to the East, and by South China Sea (liast Sea) to the Fast; 1,065km south of Ha Noi 686km north of Ho Chi Minh City, 300km south ol^ Da Nang City, and 300km east of Bo Y International Border Gate (in Kon 1 uni Province) to Laos

Binh Dinh has a total natural area of 6,025knr and population of about 1.6 million people The administrative structure includes 01 city and 10 districts, of which are three mountainous districts Quy Nhon - provincial capital city is the first-grade city with an area of 284.28kni' and a population of more than 260,000 Binh Dinh has a tropical monsoon climate, average temperature of 27^C, average humidity 80%, and total average sunny hours per annum of about 2,000, average rainfall of about 2,000 mm which is suitable for rural industr\' and tourism de\'elopment""^

3.2 Reality in attracting foreign direct investment of Binh Dinh in the period 2006 - 2010

3.2.1 rhe number and scale of projects

Table 1: Number and scale of FDI projects in Binh Dinh tVom 2006 to 2010

Registered capital (million USD) 267.5 72.5 48.7 57.12 150.042

Source: Department of Planning and Investment of Binh Dinh, 2006, 2007, 2008, 2009, 2010

After the 2005 Investment Law took effect, the 2006 witnessed the considerable increase in attracting foreign investment to Binh Dinh with six FDI projects registered These six projects with total registered capital up to USD 267.5 million, of which the most notable project is the Vinh Hoi resort of ITC Condor Development Company LLC, now is ITC Spectrum LLC (USA) with the capital

of 250 million USD which is licensed by Nhon Hoi Economic Zone Administration

In 2007, the province licensed 8 FDI projects with total registered capital of USD 72.5 million Till the end of 2007, Binh Dinh has attracted 383 million USD of FDI capital in 29 projects

In 2008, foreign investors were ''significantly hit" by the impact of financial crisis and global economic slowdown leading to a lot of many difficulties Consequently, they have to restructure and adjust their own business, not extend to new areas or fields of investment Many investors come to Binh Dinh to learn and submit application for investment certification, they but can not deploy the preparation for investment soon due to limited capacity However, Binh Dinh continued attracting 5 FDI projects with registered capital of 48.7 million USD, decreased 32.8% compare with 2007 (72.5 million USD) In 2008, 04 projects were revoked investment license, including 03 projects outside industrial zones and 01 project in the Nhon Hoi Economic Zone Up to 2008, the province had 32 on-going FDI projects with total registered capital of over 409 million USD

In 2009, although affected by the economic downturn, Binh Dinh attracted 4 FDI projects more with total registered capital of 57.12 million USD The number of projects is less but the registered capital

is higher compare with 2008 In 2009 2 FDI projects were revoked investment license; so Binh Dinh had 34 existing FDI projects with total registered capital of 470.75 million USD, including 28 projects

of 100% FDI and 6 joint ventures or joint businesses

In 2010, 6 FDI projects were licensed with registered capital of 150.042 million USD it is 96.52% higher compare with the same period last year, of which the Economic Zone Administration licensed 2 projects with total capital of 131 million USD, Binh Dinli Provincial Committee licensed 4 projects with total capital of 19.042 million USD

Up to now, Binh Dinh has 40 on-going FDI projects with total capital of 621.475 million USD, including 33 projects with 100% foreign capital and 7 joint \entures projects Among which, the Economic Zone Administration license 10 projects with total capital of 504.91 million USD Binh

Dinh Pro\ incial C\)mmittee license 30 projects with registered capital of 116.565 million USD

3.2.2 Investment Structure

18

Table 2: Number of projects divided by sectors

Total Agriculture and forestry

Transportation, logistic, post

Contractions relating to asset business

Education and training

Entertainment and sport

Tourism

Activities to serve public, personal demand on

other service

Number of projects

9.2 35.4 135.592 8.0 0.6 256.35 1.8 43.0 6.0 1.2

125 7.4

Source: Binh Dinh Statistical office, 2010, p 132

Analyzing the structure of investment by sector shows that FDI projects has been existing in many fields of the economy in compliance with requirements of industrialization - modernization of Binh Dinh Among which, the areas attracting investors the most is industrial processing with 14 projects, followed by mining industry with 7 projects, and hotel industr> with 5 projects FDI capital concentrates almost on the industry and services sectors that accounted for 85.8%

34 44.6 9.0 11.6 1.8 15.1 33.792 3.4 2.3 63.3 5.0 5.0

" Including the six FDI projects have been revoked investment license

19

France

- Russia

8.0

125

Source: Binh Dinh Statistical office, 2010, p 133

Implementing the guideline "multilateralism, diversification of cooperation " and "Vietnam wants

to be friends with countries in the region and the world " of the Viet Nam Communist Party and the Vietnam Government which is concretized through the system of in investment law, Binh Dinh has attracted investors from 17 countries and territories with total registered capital of 643.6 million USD Many investors coming from potential economic countries such as the United States Japan, China, Korea, Germany, Britain, Russia, Singapore, Australia, France , of which Germany take the leading status with 6 projects, then come Hong Kong with 5 projects, and Japan, America, Australia China with 4 projects per each In term of capital scale, the United State takes the leading status with 263 million USD, Russia ranks the second with 125 million USD, followed by China (63.3 million USD), Hong Kong (44.4 million USD) and Germany (33.792 million USD)

3.2.4 Form of Investment

I h e most popular forms of foreign investment in Binh Dinh is 100% foreign investment which occupying 78.7% ol'the projects and 77% of the total registered capital'' Projects of 100% foreign invest capital have increased gradually in recent years because in early stages, the procedures for implementation are also requires more paperwork and very complex Additionally, foreigners have less understanding of internal situation of Vietnam and Binh Dinh, especially social and law conditions, so they often face difficulties in procedures to obtain sufficient conditions for the construction and implementation of investment In such these circumstances, the majority of investors choose to form joint ventures businesses, considering that Vietnam side taking responsibility for the legal procedures in business' operation will be more effective This form tends to increase year by year, represented by the following chart:

'" Department of Planning and Investment of Binh Dinh, 2010

Figure 2: Forms of foreign direct investment in Binh Dinh

(Unit: Project)

• 100% foreign investment

D Joint venture

Source: Department of Planning and Investment of Binh Dinh, 2008, 2009, 2010

Data on chart 2 shows that in 2008, there were 23 projects with 100% foreign investment capital, in

2009 the number increased to 28 projects and 33 projects in 2010, making average growth rate 21.7% Meanwhile, joint ventures decreased from 9 projects in 2008 to 7 projects in 2010 because the joint venture have tendency to change to 100% foreign capital This phenomenon should be understood at many aspects Reality of attracting foreign investment shows that the number of 100% foreign investment increase proved a better investment environment; it also means that investors feel secure to invest and operate with a promising environment in Binh Dinh However, there are still opposite ideas considering that the reason originated from the forced relation and not on a par among partners Vietnam side has limited capacity while foreign partners are companies and groups with strong economic potential Moreover, the latter are pursuing global business strategies, so there are great differences in view points and business strategies In addition, Vietnam Investment Law with principle

of consensus is rigid, making restrictions for Vietnam side in their decision to get profit

3.2.5 Overall Assessment

The above figures show that since the implementation of the Investment Law 2005, attracting FDI to Binh Dinh from 2006 to 2010 have achieved positive signal with 29 projects, making up 63% in comparison with a total of 46 projects^^ attracted from 1992 up to now Registered capital in this period is 595.862 million USD, occupying for 92.57% of the total registered FDI capital so far , increasing by 13.8 times compare with that of 2005 backward Not including 6 revoked projects for

^' Including the six FDI projects have been revoked investment license

" Including the registered capital of 6 FDI projects have been revoked investment license

21

several different reasons, Binh Dinh has attracted 40 FDI projects up to now Although the number of

FDI projects accounted for only 23.8% of all investment projects in Binh Dinh, total registered capital

of these projects is very high as 621.475 million USD, equivalent to 13,050.975 billion VND making

up nearly half of total capital of 143 on-going projects of the whole province It means that the amount

of capital by FDI projects accounts for approximately half of total investment capital in Binh Dinh up

to 2010 With 17 countries and territories investing in Binh Dinh, along with a large proportion of

100% foreign investment capital (compare with the form of joint venture) in various invested sectors

from agriculture, service, processing industry to education, this thing has indicated that foreign

investors trust in Binh Dinh's investment condition

Along with attracting more and more FDI capital investing in Binh Dinh foreign direct investment

has contributed positively to the provincial economic development, namely:

Table 4: Contribution of FDI sector in Binh Dinh from 2007 to 2010

Year

Contriution to Export turnover (million USD)

Contribution to state budget (million USD)

limploycd l.abor (person)

2007

12.3 1.576

-Source: Binh Dinh Planning and Investment Department, 2007, 2008, 2009, 2010

In 2008, the industrial production value of FDI sector reached 90 billion VND, exports tumover was

about 13 million USD; these were 103 billion USD and 15 million USD respectively in 2009 In the

first six months of 2010, these number were 312 billion VND (13"o higher than the same period last

year) and 6.6 million USD (equivalent to 2.8% of total turnover of the whole provincial exports)

- Binh Dinh is a province with abundant labor force but has yet exploited and used much People at

working age in the province are nearly a million, in which more than 70% are agricultural labors

With such a potential source of labor, the province has set the goal to create more jobs for labors as

receiving foreign direct investment To achieve this goal, the province has encouraged foreign direct

investment business to use local employees If FDI business in Binh Dinh attracted only 844 new

employees in 2007, it was 2,602 in 2010'*' Also, FDI businesses also indirectly create jobs and income

for many workers such as construction workers, workers in services sector (sales personnel, logistics,

transportation ) Although the number of employed local labors makes up a small percentage in

"Department of Planning and Investment of Binh Dinh, 2010

'^ Department of Planning and Investment of Binh Dinh 2007 2008 2009 2010

^' Binh Dinh Statistical olficc, 2010 p 72 • o- u r^- u w u

*' This lluurc did not include the numtu^r of seasonal workers that have been hired by FDI bussmesses in Bmh Dinh It the>

are considered, the number of aUracted workers by FDI sector in Binh Dinh are higher ^^

potential labor force of the province, it is a positive resolution to solve the urgent labor matter at present In addition, FDI sector has also been giving Binh Dinh opportunities to have a generation of good managers, improving the quality of labor force in order to quickly reach the level of management and international skills when working in modem equipped businesses Moreover, FDI sector helps change thinking of people, they must always teach themselves and improve their knowledge so as to find a good job in FDI business with higher salaries

- Another objective of attracting FDI is to create revenue for the state budget As the beginning of operations, FDI projects in Binh Dinh have contributed a certain proportion to the revenue budget for the province Although it is still modest, the revenue of FDI sector is increasing year by year; the revenue of FDI business contributing to the provincial budget occupies a large proportion of the total provincial annual revenue It was 1.576 million USD in 2007 and 2.85 million USD in 2010

Although FDI capital attracting to Binh Dinh in recent year is more and more positive and has certain contribution to socio-economic development, it have yet to exploit effective the pro\incial potential, and the amount of capital is relatively small compared with some other localities in the country (see table 5 below)

Tabic 5: 10 localities attracting most foreign direct investment in the period 1988-2007

(Update to 22/12/2007 - only valid projects)

2,938

987

918 1,570

Registered capital

7,069,929,314 5,621.923.639 4.655,587,285 3,428.765,978 2,397.533.861 1,115,836,920 628,858.655 842,041,457 648,526.192 680.049.003

Implementation capital

6.347,487.062 3.592,425,986 4,152,591,894 2,078,979,706 1,267,669,334 1.273,511,670 123.827,280 184,751.090 438.759.582 423.043.982

Source: Phan IIuu Thang, 2008

Besides, the majority of these FDI projects in Binh Dinh are small scale There is still a lack of large scale projects especially projects in the industrial sector which can be a driving force for promotion of

economic development and transformation of economic structure The annual contribution ot FDI

projects is less than 1% of the provincial GDP accounting for 3.6% of the province's industrial production Budget revenue from FDI sector in recent years is only around 1% of total budget

23

revenues of the province Some projects have been licensed for years but could not implement due to different causes, so the authority has revoked licenses Capital disbursemem of FDI businesses was also low, reaching only about 27.31 million USD in 2010"*^

3.3 The cause of the achievements and limitations in attracting FDI in Binh Dinh in the past time

We have analyzed the reality in attracting FDI of Binh Dinh in the period 2006 - 2010 In this part,

we will figure out what are the causes for achievement and limitation in attracting FDI in Binh Dinh in the past time

3.3.1 The cause of the achievements

One outstanding factor for Binh Dinh to attract foreign investors is provincial advantages available"*"*, namely:

- First, Binh Dinh is one of the five provinces in the key economic region of Central Vietnam - lies

in the middle of the country's North - South axis (by national road, railway and by air) and is the most convenient gateway to the sea for the Central Highlands, Southern Laos, Northeastern Cambodia and Thailand (through Quy Nhon international port and National road 19), thus giving the province a prominent advantage for the promotion of regional and international communication and trade relations

- Second, Binh Dinh has a fairly synchronous transport system including roads, national railroad, airport and international seaport The supply of power and water, post and telecommunications infrastructure, financial and banking services are available while education and training and healthcare facilities can meet the demand of the national and regional people and enterprises Tourist and recreational infrastructures have been constructed and upgraded

- Third, Binh Dinh has the advantage of already being formed 8 industrial parks and 37 industrial zones**\ Especially, Binh Dinh is focusing on developing Nhon Hoi Economic Zone with large-scale projects over a 12,000-hectare area adjacent to Quy Nhon City and is inviting investment from domestic and foreign investors in order to turn its potential into practical resources for provincial socio-economic development Established in lune 2005, Nhon Hoi Economic Zone is to be developed into a general economic zone with its own operation regulation, comprising non-tariff zone, industrial zone, seaport service zone, tourist areas and new urban areas, operating under a special incentive

mechanism as the center and driving force behind the development of Binh Dinh and the Key

^'Cat I lung vii Thanh llai, 2011

*^ "Binh Dinh I'rovincc called for investment" hinhJinhinvest online

" "Binh Dinh Socio - Economic Overview'', Department ofPianning and Investment of Binh Dinh online

24

Economic Region of Central Vietnam Nhon Hoi Economic Zone heralds tremendous business and investment opportunities Coming to this economic zone, the investors can make large investments in core or hi-tech industries such as deep seaport construction, ship building and repairing, petrochemicals and oil refinery, electric or electronic product manufacturing and assembly, electricity production, tourism development, services related to trade and marine shipping, finance, banking, post and telecommunications Investors can choose to locate their investment projects in the tariff zone, non-tariff zone or export processing zone

- Fourth, Binh Dinh has promising potentiality and resources In addition to 134km coastline, beautiful beaches and landscapes and marine resources, Binh Dinh has various kinds of mineral resources such as granite, ilmenite, sand, kaolin, clay, mineral spring water and gold Binh Dinh is a land of martial arts, but it has a rich cultural tradition with lots of historical and cultural relics Binh Dinh was once the center of the Champa Kingdom with the famous relics of Do Ban (Vijaya) Citadel and 14 Cham Towers reflecting the civilization's unique architecture and art Binh Dinh possesses many traditional craft villages and is home of traditional stage arts, many special foods, a unique cuisine and a series of annual festivals With a population of 1.6 million, half of which is of working age, and all traditionally hardworking and creative Binh Dinh can supply an abundant labour force Besides the advantages available, Binh Dinh^s economy has been vigorously developing in recent years at the average GDP growth rate of 12%, industrial production value increased 18.1%, export tumover reached 400 million (increasing by 20%), attracting 714.000 visitors (up to 28%), volumes of goods through the Qui Nhon Port over 4 million tons, ranking the third in the port system of the country^^ Al the same time, political security and social order have been stabilized, as they are vital for promoting co-operation and attracting investors and tourists

Another reason is that, along with a positive cooperative attitude from Binh Dinh will be the provincial open-minded and generous incentive policies with realistic preferential treatment and assistance promulgated including business income tax, land rent, and infrastructure building support and so on'' The province also focused on implementation of administrative reform, improving investment einironment In 2010 Binh Dinh Provincial People Committee (PPC) issued a series of important policies relating to investment procedures such as: Decision No 159/QD-UBND dated 08 April 2010 about "Regulations on the order and co-ordination mechanism for resolving administrative

** "Binh Dinh Province called for investment", hinhJinhinvest online

'' seeing more a Decision No 25/2005 QD-l-B dated on 07 Feb 2005 ofB.nh D,nh Provnc.al People Con.m,ttee and web address: hmp://www.binlulinhinvest.iiov.vnThoni;iinchiliel.php^id1 F-Q

25

procedures for the establishment of the enterprises outside the industrial zones, economic zones in

Binh Dinh Province"; Decision No 12/2010/QD-UBND dated 28 June 2010 '"regulations on

coordination mechanism to solve administrative works among departments and branches of the

Provincial People's Committee"; Decision No 06/2010/QD-UBND dated 04 May 2010 about some

incentive policies on investment in the construction of the infrastructure in industrial parks and

industrial complexes in the province (except for industrial zones in Nhon Hoi Economic Zone);

Decision No 02/QD-UBND dated 22 Feb 2010 about compensation, resettlement, and rehabilitation

policy for affected persons in the province

An additional reason is that investment promotion has considerably been paid attention and support

The Investment Promotion Center (which is under the Department ofPianning and Investment of Binh

Dinh) has carried out series of investment promotion activities such as: promoting the image of Binh

Dinh through newspapers, website, issuing publications, recordings; organizing and participating in

conferences and seminars to promote investment; advertising abroad and so on These activities have

obtained certain results, contributing to marketing Binh Dinh's investment potential to foreign

investors

Finally, the results of achievements in attracting FDI in Binh Dinh must also include the expansion

in external relations between Vietnam and other countries around the world Vietnam became

member of the WTO in 11/2006, implementing Vietnam Japan Joint Initiative, deploying Vietnam

-US Trade Agreement as well as bilateral investment and multilateral agreement These things have

helped increase investment cooperation in Vietnam in general and Binh Dinh in particular Moreover,

legal systems and mechanisms, the general policy of Vietnam to encourage foreign direct investment

has been continually renewed, improved, especially the introduction of the Investment Law 2005 has

contributed to creating conditions for attracting investment in Binh Dinh

3.3.2 The cause of the limitation

As we mentioned above, FDI flows into Binh Dinh is still too modest in comparison with many

localities in the country, nor commensurate with existing potential and advantages of the pro\'ince It

can be explained by the following reasons:

* On the objective reasons

First, in the years 2008 - 2009, foreign investors were "significantly hit" by the impact of financial

crisis and global economic slowdown, leading to a lot of difficulties Consequently, they ha\e to

restructure and adjust their own business, not extend to new^ area or field of investment Some

'* Tran Xuan Tung, 2005, p 181 ^ ,

2o

investors come to Binh Dinh to learn and submit application for investmem certification but can not deploy the preparation soon due to limited capacity'*^

Second, some localities such as Da Nang, Quang Nam, Binh Duong, Dong Nai, Hanoi, Ho Chi Minh

city have taken advantage of their competitive conditions to improve their policies and investment environment It creates a great challenge, adversely impacting to the flow of capital into the province

* On the subjective reasons

First, Binh Dinh is not really ready in the planning and site for investors Planning is not really well prepared to pay the way for investment development In many cases, enthusiasm foreign investors can not promote the formation of the project due to the lack of provincial planning The infrastructure preparation including technical infrastructure (electricity, water supply, telecommunications, waste processing ) for the projects is not ready A typical example is a project of international deepwater Gemadept Nhon lloi invested by Gcmadept Corporation with total investment of nearly 1.2 billion USD Started in 2007 but investor could not implement construction, so Binh Dinh People's Committee was forced to revoke and transfer license to the Vietnam Maritime Corporation to set up the investment Besides, projects invested in building the infrastructure in Nhon Hoi economic /one was slowly deployed, namely: After three years, the building ground of Zone A has been completed a half (300 hii/600 ha) 70 ha/350 ha for Zone B, and zero for Zone C'*^' Some industrial parks, industrial zone in the province have yet to build concentrated waste water treatment plant, or operating partially

As a result, businesses must invest a waste water treatment plant by themselves which is very expensive; evenlhough, businesses have to release untreated waste that cause harm to the environment

The site clearance work with the lack of drastic and satisfactory measures are reason for a nearly

bankruptcy of some projects, especially projects that damage people's houses An outdated policy on calculating land prices is a cause atlecting the investment"'" According to interviews conducted with 5 officials working in the investment sector and 5 foreign investors in Binli Dinh, the planning work is presently an urgent problem in this province Many investors have shown their disappointment about the infrastructure of Nhon Hoi Economic Zone, as comparing with modem infrastructure that Binh Duong have built in their Industrial Zones, considering it a very convenient condition to attract inxestment

*^ ^'Attracting investment in Binh Dmh in 20m: Determined to create a new breakthrough" hinhJinhinvest online ,

Second, along with the planning, the infrastructure of Binh Dinh is not really convenient to attract investment The transportation infrastructure of Binh Dinh is a lively illustration Although being paid attention to prepare, upgrade or build a new one by the central government and provincial authority, it has not met the requirements of socio-economic development, especially the development of industry, trade, service and tourism of the province and region Many problems still exist in transportation systems, sanitation environment and public utilities in Quy Nhon city although he has been paid due attention in building infrastructure, the city space remains cramped, not really comfortable Due to the lack of funds, infrastructure construction of industrial zones is slowly built; do not meet the demand of site demand for investors to build factories" Affirmably, the quality of technical infrastructure has a close relation to FDI attraction in Binh Dinh This may be demonstrated through a sample sur\ey of Nguyen Manh Toan (2010, page 275) conducted with FDI enterprises in some localities of Vietnam Almost half (47.8%)) of the investors have ranked the technical infrastructure is a top priority when making investment decision Also, a majority (87%)) agreed that technical infrastructure is one of three most important elements to attract investment This is similar with the result that the Vietnam Chamber of Commerce and Industry (VCCI) carried out with 1,155 FDI enterprises in the country'"* The next reason is the reform of administrative procedures such as: investment licensing, site clearance procedures, projects implementation procedures after licensed (loans, raw materials import, spare parts, VAT refundment ) is still complex and troublesome, causing delays and bottlenecks in the investment activities and discouraging investors Le Van Tarn Director of Planning and

Investment of Binh Dinh urgently said: "For some projects, the time to consider investment approval

is fairly long with too much paper-works and repetitions, especially reports after investment Many provincial agencies have delayed or yet to answer the request of investors asking for guidance or resolutions of related works" Besides the shortcomings and weaknesses in administrative procedures,

other barriers such as information transparency, harassment from some officials working in the investment sector also made the investment environment in Binli Dinh stuffy, increasing the investment costs for FDI enterprises This is also reflected in Provincial Competitiveness Index (PCI)

of VCCI in 2010 In the nine component indicators to evaluate PCI, only business support services and labor training Index slightly goes up, the remaining seven criteria such as legal institutions, access to

" Ho Quoc Dung, 2010

'* Detailed at Vietnam Chamber o f Commerce and lndustr>'(VCCI), 2010, p 62-65

28

land, integration market costs, transparency, time costs, unofficial cost, provincial leader's enthusiasm and sense of initiative in resolving business' problems have gone down^^

The above reasons for limitation have remarkable impact to the lowiiess in FDI capital attraction in Binh Dinh However, it is not the most important in our view point, because these limitations are popular in almost all provinces of Vietnam According to our research and assessment, the result of

FDI attraction to Binh Dinh depends mainly on two factors: the unclear location declaration and inefficiency investment promotion

In term of the unclear location declaration: location declaration can be understood by what we say to our customers; it helps build products image we are going to offer; tt includes the needs and desires that products target to, and value that the product brings to us^^ This seems confusing, but it means that Binh Dinh actually can not figure out as well as build the benefits image that foreign investors may obtain when investing to Binh Dinh compare with that when they invest in another province In other word, Binh Dinh can not name competitive advantages when investors choose to invest in Binh

Dinh as a basis for attracting FDI Although list of projects to encourage investment is announced

annual, these list are often scattered, lack of core items, and contents to call for investment is vague, unspecific and akin to that of other provinces On the other hand, when interviewed some leaders and managers working in this sector with the question "What elements are the most attractive for foreign investors to invest in Binh Dinh", the answers we got were usually different It can be understood that, because the unclear location declaration that induces foreign investors not to realize the competitive benefits to decisively invest to Binh Dinh^^ Also, it does not help Binh Dinh to identify the targeted investors to attract Lef s take Hanoi as an example in successfully attracting FDI in Vietnam Hanoi welcomes all investors, but pay attention to investors in finance and ser\'ices sector Likewise, Vinh Phuc on one hand said that all investors are targeted investors, but they actually focus on attracting investors coming not from capital of other countries, considering that investors from capital city usually got investment invitations before Besides, Vinh Phuc does not focus on attracting export-oriented businesses because the province has no comparative advantage in exports, and export does not bring much benefit to the province as welP

'' -Binh Dinh ranked afkv three provinces of the Central Coast m the PCI 2010", hinhJinhinvest online To understand the

nine component indicators to evaluate PCI, seeing more at Vietnam Chamber of Commerce and lndustr>' (VCCI), 2010 '" Mai The Cuong, 2005, p 6

In term of the inefficiency investment promotion: Investment promotion are known as an activity of marketing and promoting images of the investmem environmem of one locality to the investors, it thereby helps investors recognize, evaluate and choose to invest'^ According to our assessmem this activity is very important to promote FDI, as an efficient implementation will help foreign investors know where to invest, the benefits they can obtain when they invest or make investment decisions and vice versạ In recent years, investment promotion in Binh Dinh was paid interested to promotẹ Alsọ

we consider it an important cause of promoting FDỊ However, the implementation is not effective in reality; the investment environment in Binh Dinh is not clear in the eyes of foreign investors It obviously has negative contribution to the attraction of FDI inflows into Binh Dinh

In theory, there are three types of techniques promotion that countries usually usế:

- The image-building techniques: (i) advertising on mass media, (ii) participating in the exhibition,

investment seminars, (iii) advertising on the specific facilities of sectors and regions, (iv) sending surveyors from invested countries to investing countries and \ice versa, (\) co-operation in information provision of investment opportunities

- The techniques to create investment source: (vi) participating in the campaign by telephone or

direct mail; (vii) sending delegation from investing countries to invested ones to learn specific knowledge and vice versa, (viii) information seminars on specific sector or area, (ix) participating to study specific companies

- Techniques oj investment services: (x) pro\ iding investment consultant services, (xi) considering

and resolving applications for investment approval and investment licenses, (xii) providing services after being licensed

Among three types of promotion techniques, Binh Dinh only uses the techniques of the first type and

a few one of second and third typẹ Moreover, these techniques are often used independently without being linked as an overall solution, so they can not promote their power The investment image of Binh Dinh is not clear and insufficient although the techniques of the first type has been used to promote the image by mass methods such as through the internet, media agencies in the countr\', receptions, conferences, investment seminars, publications, recordings and marketing abroad However, the propaganda leans toward introducing "positive advantages", comparative advantage, but disadvantages as well as challenges for foreign investors when operating business in the pro\incc are not pointed out^'" fhe updating of the list of projects to encourage investment is an example, in which

'^MaiTheCuong 2005, p2

"' Mai 1 he Cuong 2005, p 8

Manh Nguyen, 2011

the country has wasted much time and effort on investment mobilization agencies The information are eyes-caught designed in Vietnamese, English on brochures and CDs providing to potential foreign investors, but it does not bring out effective resuh because the list is based on policy makers" objective expectation, nor responding to the information needed by investors Another example is with seminars and conferences to promote investment in the country and abroad, there is a limitation in providing interested information due to the lack of investors' information For example, a typical lecture calling for investment usually includes economic data, statistics on FDI, ODA, trade, tourism, information on the forms of investment, number of projects, the number of jobs created from the projects and so on between Binh Dinh and the countries visiting To some extents, these information are also necessary for investors, but investors need more specific information as following: how to start their businesses, specific preferential treatments they can get, the government's helps to solve the difficulties arising, comparative advantages between Binh Dinh and other provinces and so on If Binh Dinh only presents his own policies and potential, it will be too much and too little as well

The reason for the limitation in investment promotion activities in the past time results from the province's unclear location declaration On the other hand, it is due to the lack of experienced officials

in promoting investment Moreover, funding for this activity is too low to extend the programs and techniques of investment promotion so as to promote the image of Binh Dinh to foreign partners

3.4 Some recommendations on resolutions to boost attracting FDI in Binh Dinh in the coming

Thoroughly grasping and consistent!) implementing provisions of the Inxestment Law in planning, ensuring that the setting up of the sectors, fields or products planning will comply with international commitments

31

Completing planning of land use, broadly publicizing planning, creating favorable conditions to speed up the land clearance formulation for investment projects

3.4.2 Infrastructure improvement solutions

Continuously upgrading and building new transportation systems within the industrial parks, transportation system to connect industrial parks together, industrial parks with the highway as well Quickly developing electricity and water supply, telecommunications, drainage system The province's priority is to accelerate infrastructure construction of Nhon Hoi economic zone and industrial parks, industrial complexes, paying attention to invest in building essemial socio-economic infrastructure Also, transportation, irrigation works, education, health and urban embellishment will

be invested to make good preparation for the investment projects, preparing facilities for the investors

to invest and do business in the province The province should actively coordinate with ministries, branches to make appropriate proposals to solve the problems of projects managed by the central government such as upgrading Quy Nhon sea port, airport station and Phu Cat airport equipments The creating of a modern and synchronous infrastructure system is not easy, requiring much capital Therefore, Binh Dinh needs to diversify investment sources, including state budget, official development aids, and private capital from domestic and external; expanding the fomis to attract private capital, such as BOT, BTO, joint ventures, bond issuance on the stock market Identifying priorities level for infrastructure projects based on projects' efficiency to focus investment, avoiding waste and loss of capital'^l

3.4.3 Solutions to reform administrative procedures

Making strong improvement of administrative procedures relating to foreign investment activities as simplifying forms and procedures for investment licensing; seriously implementing the principle

^'investment actixities is of the businesses, government agencies take responsible to create favorable conditions for the implementation of investment projects The assessment of project should be improved by extending the scope of investment applications, rejecting requirements on unnecessary information lo shorten the assessment time, gradually changing from pre-test to post-test

Effectively implementing the management decentralization in combination with boosting the cooperation, support and co-ordination, particularly in the approval, license of investment certification Clearly regulating, publicizing administrati\e procedures based on simplification and reduction ot unnecessary procedures Continuously improving "one door" management mechanism in solving investment procedures, timely and detenninedly tackling problems rising in process of license or

"' Nguyen Anh Tuan, 2005, p 26!

'^ Nguyen Anh Tuan, 2005, p 262

adjustment investment certification Harassment cases, authoritarian, bureaucratic and irresponsible officials working in investment sector should be strictly disciplined Eliminating the real situation "the will of the king yields to the people's customs" which is long-existing at various levels

The Directive No 07/CT-UBND issuing on 25 June 2011 by president of Binh Dinh about some major solutions to enhance Provincial Competitiveness Index (PCI) in 2011 should be seriously implemented In our view point, the successful implementation of these measures will help investors minimize investment costs; making the investment and business environment of Binh Dinh to become clear, opened, and more transparent Also, it will be the basis for foreign investors to trust in their investment decision; furthermore, they help attract more investors for a long-term investment in Binh Dinh

3.4.4 The solution on location declaration

As mentioned above, due to unclear location declaration, Binh Dinh needs to make good location declaration as soon as possible Location declaration needs to show what foreign investors have in mind when seeking opportunities to invest in Binh Dinh In our opinion, to have an effective location declaration, Binh Dinh must understand the internal situation of the province and other localities as well Therefore, the provincial authorities should carry out a SWOT analysis (abbreviation of

strengths, weaknesses, opportunity, challenge) about the current socio-economic development of the

province in comparison with other localities so as to point out their comparative advantages In addition, the provincial's policy makers needs analyze FDI trends, policies of other provinces, evaluation of foreign investors about the province's investment environment to choose a practical solution In the other hand, the province must give out a clear location declaration for foreign investors, making their own comparative advantage available in foreign investors' mind Since then, foreign investors can make their decision and propagandize to other in\estors A suggestion of Mr To

Tu Thanh, former Secretary of Binh Dinh Provincial Communist Party is a good reference as saying:

"The authoriry must realize the advantages of Binh Dinh to apply for specific object In my opinion, the "breakthrough" is post-refming industry That is the petrochemical industry asphalt, polymers, synthetic fibers, chemicals by-products from petrochemical industry of Dung Ouat In term of geography wc have good conditions as nearby Dung Quat oil refinery We have to pre-determine to prepare well about labour source, seeking specialized and potential investors to directly call Jor

' ' The Directive 07/CT-UBND issuing on 25 June 2011 aims to overcome and improve the Provincial Competitiveness index in 2011 of Binh Dinh province, to avoid lagging behind other provinces in the counlr> and negatively influences to the investment and business environment of the province under 9 components of the Provincial Competitiveness inde.x View the detailed solutions in this Directive

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investment We do not have advantages such as Binh Duong Dong Nai, Ho Chi Minh City, Ba Ria

-Vung Tau , so it is very hard for us to call for investment with a similar way of them " ^^

Obviously, determination on location declaration is not easy for Binh Dinh Along with a right

determination, location must be consistent, "suitable location" is importam rather than the "high

location" Setting too ambitious targets would reduce the feasibility of implementation and credibility

in the eyes of potential investors

3.4.5 Solutions on investment promotion

Improving the quality of investment promotion is important to promote FDI in Binh Dinh To

improve investment promotion, Binh Dinh needs to focus on the following issues:

* Building key strategies in investment promotion

To improve the investment promotion, Binh Dinh needs more concentrated strategies, focusing on

attracting certain pre-determined FDI sectors rather than FDI in general This focused strategic is

necessary because specific promoting investment can help achieve the strategic objectives related to

aspects such as personnel, technology transfer, export and other field of general strategic development

Moreover, it enhances the cost-effectiveness and image building activities Also, an idle investment

mobilization will not be effective, unless it is implemented with a defined strategy to draw a specific

FDI

A specific investment promotion strategy comprises the identification of key sectors in both short

temi and medium term; key geographical areas to focus; forms of investment promotion to choose to

attract companies and so on Therefore, the formulation of investment promotion strategies in Binh

Dinh needs the support of location declaration It means that, based on the pre-determined location

declaration, the province's promotion strategy will have foundation for determining which sectors,

branches, geographical areas, countries, and companies need to focus on to mobilize investment

* Improving investment promotion techniques on the basis of using synchronous techniques

forms and btulding specific action progratns

As mentioned above, the investment promotion techniques used by Binh Dinh authority is weak and

not consistent, fherefore, in accompany with the full and synchronous use of three types of investment

promotion techniques''', the province should scientifically and professional apply these techniques,

especially image-building techniques On the other hand, action programs to promote in\estment also

need to be built, fhe content of the program should be clear, specific, proactive, and detailed from the

setting up to implementing An action program must specify the tasks to be done, who take

"*Hoang Lan 2006

*^ Staled on page 30 of the thesis ^

j 4

responsibility for each task A practical program is one that could be implemented, not just an idle one

to store in bookcases The contents of an action program can be illustrated as the following table:

Table 6: Content of investment promotion program

Parti: Target to attract investment

1, Qualitative target

2 Quantitative target

Desire on investment image Desire on relation of businesses of two countries Attracted business; amount of attracted capital; number of business of two countries get in touch

Part 2 Implementing program methods

Method 6 to 9 at page 30 Budget allocation, implementing agencies, co-ordinating agencies, implementing time, result assessment form

Method 10 to 12 at page 30 Specially pay attention to presented investors, seminar on policy, t r a n s f e r i n f o r m a t i o n w i t h i n m a n a g e r s

Name, function, head representative, people directly doing transaction, cuurent co-ordinating, proposed co-ordinating

Part 4 Periodical Assessment on investment promotion program

8. Assessment on

Implenieiiting methods group

Group of methods from 1 to 12 at page 30 Assessment criteria, result, cause of achievements and failure, continue implementing or not, new factors rising,

c o n d i t i o n and support in the c o m i n g t i m e

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9 Assessment according

to implementing agencies

Agencies directly under provincial People committee, city and Planning and investment Department; outside agencies to do some certain methods; outside co-ordinating agencies:

Assessment criteria, result, cause of achievements and failure, continue implementing or not, new factors rising,

condition and support in the coming time, form of handling work in the coming time, implementing condition

Source: Mai The Cuong, 2005, p 22-23

One of the main reasons hindering the implementation of an efficient investment promotion strategy

is limitations in funding, and this is a common problem of almost all investment promotion agencies in other provinces However, the lack of funding is a great obstacle to the success of the program Hence Binh Dinh authorities should pay more attention on the process of estimating annual budget, taking advantage of the Central Government's assistance so as to improve provincial budget for investment promotion activities Also, the investment promotion agencies must try their best to seek supplemental funding sources for their operation budget

4 Conclusion

The main objective of the thesis is to find out some feasible solutions to attract more capital in the future based on the analysis of reality in attracting FDI in Binh Dinh By analyzing data on the I 1)1 attraction in Binh Dinh, it can be said that this kind of capital has grown rapidly in recent years, but this increase is not corresponding with the potential of Binh Dinh, the amount of total attracted capital

is modest and its contribution to local development is not much However, the matter of effective mobilization and use of FDI in the overall development strategy and economic growth in Binh Dinh in particular and Vietnam in general in the current period is one of the key strategies To some extents

we can say that the pursuance of the sustainable and quickly development target depends largely on the capacity of solving the tasks mentioned above

To analyze and evaluate the causes of achievements and limitations in attracting FDI in Binh Dinh

we have used theoretical models of Nguyen Manh Toan about factors influencing FDI attraction as a basis to study By assessments of the causes influencing the reality of FDI attraction through data analysis tools and various information channels of this province, we can say that the factors influencing to attract FDI mentioned by Nguyen Manh Toan also ha\e strong influence to the results

of FDI attraction into a locality, considering it as a main basic for foreign investors in choosing their investment opportunity However, we also realize that the competition in attracting FDI in the era of

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global.zat.on ,s more severely, both of the availability and the creation of these factors are not enough

to brmg success in attracting FDI capital of locality or a country, unless that country has determined the location declaration and effective investment promotion activities as well For us, these two factors are becoming more and more important and indispensable for attracting FDI strategy in the context of severe competition today Evidently, their importance have to be accompanied by factors that Nguyen Manh Toan has pointed out, it means that factors in the model of Nguyen Manh Toan just truly take effect with the presence of both clear location declaration and efficient investment promotion Therefore, the supplementary of these two factors are necessary to improve theoretical models mentioned above

Figure 3: Nguyen Manh Toan's model with the addition

f-fTicicnt mvesimcnt promotion

One of the most fundamental limitations of this thesis is only concentrating on exaluation of FDI attraction in Binh Dinh, the effects of this capital to the economy and society of Binh Dinh especially

on negative sides are not paid due attention To some extents, the steadiness of the subject would be affected, because FDI capital is essential for development, but it does not mean we have to attract FDI capital regardless its negative impact of it The FDI attraction should also be selective, and the authorities should have wise strategies to quickly attract this important capital and minimize its negative effects as well

When analyzing the causes of achievements and limitations of the FDI attraction process in Binh Dinh, we highly appreciate the importance of two factors: determined location declaration and investment promotion quality We found that these two factors significantl\ influence the amount ot

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attracted FDI capital, the thorough analysis of them will help plan and create effective policies to attract FDI As a result, we hope to have other opportunity to study them thoroughly in the near future

In summary, although results of FDI capital attraction is low, Binh Dinh is still a locality v^ath high potential to attract FDI capital If there are judicious solutions, the results of attracting FDI to Binh Dinh will be remarkably improved in the time coming Therefore, we also hope that our proposed solutions in this thesis will be one of the bases to help policy makers in Binh Dinh find out feasible solutions to quickly attract FDI capital, partly contributing to make Binh Dinh province to become a strong locality, deserving one of the five provinces in the Key Economic Region of Central./

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