Hi-Tech Parks and New Urban Areas Slow to Attract Investment in HCMC

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HCMC – Ho Chi Minh City (HCMC) saw an 83.5 percent year-on-year increase in foreign direct investment (FDI) inflows during the first six months of 2014. However, the city’s Hi-Tech and New Urban Areas have abjectly failed to attract the levels of investment that were previously hoped for.

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As of June 16, 162 new FDI projects have been licensed and another 49 projects had their capital increased – more than US$900 million in total investment. Most of the new projects are located in or around the city’s industrial areas. But the city’s newly created Hi-Tech Parks and New Urban Areas have not yet been successful in attracting investment – in fact, as of June, these areas have not seen any new FDI projects.

These areas include the Saigon Hi-Tech Park, the Thu Thiem New Urban Area, and the Tay Bac New Urban Area.  These areas had been intended to increase development opportunities in and around the city and ensure that HCMC’s business environment was competitive with other regional cities throughout the 21st century.

Poor planning?

In order to understand why these areas have not been successful in attracting investment, it is helpful to look at the cases of the Saigon Hi-Tech Park and the Thu Thiem New Urban Area.

Le Bich Loan, deputy chief of Saigon Hi-Tech Park’s management board, has confirmed that the park has not received any FDI projects so far this year. Partly to blame for this situation is the city government’s decision to tighten requirements for investors in a bid to attract projects that help develop the local workforce and strengthen Vietnam’s technological capacity. The park has also not yet met many of their current investors’ needs.

This has created a situation where, in order to obtain new business licenses, foreign investors must be world-famous brands that have a high technological capacity and who also agree to invest in local research and development facilities.

As a result, many projects are subject to additional scrutiny, which has created a bottleneck for new projects.  Among the pending projects is a US$2 billion mixed-use complex that will include a shopping mall, hotel, office and apartment building. The investors include Lotte and several Japanese companies.

In the case of the Thu Thiem New Urban Area, while site clearance tasks are 98 percent complete, there are still 150 cases of site clearance that remain unsolved – this has greatly slowed down the construction progress of the urban area. Another problem is that the area still has lack of infrastructure. For example, there is still no main road or other infrastructure facilities to connect the new urban area with the city center.

According to Trang Bao Son, deputy chief of the management board, “There are many reasons for the slow progress, but the biggest is the modest capital from the state budget that has been allocated.”

Foreign investors are rightly concerned over the slow progress of infrastructure development in the area and the high land prices – current leasing fees are much higher than neighboring countries.

Finally, according to Vu The Hoang, representative of the Ukraine-based Cau Vong Kiev trade promotion center, there is a shortage of information about the project. “We wanted to introduce the [Thu Thiem] project to investors in East Europe, but [we] do not have adequate information about its planning, as well as investment standards and requirements,” he said.

If HCMC wants to jumpstart foreign investment, the city will have to streamline its business registration processes for these areas and ensure that they are more responsive to investor’s needs.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.

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