Investment in agricultural and rural sector hits snags

In 2000, the agricultural sector accounted for 14 percent of the total economic investments and 16 percent of the non-State sector. However, in 2007, total investment capital reached more than VND520,000 billion but investment in the agricultural sector was only VND34,000 billion, less than half the figure recorded seven years ago.

 

Dao Quang Thu, head of the Department for Agricultural Economy under the Ministry of Planning and Investment (MPI) said that although the State’s investment in agriculture makes up 33 percent of its total budget it meets only 55-60 percent of development requirements. Foreign direct investment (FDI) capital in the agricultural and rural sector is particularly low and unstable. Vietnam has not attracted many developed countries to invest in the sector.

 

According to the MPI’s Overseas Investment Department, at mid-year, there were 976 active FDI projects in agriculture with a combined capital of more than $4.6 billion, nearly $2 billion of which has been disbursed. However, the investments are allocated unevenly. While the total number of businesses increased sharply from 41,000 to 113,000, the number of businesses involved in agricultural, forestry and seafood projects rose slowly and many were on the skids due to their small scale of production.

 

They have been badly affected by domestic inflation and the global financial crisis. The Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD) said that around 30 percent of small- and medium- sized businesses in the rural sector have halted operation. More than 80 percent of traditional craft villages have stopped operating or are operating by fits and starts. Around 5 million workers in craft villages and around 90,000 – 300,000 rural workers have been laid off this year.

 

According to the Small- and Medium- Sized Enterprises Association, around 20 percent of rural businesses are in danger of going bankrupt.

 

IPSARD says it is not that businesses did not have money. Even when they had a lot of money they refrained from investing in the rural sector. This is due to convoluted administrative procedures, long delays in land clearance and huge "implicit" expenses.

 

Investors complain that land allocation requires 15-20 procedures. It takes at least 1-2 or even 3-4 years to complete all procedures, causing slow disbursement of capital. For example, Vietnam TFB Ltd Company applied for a business license to produce O Long tea in Ha Giang in 2004 but it was not until 2007 that it was allocated land for production.

 

Pham Minh Tri, human resource director for the Cargill Ltd Company in Dong Nai province says that procedures are very complicated and cumbersome. A profile is approved in one province but rejected in another province. This slows down disbursement of investment capital.

 

Vu Quoc Tuan, chair of the Vietnam Traditional Craft Village Association, says agricultural activities require plenty of amount of land and the land has been allocated to farmers for a long time. Therefore, most businesses do not have enough land to grow and expand their production.

 

A shortage of land causes many businesses to abandon projects they had planned to carry out. For instance, the ITEKA Group from Denmark planned in 2005 to develop a forestry plantation for paper material on 3,000ha. The Ministry of Agriculture and Rural Development took the group to a number of provinces to conduct surveys but they did not find any suitable site and had to scrap their plan.

 

A locality might be willing to allocate hundreds of hectares, even thousands of hectares for developing industrial zones but will not allocate 10ha for new farms. The Husbandry Department says it is a severe shortage of land that limits the development of farms.