Controls needed for FDI projects using domestic capital

Government officials have voiced their concern about the new phenomenon of foreign investors using domestic capital for foreign direct investment (FDI) projects.

Nguyen Tran Nam, Deputy Minister of Construction, maintained that now is the time to reconsider FDI projects that use domestic capital.

“I know some foreign investors who undertake huge investment projects capitalized at $3-4 billion,” Nam revealed. “However, the capital they bring to Vietnam is not much, just 20-30 percent of $3-4 billion, which they spend on initial expenses like project building or site clearance. After that, with their experience and advantages, they mobilize domestic capital to run their projects like other domestic investors.”

According to Dau tu newspaper (VIR), this will have a negative effect, because foreign investors can attract capital that should be reserved for domestic investors.

Photo: Nhon Trach new city (source: Ashui.com)

In two workshops on the real estate market development held last week in Hanoi, participants heard that developers now seriously lack capital. The situation will become even worse if domestic capital does not go to domestic investors, because it will hinder the development of the domestic economic sector.

Luong Tri Thin, Chair and General Director of Dat Xanh Real Estate Services and Construction Company has also expressed his concern that foreign investors register big investment projects without bringing big sums of investment capital.

“We need to look at the issue from two angles. First, do we have a good system that encourages foreign investors to bring capital to Vietnam? With complicated procedures and long waits for site clearances – all that takes 3-5 years – foreign investors may get tired and take their capital to other places,” he detailed.

“We should set up policies to control the situation, or this will have a negative impact on capital mobilization by Vietnamese enterprises,” he added.

Others additionally pointed out that foreign investors who use domestic capital make it impossible for Vietnam to attract more foreign currency. A senior expert from the Central Institute for Economic Management (CIEM) argued that this will lead to higher demand for foreign currencies, causing difficulties in offsetting the current balance deficit.

Dr. Nguyen Mai, past chair of the former State Committee for Cooperation and Investment , affirmed that measures are necessary to control the profits of foreign investors.

“Many foreign investors are taking full advantage of Vietnam’s policies to make profits, especially in the real estate sector. They just need $5-10 million, and then they can mobilize capital from the public and borrow capital from banks to develop projects and make fat profits,” Mai explained.

He went on to say that, while foreign investors just have to pay land lease fees at 50 million dong per square metre for 50 years, they can sell products at $2500-300 per square metre.

He emphasized that Vietnam still needs to encourage foreign investment in many fields, but Mai also asserted that the State should not close its eyes to the fact that foreign investors are gaining unreasonably high returns./.