New thinking in agricultural investment stimulus

Thursday, 2017-05-04 10:41:13
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Hi-tech agricultural investment attraction requires synchronous and attractive policies. In this picture, a foreign expert guides local ones with vegetable growing technology at VinEco Tam Dao Farm. (Credit: NDO/Thanh Tuyen)
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NDO – Vietnam Business Annual Reports in recent years showed that while agriculture accounts for about 20% of the nation’s GDP, the number of agricultural enterprises only accounts for 0.96% (of which only 3% comprise FDI ones). Total investment in the sector is also very low, at about 1% and labour force accounts for 2.3%. This is the consequence of the fact that Vietnam has not yet developed a suitable policy system to meet the demand for agricultural investment stimulus in the new period.

Investment attraction policy – a "tight shirt"

While experts and managers are searching for the key to unlocking a VND100 trillion (US$4.4 billion) credit package to stimulus investment in hi-tech agriculture, the Ministry of Planning and Investment (MPI) - the agency assigned by the government to comply a decree to replace Decree No. 210/2013/NĐ-CP (Decree 210) dated December 19, 2013, by the government on policies to encourage businesses to invest in agriculture and rural areas - is also actively finalising the new important document to replace the old one.

A series of "bottlenecks" have been identified. Despite the large number of farmers and promising potential, Decree 210, after three years of implementation was considered to be "not meeting the set target", as of limited resources and budget support, unstable agricultural production, small-size rural enterprises, and insufficient linkage of agricultural product supply and demand.

According to assessment from the decree implementation, there were 64 investment projects in agriculture with the total investment of VND6.4 trillion (US$281.6 million,) on average VND100 billion of registered capital per project.

However, the central budget only supports 23 localities with VND279.5 billion out of the total VND379.5 billion committed. The average support level is about VND93 billion a year but decreases rapidly over each year, of which 2015 at VND168.68 billion, 2016 VND78.4 billion and the plan for 2017 is at only VND32.3 billion.

While the funding is too little and lack attractiveness, administrative procedures to which investors receive support for investment in agriculture are still complex (according to the MPI’s review, administrative procedures might include at least 15 steps). In addition, there are many other procedures related to land, construction, and environment that take a lot of time and costs for enterprises, leading to the slow implementation of projects and affecting businesses’ confidence.

The promulgation of Decree 210 expresses strong determination to attract more investment in agriculture, but right at its birth, it was left behind as a range of new laws and documents issued, defined many new regulations, such as the Law on Investment, the Law on Public Investment and the Law on Construction. Thus, the replacement of Decree 210 is now necessary, but the problem is whether it should only be adjusted or it should be replaced completely?

"Refreshing" policies to attract investment

In response to the need to accelerate the agricultural structure and modern rural area construction in order to increase land accumulation and create a "boost" for attracting businesses to invest in agriculture and rural areas, Decree 210 should be "renewed."

The amended contents of Decree 210 proposed by functional agencies mainly focus on amending and supplementing administrative procedures and adjusted support conditions towards reducing the scale, expanding the participants, and increasing the level of support for some conditions, particularly those with special preference, as well as adding some new areas that need to be encouraged for investments.

Such amendments are necessary to open up capital flow but they need to be implemented in line with addressing pressing challenges of Vietnam's agriculture and rural areas, as well as linked to today's issues related to agricultural restructuring, modern rural area construction, land accumulation for large-scale production and construction of key agricultural value chains and strong agricultural product brands in the fields that are the nation’s strength.

One obvious problem is that despite the agricultural sector currently owning comparative advantages in resources and natural conditions, particularly in production and business of rice, shrimp, tra fish, coffee, fruits, such advantages have not yet transformed into true competitive advantages.

Some new content in the draft decree such as "support for land accumulation" is just partially adjusted extended by just "allowing enterprises to effectively coordinate the use of transformed land in agro-forestry companies." The issues of regional linkage, linkage based on the value chain of key regional products under the new guidelines and financial mechanism for start-up in agriculture have not been "shaped" in the new designed policy.

Many big issues need to be "transformed" into the policy of encouraging investment in agriculture in a hope of creating a real "boost". Thus, in order to avoid fragmentation of resources, the demand for regional access and strengthening regional connectivity is being set as an indispensable requirement and an imperative for development.

The restructuring of agriculture and strengthening regional integration in the fields related to agriculture, farmers and rural areas, need to be properly understood on the basis of thoroughly researching on theory and comparing with practice to synchronously organise and direct implementation in a more practical and effective manner.

The good thing is that recently, Japanese and Korean investors have made good progresses in this area. In particular, Japan identified the "map" of the five key regions to invest in Vietnam’s agriculture, including the Mekong Delta, Ho Chi Minh City, Lam Dong, Nghe An and Hanoi, while it did not miss out on market access through field trips and contacts with local authorities and potential partners.

This trend needs to be supported by more strongly encouraged policies, as attracting FDI into agriculture needs to be accelerated. On the other hand, it is also necessary to strongly develop domestic enterprises to be eligible to become partners or counterbalance.

Agricultural restructuring is imperative, so the Decree on encouraging investment in agriculture should be an effective tool to meet this requirement. The role of State agencies over cross cutting issues going beyond traditional agriculture must be renewed in the sense of "less directing, more supporting." Only then, enterprises and farmers would receive effective support through the system of policies and tools that only the State has.

The total support from the central budget for implementation of Decree 210 for the three years 2015, 2016 and 2017 is VND279.5 billion out of the total of VND379.5 billion. The rate of state budget support per total project investment is 5.93%.

“With small agricultural production and low competitiveness, the opening up of flow of capital from the private sector, especially large enterprises, in agriculture plays a very important role. Just only one agricultural field that has not changed much with hi-tech application, increased productivity and increased competitiveness means Decree 210 has not reached its targets.”

Dr Dang Kim Son, former head of the Institute of Policy and Strategy for Agriculture and Rural Development