Some solutions for further attracting Foreign Direct Investments in Binh Dinh province in the coming time

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 UPPSALA UNIVERSITET UPPSALA UNIVERSITY UNIVERSITY OF ECONOMICS & BUSINESS, VNU EP*^ re ã>-ô*'-* MASTER THESIS OF MPPM Some solutions for further attracting Foreign Direct Investments in Binh Dinh 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 Title of thesis: "Some Further Solutions for Attracting Foreign Direct Investments (the "FDI") in Binh Dinh Province in the coming time" Academic level: Thesis of Master Program in Public Management Author: Nguyen Thanh Vinh, Nguyen Thi Lan Anh, Do Thi Thuy Van Instructors: Vietnam supervisor: Nguyen Tien Dung, PhD Uppsala supervisor: Lars Torsten Eriksson, MSc, PhD Date of completion: August n 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 Method - Using the model of Nguyen Manh Toan in respect of factors affecting the FDI attraction as a theoretical basis for assessing causes of success and limitations in attracting the FDI in Binh Dinh - Using the method of analysis-synthesis, the method of qualitative and quantitative analysis to analyze and evaluate collected statistics, reports and other data - Using the method of interview of some related objects for gathering more data 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, industrial zones and 37 industrial groups - 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: * Objective reasons - The impact of the global financial crisis and economic slowdown Limited capacity of some investors - The strong competition of some localities with comparative advantages better than those of Binh Dinh * Subjective reasons - 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 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 TABLE OF CONTENT L Introduction 1.1 Aim of study 1.2 Method of study ^ 1.3 Scope and demacrations o Theory 2.L Some basic concepts o o 2.1.1 The concept of Investment 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 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 Conclusion 36 References 39 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, exportorientation, 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 ... 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... MPPM Intake 2, group 14 Hanoi, September 2011 THESIS SUMMARY Title of thesis: "Some Further Solutions for Attracting Foreign Direct Investments (the "FDI") in Binh Dinh Province in the coming time" ... & BUSINESS, VNU EP*^ re ã>-ô*''-* MASTER THESIS OF MPPM Some solutions for further attracting Foreign Direct Investments in Binh Dinh province in the coming time Authors: - Nguyen Thanh Vinh -