09:50 | 12/12/2019 Investment
(VEN) - Foreign direct investment (FDI) projects have been and will continue to be an indispensable part of the Vietnamese wood sector. However, suitable control mechanisms are needed to protect it against risks and challenges that may arise from FDI expansion.
Increase of new projects
A report by researchers from Vietnamese wood associations and the Forest Trends organization shows that in the first nine months of 2019, the Vietnamese wood sector attracted 67 new FDI projects with total capital of more than US$581 million, equivalent to 216 percent of all FDI capital attracted by this industry in 2018.
According to To Xuan Phuc, an expert from Forest Trends, FDI in the wood sector is expanding through new projects, increases in the capital of ongoing projects, and capital contributions through stock purchases. FDI expansion reflects the attraction of the wood sector and its advantages such as low labor cost and easy access to input material resources. The US-China trade war is also expected to create new opportunities for increased FDI in the Vietnamese wood sector.
However, experts say the movement of investment projects out of China will create risks for Vietnamese companies, especially wood businesses. In the context of complicated changes in the US-China trade war, Vietnamese wood exports to the US will possibly be affected by additional US tax policies applied to Chinese exports, including tax evasion investigations on Chinese companies operating in the Vietnamese market.
Risk reduction mechanisms needed
In the opinion of To Xuan Phuc, suitable mechanisms and policies should be put in place to effectively control risks arising from FDI. He said the government can begin with checking small-scale projects, especially new projects of 2019, and then continue with larger-scale projects. Attention should be paid to major aspects such as input materials, product outlets, fuel and power consumption, and the use of labor.
Further, the government needs to set up connection channels with representatives of associations to collect information about unlicensed investment projects and create necessary mechanisms and policies to restrict risks.
Nguyen Ton Quyen, Vice President and Secretary General of the Vietnam Timber and Forest Product Association, said the government should create a mechanism that allows wood associations to admit official membership of foreign invested companies. This will help increase information exchange between domestic and foreign invested companies and minimize conflicts of interest among them, while at the same time enabling the associations to get updated on the actual situation of FDI in the wood sector, allowing state management authorities to effectively control FDI.
In the first nine months of 2019, 565 FDI companies contributed nearly US$3.4 billion or 46.6 percent to total export
value of the wood sector (US$7.3 billion).