Disbursement of foreign direct investment slowed dramatically in July, mirroring the drop in FDI commitment.
The inflow dwindled to a mere $508 million last month compared to the monthly average of $1.3 billion in the first half.
According to the Foreign Investment Agency, an arm of the Ministry of Planning and Investment, 100 fewer projects were registered in the first seven months compared with the same period last year while investment fell by a third.
But despite the slump in July, the overall performance this year has not been too bad -- FDI of more than $8.41 billion has been committed, an increase of 5.4 percent year on year.
Around $6.4 billion has actually flowed in, $100 million more than in the same period of 2009.
What has been more alarming is the fact that only a small portion of the FDI commitments are in manufacturing.
Besides, only 35 provinces and cities out of the country’s 62 have attracted investments. Ba Ria-Vung Tau Province near Ho Chi Minh City and the northern Quang Ninh Province led with $2.1 billion each. Ho Chi Minh City was next with more than a $1 billion; Hanoi reported around $137 million.
Most of the investment has been in small ventures in the trading, real estate, and services sectors.
Law firms in Ho Chi Minh City providing investment consultancy said that they do not have many clients this year.
One of them said: “Last year, we were very busy serving a large number of clients. But we are idle now. One investor refused to pay his consultancy fees [after] he changed his mind about doing business here.”
Almost two-thirds of the FDI in Ho Chi Minh City is in real estate, while industry attracted only 6.2 percent.
The progress made by projects nationwide is also unsatisfactory, with only 10 out of the 50 major ones licensed in 2006-08 getting under way so far.
An official from the Ho Chi Minh City Department of Planning and Investment said the scale of recent foreign-invested projects has shrunk notably. One company which provides customs services has a registered capital of just $62,500 while a fashion has been set up with $30,000.
Many are in trading, a recent trend for foreign investors. In 2007, for instance, only 17 trading projects were licensed. In just the first half of this year, 70 have been licensed.
All this is causing worry.
“Should we license foreign investors who come to Vietnam to repair motorbikes?” Nguyen Vinh Nhung, deputy director of the city Department of Industry and Trade, said.
Deputy director of the Binh Duong Province Department of Planning and Investment, Le Viet Dung, said many foreign investors are seeking to do construction and installation with an investment of a few hundred thousand dollars.
“We need technology, but such projects do not bring the technologies Vietnam wants,” he said.
The FDI inflow into industry has recently fallen to 20-30 percent compared to 70-80 percent in previous years, Deputy Minister of Industry and Trade Nguyen Thanh Bien told Tuoi Tre.
Economist Nguyen Mai does not think the decrease in FDI commitment is a big problem.
“The most important thing is the disbursement rate.
“What worries us most is that many real estate projects have been licensed. Investors just register to get the use of large areas of land and then leave them idle for several years.”