Vietnam ranks among the top 3 rice and coffee exporters in the world, and its vegetable and fruit exports are expected to reach $10 billion prior to 2025.
However, FDI (foreign direct investment) capital has been flowing into industries (73 percent), while agriculture remains the least invested sector with less than 1 percent.
Vietnam encourages investments in hi-tech agriculture by offering preferences to investors. However, the investment in the sector remains modest. There are only 35 hi-tech agricultural zones approved with total area of 5,800 hectares, 71 percent of which is in Lam Dong province.
Despite the great potential, FDI capital does not go to the agriculture sector. First, foreign invested enterprises (FIEs) find it difficult to access land. Most of the agricultural land is for rice cultivation and it is difficult to change use.
|Despite the great potential, FDI capital does not go to the agriculture sector. First, foreign invested enterprises (FIEs) find it difficult to access land. Most of the agricultural land is for rice cultivation and it is difficult to change use.|
The World Bank says that Vietnam has reserved too much land for cultivation, while the yield and the efficiency are low.
Second, supporting industries, especially mechanical engineering and transport, are underdeveloped which affect mechanization in agriculture and the application of modern technologies.
Regarding transportation, Vietnam heavily depends on roads which have high costs, and long transport times which affect the quality of farm produce.
An agriculture enterprise estimates that the long transportation time causes a 40 percent loss to their farm produce value.
Third, the labor supply in agriculture is weak. Most workers in the sector are not qualified. Meanwhile, schools lack facilities to support the study and practice of students.
Finally, the investment incentives mentioned in current policies are not effective in reality, while the business environment is not favorable.
The state’s policies have many problems. The incentives focus on interest rate preferences which is accessed under the ask-and-grant mode. It takes a long time to get preferences because of slow approval. Meanwhile, the procedures are very complicated which are designed in a way to minimize risks for banks.
Vietnam, which wants to attract more FDI into hi-tech agriculture, has been advised to consider an Israeli model, a powerhouse in both agriculture and technology.
First, Vietnam should accelerate the investment in research and develop new agriculture technologies, the factor that determines success. A report from Deloitte shows that Israel has 300 multi-national companies researching and developing technology. In the first six months of 2017 alone, $80 million was invested in technology development to upgrade the efficiency of agricultural production.
The bump in FDI during the first six months of the year is expected to continue as a number of factors take hold.
With Vietnam’s new foreign direct investment attraction strategy towards 2030 set to be unveiled soon, international investors are making fresh moves to benefit from privileged incentives.