Special economic zones - new impetus for economic development

Friday, 2017-11-17 04:17:13
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Phu Quoc ranks fourth among localities attracting the most investment across Vietnam. (Credit: NDO/Khieu Minh)
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NDO – Vietnam is promoting the establishment of three special economic zones (SEZs), including Van Don (Quang Ninh province), Bac Van Phong (Northern Van Phong, in Khanh Hoa), and Phu Quoc (Kien Giang). SEZ model is expected to create a new impetus for economic development and reform, because of its outstanding business environment, transparent institutions, and effective administration.

Creating momentum from emerging economic zones

Vietnam has 18 coastal economic zones (EZs) which are enjoying improved preferential policies and a more favourable investment and business environment for investors than other EZs. However, according to economists, the country still has not truly had a SEZ yet, as incentive mechanisms in EZs, while being better than others, are still not attractive to investors.

The establishment of three SEZs - Van Don, Bac Van Phong, and Phu Quoc - is considered a boost to the Vietnamese economy in the future. In particular, Phu Quoc belongs to the group of EZs given top priority by the Government until 2020, and draws robust investment. As of the beginning of 2017, Phu Quoc has attracted US$16.7 billion of investment, ranking fourth among localities receiving the most investment capital across Vietnam.

Van Don EZ was established in 2007 with the aim of becoming a centre for eco-maritime tourism, and an aviation and international trade hub to promote local economic development for the northern province of Quang Ninh, and create momentum for regional and national development. Bac Van Phong EZ has been selected by the Government as the earliest development priority (since 2006), aiming to become the nucleus of economic growth and an urban, industry, service, and tourism centre of the South Central Coast.

In fact, these three EZs have not yet been able to maximise their advantages, and the set objectives are proving difficult to achieve. The main reason is that the institutional and policy framework is inadequate, ineffective, and unattractive enough to draw large scale investment.

In order to improve the efficiency of EZs, the Ministry of Planning and Investment (MPI) has studied international SEZ models, and selected these three EZs to turn them into true SEZs in Vietnam. According to Head of EZ Management Department under the MPI Tran Duy Dong, these are EZs with advantages that meet the necessary criteria to create a breakthrough in attracting investment.

In order to set up SEZs, by the end of 2016, the Government agreed to promote the construction of these three SEZs with the intention that each unit would develop their own strengths in order to maximise their potential and comparative advantages to create new development impetus, ensure regional allocation of resources, and produce a spillover effect on a national scale.

According to the MPI forecast, the benefit from SEZ development is very high, as local people in these areas could earn from US$12,000-13,000/person/year. Specifically, in Van Don, during the 2021-2030 period, it is estimated that the State could collect US$1.9 billion from taxes and fees; while enterprises would generate about US$9.7 billion in added value. From 2017 to 2030, in Bac Van Phong, it is estimated that the State coffers would grow to US$1.2 billion from taxes and fees, and enterprises could generate value added at US$10 billion. For Phu Quoc, it is estimated that the State might collect US$3.3 billion from taxes, fees and land use; while businesses would gain US$19 billion in value added.

Minister of Planning and Investment Nguyen Chi Dung said that when coming into operation, SEZs would create a huge attraction, a “booming” investment. SEZs would contribute greatly to bringing the Vietnamese economy to the level of developed countries in the region. Developing SEZs in Vietnam with break-through administrative and economic mechanisms and policies, along with international competition, new development motivation and positive spillover effects, is necessary and urgent.

Construction of Van Don Airstrip. (Credit: NDO/Hung Son)

Removing bottleneck to facilitate SEZ development

In order to perfect the mechanism and policies for the operation of SEZs, the MPI was assigned by the Government to draft the Law on Special Administrative-Economic Zones. Tran Duy Dong said that drafting the bill was necessary in order to institutionalise the socio-economic development viewpoint, strategy, and plan for the construction and development of SEZs approved at the 8th, 10th, 11th and 12th National Party Congresses.

In particular, the Resolution of the 12th National Party Congress sets out "to build some SEZs to create growth points and pilot the breakthrough regional development mechanism." The completion of the draft law also provides an important legal framework for the establishment, development, and management of three special administrative-economic units that have been approved by the competent authorities in the Notice No. 21-TB/TW dated March 22, 2017.

Economists said that Vietnam's advantages in attracting investment are shrinking. The country is actively improving its business environment to create attractiveness for foreign investors. If the business environment fails to distinguish itself, it will be difficult to attract investment. Vietnam is a developing country, so it needs to create more attractive and innovative opportunities to attract investors. If there is no true SEZ, it will be difficult to retain investors.

To ensure SEZs are seen favourably by investors, the MPI has cooperated with relevant units to study and synthesise experience from 13 countries around the world with both successful and failed SEZ development models. Based on that, a model for SEZ development suitable for Vietnam's economic conditions will be formed in anticipation of the development of the 4th Industrial Revolution that is progressing worldwide.

Deputy Minister of Planning and Investment Nguyen Van Trung affirmed that the Law on Special Administrative-Economic Zones is remarkable, not only domestically but also internationally, as it incorporates competitiveness and groundbreaking features.

It is especially necessary to have a policy to consider exemption from liability for the heads of such special units, otherwise, leaders of SEZs would not dare to proceed because of the restrictive legal regulations. This means that it is important to remove constrictions for the development of SEZs. If the bill is approved, this will be a great opportunity for Vietnam to attract investment in three special administrative-economic zones, namely Van Don, Bac Van Phong, and Phu Quoc.

Opening special zones to welcome investment waves

According to Dr. Vo Tri Thanh, former Deputy Head of the Central Institute for Economic Management, developing mechanisms for SEZs need to develop a broader perspective to compete in the international arena. Vietnam should accept the “new play” on payment and currency but at a manageable level. Policy development still receives too much focus, meanwhile, there is no clear identification yet on SEZ as a place to make money or to test institutions, thus influencing policy making and planning.

The goal is to create a business investment environment that is particularly conducive to innovation, research, and development, as well as facilitating new and hi-tech sciences, and services and industries with development advantages which are named in the list of regional priorities for development.

Minister Nguyen Chi Dung said that under the National Assembly's programme for building draft laws and ordinances, the draft Law on Special Administrative-Economic Zones is scheduled to be submitted to the National Assembly for discussion at its ongoing 4th session, and to be approved at the next sitting. Once the draft bill receives approval, it is expected to attract a surge of investment in Vietnam.

The policy has been formed, now the mission is to legalise it and create the outstanding institutions that are capable of competing within the region and international arena. While taking the initiative and building mechanisms to welcome waves of investment internationally and domestically, it is imperative to understand the needs of the nation, and investors, then move forward to develop the appropriate institutions.

As a special administrative-economic unit, administrative or economic organisations must be special. With flexible and open issues, it is necessary to study the development models of other countries and current trends in the world, combined with the reality of the country during the past years, to build the best institutions with great competitiveness, while at the same time ensuring that core issues related to defence-security, national sovereignty, social consensus, and environmental protection are not neglected.

Standing member of the National Assembly’s Economic Committee Do Van Sinh: “Making a breakthrough needs a break in thought first. A policy issued without breakthrough is no different from regular ones.”
Minister of Home Affairs Le Vinh Tan: “There are many models on the organisational structure of SEZs in the world, and here in Vietnam we have special administrative-economic zones, which have both administrative and economic features. Therefore, the specialty is that it must be different from current law, so this draft law on special administrative-economic zones should not be contrary to the Constitution. It is possible that after passing this law, several other current bills in force should be adjusted to suit the development of special administrative-economic units.”