Growth slows amid FDI slump

PUBLISHED : Friday, 01 January, 1999, 12:00am
UPDATED : Friday, 01 January, 1999, 12:00am

A last minute flurry of new project licences has failed to stop a decline in Vietnam's annual foreign investment.

About 260 licences involving US$4.05 billion worth of investment had been issued last year - the biggest being a controversial $1.3 billion oil refinery approved this week.

A $143 million bus deal involving Korea's Daewoo and a $280 million methanol project in the southern port of Vung Tau were among the other last minute approvals.

The total represents a 10 per cent fall in last year figures - a drop compounded by falling disbursements of actual capital.

The figures have yet to be formally announced but government officials are preparing to talk-up the situation, saying the $1.22 million worth of disbursals was a lot better than expected. It still represents a fall of more than 44 per cent on last year.

About a third of the $32 billion worth of foreign projects licensed since the Communist Party-ruled country began in 1987 has made it into the country. The General Statistics Office sounded a warning in its annual report yesterday that the situation would be a 'big obstacle in maintaining sustainable economic growth'.

The report added that a worsening economic picture could be expected which could have a major impact on a wide range of development plans.

Foreign investment had started to slow even before the regional crisis as Vietnam's image waned amid tales of fearsome bureaucracy, corruption and slowing reforms.

Seasoned foreign investors now fear the country will struggle to compete when capital starts to return to the region.

'We are all worried about 1999,' one foreign lawyer said. 'Unless they move to get some big infrastructure deals sorted at last, we could be seeing just $500 million or so in new deals. There is just so little interest.' The office confirmed that Vietnam's gross domestic product had dropped to 5.8 per cent for the year from 8.2 per cent in 1997 - a figure some private sector analysts still see as too high.

Vietnam's leadership is pinning its hopes on a rural development drive to stimulate more economic activity in what remains one of the fastest growing countries in the region.

A recent World Bank report however warns that unless reforms are accelerated, capital inflows could fall further. It has warned of the prospect of a overall external financing gap of as much as $1 billion for the next two or three years.