Decentralization policy in FDI mangement in

Vietnam
The case of Formosa project
Professor: NINOMIYA KOSUKE
Presenter: Hoang Thi Lieu
Student ID: 7111195408
Course: Environment and economics
 Contents
I. Decentralization policy in FDI management in Vietnam
1. Background
2. Pros
3. Cons
II. Formosa project
1. Background
2. Problem
3. Causes
4. Effects
III. Solutions for sustainable development
I. Decentralization policy in FDI mangement
• Since 2006, provinces have been Figure 1: FDI in Vietnam, 2005-2008
Billio
given the authority to license all FDI n80
projects irrespective of the capital dolar
70

60
size. 50

• The key agencies: the People’s 40

30
Committee and the Management 20

Board of economic Zones 10

0
2005 2006 2007 2008
=> Vietnam has emerged as a leading Year

recipient of FDI flows compared to the FDI capital

size of the economy

  Pros of Decentralization Policy
• Reducing the burden of the central government
• Reducing dependence on decision making that are often caused by central
government’s planning and control of important economic and social activities
• Decentralization has provided the provincial government with a broader policy
space to formulate policies: local needs and suit local specific situations.
• Improving management capacity and techniques, adopt new tools, and develop
human resources at provincial level
• Contributing to the local budget: a source of capital to develop infrastructure and
increase local revenue.
  Cons of Decentralization Policy
• Limit local competence in the appraisal and supervision of FDI projects
• Insufficient human resources, financial resources, facilities and equipment
• Inadequate specialized regulatory framework and the dilemma of economic
development and environmental protection.
• Decentralization may lead to the abuse of power by local governments. It creates
incentives for local governments to engage in corruption.
• Intergovernmental conflicts may happen as a result in the ambiguous division of
functions and responsibilities among different administrative levels.
=> Decentralization led to the “race to the bottom” among provinces to attract foreign
investment: low quality projects, high environment risks
 III. Formosa project
• A steel plant under the backing of the Formosa Plastics Group from Taiwan
• The investment certificate in June 2008 by People’s commuttee of Ha Tinh
province, phase I: $10 billion & phase II: $27 billion
• Businesses: manufacturing and trading of iron and steel
• Covers over 3,300 hectares, land: 2025 hectares and a water surface: 1293
hectares
• The biggest FDI project in Vietnam and the first wave of FDI in Ha Tinh
• Contributed a large percentage of the total revenue of Ha Tinh’s governmental
budget, 50% total revenue.
• Creating many new jobs for local residents and neighbors
Formosa Project in Ha Tinh province
 2. Problem – A marine life disaster
• In april 2016, an unprecedented marine environmental disaster occurred on
the central coast of Vietnam.
• Because of illegally discharged toxic industrial waste water from the
Formosa company.
• A total loss of over 322 tons of both wild and caged sea life across the coast of
the four affected provinces
=> Harmful chemical substances to marine ecosystems.
=> Damaged the sustainable environment, but also reduced economic growth in
surrounding areas.
A massive fish death caused by Formosa company
 3. Causes
 Procedures for approval of the project
- The law on investment has been relaxed to a large extent by local level, thereby
easing market entry for foreign investors. In addition, there are unclear distribution
of functions, responsibilities and accountability between central and local
governments.
- The entry regulations ar e not strict enough
- The investment application procedures are too simple
- Limited technical and managerial competence
• Ministry of science and technology: did not directly participate in the
technology appraisal process
• Ministry of Industry and Trade: giving the local government their opinion of
Formosa’s technology that was not the a technology appraisal report
• Ministry of natural resource and environment: did not directly participate
in the Environmental impact assessment report -> SIGNED the approval to the
project through a report summited by the project owner.
- Investment approval: unclear technology, no a design basis report, unknow
input materials for that project
=> The approval of Formosa project: Formosa plastics had a bad reputation for
environmental damage in many countries such as the US, Taiwan, and
Cambodia.
 Insufficient human resources
• Complex technology and high environmental risks  the knowledge and
ability of local authority is limited.
• New technologies that go beyond local ability to evaluate and manage
• People’s committee president of Ha Tinh has directly signed many illegal
documents building the construction of waste water discharge pipes
• The Management Board of EZ: 40 workers with more than 90 licensed projects
and has only 4 people work in a division of Natural resource and Environment.
• They did not have supported from Domestic and foreign consultation experts
• Weak commitment to investment in R&D and innovation
• The weak relationship between the local government and the central government
in managing FDI projects
 The weaknesses in the supervision of the project after the approval
• No violations had been found until the disaster occurred, a massive fish death
• The weak monitoring process
• Lack of public participation
• Local government engaged in corruption
• Formosa including unauthorized change of dirtier technology: proposal: dry
technology => in fact: wet technology
• Formosa had illegal burying of huge amount of industrial waste but it just was
discovered after the disaster
 4. Effects
 Economy: local economies dependent on fishing and tourism
+ a total loss of over hundered tons of both wild and caged sea life while fishing is a major industry in
Vietnam, accounting for 19.97 percent of the country’s total agricultural GDP in 2016.
+ a large loss of jobs for fishermen: the livelihoods of more than 200,000 people, including 41,000 fishermen.
+ a big loss for the tourism industry: marine tourism-related business in Ha Tinh dropped by 90 per cent
 Environment: polluted 200 kilometers (125 miles) of coastline in Ha Tinh and three nearby provinces.
Experts believed that it will probably take decades for the regional marine environment to completely recover
from the toxic spill.
 Health: fish infected with toxic, but it is a main food resource. People concern about food safety that affect
the next generation.
 Protest: protesters gathered in front of the company buildings and on many streets in different areas across
Vietnam => reduced people’s confidence in the government
 Reducing the attractiveness of investment in the future
People have stopped catching fish in a while
Local officials are finding the cause of a masive fish death in Ha Tinh province
Protesters are gathering in front of the government office
 III. Solutions for sustainable development
 Adequacies in specialized legal framework
- The entry regulations need to strict enough and review the investment application procedures
and provide enough details as a basis for grasping information.
- EIA is an essential tool to evaluate environmental impacts of projects that must to done by both
the government and project owner.
- Regulations on project supervision must complete, especially environmental regulations.
 Completing regulations on environmental monitoring systems
- The monitoring -> conducted on a regular basis and with the coordination all levels,
- Strict and regular monitoring system => high risk of environmental pollution.
- Supporting from the central government for equipment investment
- Encouraging public participating in monitoring
 III. Solutions for sustainable development
 The decentralization of investment licensing authority should be based on the size of the
investment and the investment sector
- Clearly define the responsibilities, the assignment of tasks and accountability among
agencies from central to local government
- Avoid the situation: local governments: incapable of effectively fulfilling decentralized
tasks
- Cooperation between central and local governments
 Improving local capacity
- Local governments should be equipped with sufficient personnel: quantity and quality.
- Local capacity needs to be reinforced with necessary facilities and equipment.
- Leader are able to set long-term plans and address challenges
- Receiving supports from the central government, both financial support, policy support and
even institutional reform.
Thank
you!