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Tuesday, June 25, 2024

Massive IP development worrisome

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In anticipation of the investment shift driven by the Covid-19 epidemic and the Sino-U.S. trade war, multiple industrial real estate developers are rolling up sleeves with their investment. Will the fact that industrial parks (IPs) and factories are mushrooming lead to overcrowding and negative consequences for the economy, society and the environment?

It is not until now that a retreat of investment away from China has been made. Prior to the outbreak of Covid-19, the Sino-U.S. trade war was a test for countries that relied heavily on supply chains from China to feel the direct, immediate impact of the “punitive” taxes imposed by the Trump administration. The Covid-19 pandemic is the new catalyst that urges the major shift of supply chains from China to occur faster and more vigorously.

Spotting such a capital exodus, experts and analysts have identified Vietnam as one of the attractive destinations having a host of opportunities to absorb substantial investment from developed nations embracing advanced technology. In particular, Vietnam’s success in controlling Covid-19 has further strengthened the confidence of foreign investors, contributing to positioning the country as a safe destination for business activities of international manufacturers.

Planning for new IPs

According to the Department of Planning and Investment of Danang City, to promptly welcome the wave of foreign direct investment (FDI) and reach out to those FDI enterprises seeking alternative investment markets after the epidemic, this city is accelerating the completion of infrastructure and preparing a number of land plots to call for investment, particularly speeding up the necessary procedures for the development of Software Park No. 2.

In addition, Danang is selecting investors for implementing its three new IPs, including Hoa Cam (the second phase), Hoa Nhon and Hoa Ninh, with a total area of over 880 hectares and total investment value of nearly VND14 trillion. It is expected that when these three IPs come into operation, the total number of IPs in Danang will rise to 10 and a total area of about 2,202 hectares, creating favorable conditions for obtaining industrial land fund to call for and attract investment in the coming time.

Meanwhile, in Binh Phuoc, the Prime Minister has just given his approval in principle for the project to develop and operate the infrastructure of LEDANA Industrial Park over 424.54 hectares in Loc Thanh Commune, Loc Ninh District. Requiring a total investment of VND1.2 trillion, this project is to be implemented by Le Dai Nam International Corporation (LEDANA Corp.), a relatively new name in the development of industrial production infrastructure.

Binh Phuoc’s provincial government has proposed establishing new industrial zones on a total area of over 7,600 hectares, including 6,300 hectares of Dong Phu Industrial, Service and Urban Complex, and 1,300 hectares of Phu Rieng Industrial Park.

Also in order to receive the switch of investment and production out of China, and seize the opportunities given by the free trade agreements where Vietnam is a signatory, IDICO—the developer and operator of 10 IPs across the country—said they are preparing more industrial land surface in the existing industrial zones. In addition, preparations will be done so that by 2025 there will be three new IPs or so in the northern region on a total area of some 1,000 hectares, The new IPs whose diversity of products such as factories and warehouses built for rent are designed to meet the need of various investors.

Careful selection needed

The above situation means that IPs growing massively like a fad are likely to lead to overcrowding and many negative socio-economic and environmental impacts. However, Dr. Phan Huu Thang, former director of the Foreign Investment Agency under the Ministry of Planning and Investment, said worries about an excessive development of additional IP infrastructure may not be necessary because this is an objective of the country that targets industrial production development. Moreover, the occupancy rate of over 76% at the operating IPs is relatively high, making it plausible to build more IPs to welcome new investors or allow the active ones to expand their production facilities.

Meanwhile, as per a CBRE’s survey in Vietnam, the occupancy rate at existing industrial real estate projects is up to 90%, and the land fund offered to foreign investors remains modest. The realty consultancy firm is still concerned that if the supply of industrial land is not ready, Vietnam will see her opportunity to attract FDI slip through her fingers and arrive in other countries in the region like Thailand, Indonesia and the Philippines.

Therefore, what Phan Huu Thang noted is that it is necessary to install a “filter” capable of selecting really competent and environmentally friendly investors, those who also comply with international investment laws and practices. “Vietnam’s initiative will determine the trend of foreign investment flows in the coming period,” he said.

According to economist Pham Chi Lan, the world is now very cautious about foreign investment. For example, the U.S. has adopted a law decreeing that the government has the right to consider foreign investment, rather than let it be. Vietnam should take this point into account when designing a mechanism to select quality foreign companies.

According to analysts, to anticipate the new wave of investment effectively in the current context, it is necessary to have an orientation for in-depth sustainable IP development, improving economic efficiency and ensuring environmental friendliness.

In fact, despite the long development, there is still many limitations when it comes to Vietnam’s infrastructure. Currently, what many IP developers are doing is simply leveling the site and then waiting for foreign investors to pour their money. There are even some IPs without internal roads for transporting materials and products. Operating an IP is not merely selling land lease rights but services must also be in sync. The most important thing for IP infrastructure is to have waste and water treatment facilities. It is because when developing any project, guaranteeing environmental factors is very crucial.

Currently, IP operations are posing challenges for the environment and human health. In many parts of the world, the eco-industrial park model has been adopted for greater efficiency of resource and energy use, environmental protection and more sustainable development. Therefore, experts believe it is necessary to develop eco-industrial parks, a model of the circular economy in which the waste discharged by one individual is used as input material for another in the economy. Subsequently, the material flow will be fully utilized to create products and minimize sources of waste.

By Hung Le

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