The decentralisation mechanism in foreign direct investment (FDI) management, which was hoped to ease the complicated procedures and created the most favorable conditions to foreign investors, has turned out to be a burden on agencies.

Nguyen Van Tu, Deputy Director of the Hanoi Planning and Investment Department, has warned about the “three ‘no’ tendency” in the FDI management (state management agencies do not meet investors; do not know the locations of foreign invested enterprises; and do not know how the enterprises operate).

Tu stressed that the problems have been generated by the decentralisation mechanism, about which he has many times reported to the higher authorities. However, to date, no solution has been found to settle the problems.

The three “no’s” have been created by the legal framework which has been designed to aim to create most favorable conditions for investors, but make things different for management agencies.

In fact, the decision about the application of the mechanism was only made after the government realised that decentralization is indispensable.

“With 13,500 investment projects, we will not be able to manage the investment if we do not apply the decentralisation mechanism,” said Do Nhat Hoang, Director of the Foreign Investment Agency under the Ministry of Planning and Investment.

Phung Tan Viet, Deputy Chair of the Danang People’s Committee, also said that the decentralization mechanism has allowed local authorities to take initiative in calling for investment and licensing projects. Since investors have to contact less state management agencies, they can save costs and time.

Viet has affirmed that thanks to the decentralisation mechanism, Da Nang has attracted a big amount of FDI – 213 projects with the total registered capital of USD3.2 billion.

The improvement in FDI attracting has also been reported by other provinces. By the end of February 2012, Vietnam had attracted 13, 530 foreign invested projects with the total registered capital of USD200 billion.

However, Hoang admitted that the decentralization mechanism has generated some big problems. Local authorities have been trying to attract foreign investors; therefore, they have been offering overly high investment incentives to scramble for investors from other provinces. The stiff competition among localities in attracting investment has led to the breaking of the overall development strategy of the whole country.

Hoang cited the licensing to steel and cement projects as the examples. The energy consuming steel and cement plant projects are threatening to lead to the imbalance in the electricity supply and demand and to the environment pollution.

However, the problem is that keeping management over the projects after licensing seems to be beyond the competence of local authorities. Hoang said that in many cases, the local authorities do not know where to find the investors, though the projects were licensed 10 years ago.

Viet admitted that the qualification of the local staff is not good enough to keep the management over licensed projects. Therefore, local authorities cannot undertake the supervision over the implementation of the obligations of investors, and the speed of the projects.

Tu from the Hanoi Planning and Investment Plan also said that there are about 2000 FDI projects in Hanoi, including many small projects which need to bear the direct management. However, the lack of the staff does not allow the department to do this.

However, the problem not only lies in the limited qualification of the local authorities, but also in the lack of cooperation between the central agencies and local authorities.

Meanwhile, Doan Duy Linh, Deputy Director of the Hai Phong City Planning and Investment Department, the problems also lie in the current legal regulations. In case the investors meet difficulties and cannot implement the registered projects, the local authorities need to revoke the licenses. However, the regulations on the issue remain unclear, which have been putting big difficulties to local authorities.