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Policies encourage investment in forests
18 | 08 | 2007
Non-State enterprises will get equal treatment as State enterprises in forest development as the Vietnamese Government is committed to encouraging all kinds of investment in the industry, said Hua Duc Nhi, Deputy Minister or Agriculture and Rural Development, at a Forestry Investment Forum.

About 75% of production forests, 30% of protected forests and 15% of special-use forests are calling for investments.

The forum, held in Hanoi on Wednesday by the MARD to promote investment in planting production forests and manufacturing forest products, was the first since Prime Minister Nguyen Tan Dung in February approved the Viet Nam Forestry Development Strategy 2006-20.

Vietnam aims to plant one million hectares of forest, with 750ha of which composed of production forests, by 2010. In the same period, the Government plans to increase the country's forest coverage to 43% and forestry products to a value of $7.8bil.

Nhi reaffirmed that the Government's policy is to diversify management and ownership of forests by strengthening the equitisation of State forestry enterprises in which the State will not hold a controlling stake.

The Government also encourages setting up joint ventures or partnerships between State companies and private enterprises and communities in planting, protecting and manufacturing forest products, he said.

Investment incentives

According to Dinh Ngoc Minh, deputy director of the Department of Agricultural Economics, under the Ministry of Planning and Investment, the Government has revised policies on land and forest assignment and forest leasing, in order to promote investments in the sector from private and foreign enterprises.

He quoted Decree No 108/2006/ND-CP, which establishes investment incentives for forest development such as income tax rates of 10, 15 or 20%, instead of the usual rate of 28% applied to enterprises.

Enterprises would also be exempted from corporate income tax for a maximum of four years and receive tax reductions of 50% for as many as nine more years, Minh said.

According to Minh, the process of investing in the industry is simple, as forestry development is not listed among conditional investment fields. Projects of less than VND15bil are exempted from registration.

For projects valued up to VND300bil, investors only need to register with local authorities. Projects larger than VND300bil need to be appraised by the local investment office before being issued an investment licence, Minh said.

Diverse investments

Foreign investors have increasingly shown interest in investing in wood-processing companies and production plantations.

MPI statistics show that by the end of 2006, foreign investors had invested in 420 projects related to processing forestry products, with total registered capital of $1.3bil. Only $300mil or 23% of that, however, has been disbursed.

Apart from the more conventional form of direct investment, foreign investors, especially investment funds, are also exploring opportunities for portfolio holdings in timber-processing enterprises.

Thomas Ngo, senior portfolio manager at Indochina Capital, said this partnership could provide the processors with not only capital but also improved technical and trade standards, attracting foreign partners and increasing the value of their products.

National forestry facts

Currently Vietnam has 12.6mil hectares of forests, covering 37% of its total area. Of that figure, 10.3mil are natural forests, while 2.3mil are planted.

The State manages 48% of forest area, while 2.3mil are planted. The State sector holds 29.6% and the remaining 2,8mil hectares of forest area are not assigned.

Vietnam contains 1.9mil hectares of special-use forests (15% of the total forest area), 6.2mil hectares of protected forests (49%) and 4.5mil hectares of production forests (36%).

In total, Vietnam has a timber reserve of 813mil cubic metres, plus 8.5mil cubic metres of bamboo trees. Natural forests supply 94% of the timber.

Each year, Vietnam extracts about two million cubic metres of planted forest timber to supply to wood processors. Last year, its exports of forestry products earned $2.2bil, more than double the figure from the past 10 years, since 1996.

Source: Ministry of Agriculture and Rural Development.

"Though investment in agriculture and forestry is over a long-term horizon, I believe that it helps make a good balance in our investment portfolios," he said.

The fund, currently managing around $1bil in capital, has acquired some holdings in private wood-processing firms, gaining a slice of Vietnam's $2.2bil in forest product exports.

Indochina Capital holds a minority strategic stake in Vietnam Rubber Corp, and it is facilitating a foreign tyre producer's investment in Vietnam, according to Ngo.

Vo Truong Thanh, general director of Truong Thanh Furniture Corp, said that as investment funds are not allowed to set up joint ventures, production plantations should be established in the form of joint stock companies, so as to take better advantage of foreign indirect capital.

Tran Duc Lam, CEO of wood processor Tran Duc Group, said that his company, which exports 100% of its products, would co-operate with production plantations to ensure its supply of materials.

Vietnam imports 80% of the timber needed for wood-processing facilities. Costs of timber imports totalled $720mil in 2006, accounting for more than one-third of the total earnings from wood product exports.

More capital needed

Dr Marko Katila, senior economic advisor for the Ministry for Foreign Affairs of Finland, said as much as $8bil in capital would be needed to finance forest industries from 2006 to 2020, with three-fourths of that amount needed to expand pulp and paper production.

"The Government can promote investment by securing long-term availability of raw materials, by accelerating forest land allocation and clarifying property rights," Katila said.

"For foreign investors especially, very secure long-term access to enough land and clear and enforceable property rights are critical to their making investment decisions," he said.

According to Katila, with competitive pulp mills costing about $1bil each, creating conditions for investment in them poses a challenge

(Source: Viet Nam News)
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