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Policies encourage investment in forests
01 | 07 | 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 of Agriculture and Rural Development, at a Forestry Investment Forum.

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

The forum, held in Ha Noi 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.

Viet Nam 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 per cent and forestry products to a value of $7.8 billion.

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 per cent, instead of the usual rate of 28 per cent applied to enterprises.

Enterprises would also be exempted from corporate income tax for a maximum of four years and receive tax reductions of 50 per cent 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 VND15 billion are exempted from registration.

For projects valued up to VND300 billion, investors only need to register with local authorities. Projects larger than VND300 billion 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 $1.3 billion. Only $300 million or 23 per cent 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.

"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 $1 billion in capital, has acquired some holdings in private wood-processing firms, gaining a slice of Viet Nam’s $2.2 billion 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 Viet Nam, 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 per cent of its products, would co-operate with production plantations to ensure its supply of materials.

Viet Nam imports 80 per cent of the timber needed for wood-processing facilities. Costs of timber imports totalled $720 million 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 $8 billion 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 $1 billion each, creating conditions for investment in them poses a challenge.

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