Minutes of the ISG Annual Plenary Meeting 2005 - 22-23 September 2005
"Investment for the agriculture and rural development sector "
(For fulltext, click here)

The half-day forum was participated by representatives from GoV relevant agencies, donors and international governmental and non-governmental organizations, some enterprises, PPCs, concerned departments of MARD and MPI (See list of participants in the Appendix 2 attached) . It was co-chaired by H.E Minister Cao Duc Phat, HE Andre Haspels, Ambassador, RNE, and H.E Dr. Cao Viet Sinh, Vice Minister of MPI.

Objectives of the Meeting:
The meeting objective is to dialogue on policy issues for promotion of direct investment for the agriculture and rural areas of Vietnam; and to facilitate direct discussions among investors and leaders of MARD and GoV's agencies regarding management of investment for the agriculture and rural areas.

I. Introduction and opening

The proposed agenda of the meeting was introduced and approved by the chairmen and all the participants, becoming the official agenda of the meeting.

Dr. Cao Duc Phat stressed that the sector of agriculture and rural development of Vietnam is entering a new stage of development where new conditions and circumstances both domestic and international, require increased efforts, modern approaches, high technology and expanded resources to achieve success.

The Minister also informed the forum that at the national level, to improve the FDI situation in Vietnam, the Government of Vietnam has been taking various measures. The Prime Minister issued Directive No. 13/2005/CT-TTg dated 8 April 2005 regarding some measures to be taken in order to make new and positive changes in attracting foreign investment into Vietnam. The Government is making enormous efforts in merging the Enterprises Law and the Law on Foreign Investments in Vietnam, with a view to creating an enabling, open and equitable environment for domestic and foreign investors.

The Minister pointed out that modernization of the agriculture and rural development sector in the context of international integration has been becoming an indispensable trend, and FDI should be attracted for the realization of the goal to create and to develop a strong and highly effective commodity-based agriculture on the basis of promoting comparative advantages and introduction/ application of new technologies, high technologies, and producing highly competitive products when participating in the integration process. Meanwhile, the attraction and use of such important resources for the agriculture and rural development sector has not been satisfactory.

That is why with the theme of the Annual Plenary Meeting of ISG for 2005, MARD would like to listen to and share points of views and experiences from all the community, and to learn lessons and best practices from all of participants, to help to strengthen the institutional frame work and capacity of the agriculture and rural development sector to better attract and mobilize resources, to perform the State management function, and to deliver public services in support of FDI activities in the sector.

Addressing at the opening session, Dr. Cao Viet Sinh stressed that the Meeting is organized in a very critical period of time, when the Government is approaching the end of successful implementation of the 5-year plan for 2001-2005 and thoroughly preparation for the 2006-2010. The Meeting is relevant and useful for attracting FDI, a crucial financial resource to obtain set objectives in the next five-year plan. From this forum, we would like to seek further support from the donors, foreign investors to continue to invest in the agriculture sector. Foreign investment in the agriculture sector in Viet Nam in the last years were in the fields of irrigation, forestry, agriculture, and integrated rural development and poverty reduction. During the Meeting today, we hope to listen to open and fruitful discussions and recommendations with a view to improving the environment and the legal framework to entire investments, especially those to be made in the agriculture and rural development sector.

Addressing at the opening session, H.E Mr. Andre Haspels emphasized the ISG is a very good dialogue and coordination platform for the Government and the Donor Community. As identified in the ISG Work Plan 2004-2006, (agreed by the ISG Steering Board and funded by the four core donors, including AusAID, Danida, the Netherlands, and Sida), next to policy dialogue, coordination of studies, capacity building, ISG is important in terms of providing a good information system. This system serves very well the information sharing among the development community, including international donors, NGOs, provinces, and various Vietnamese agencies. Mr. Haspels pointed out that the agriculture is confronted with many challenges: providing food for a fast growing population, fighting poverty in rural areas through creating jobs, facing increased competition after Vietnam has become a member of WTO.

Mr. Haspels said, compared to the impressive growth of the Vietnamese economy, at a rate of 7.5% in the last years, the agricultural growth is lagging behind with an average of 4.5% over the last 10 years. Productivity is still low due to using out of date technology and know-how. Although the strong export-growth of agricultural products, the value added is still low due to the fact that exported products are mainly unprocessed poor quality. Another problem is that the agricultural sector in Vietnam depends on millions of poor and small-scale households. They cannot afford modern processing and post harvest techniques. Experience in my country in the fields of agriculture, horticulture, forestry and water-management is that focuses should be paid to interventions in the following areas: transfer of know-how, technology, management-skills.

Lack of financing remains a big problem. Financing often come through donor-funding in the form of agricultural projects and programmes. Today we focus on investments. Investment not only from public, governmental sources but preferably from private sectors. Private sector cooperation, business to business is an ideal form of investment, transfer of knowledge/ technology and management skill. With the private sector growing so fast in Vietnam one would expect many foreign companies looking for partners.

Mr. Haspels expressed that many foreign companies are interested in doing business, in investing in promising sectors. However very often these parties hesitate because of 'lack of level playing field', 'lack of transparency', lack of physical infrastructure, lack of financial infrastructure. Again, with the WTO-membership coming into focus Vietnam will have to comply with new international rules and regulations. New laws are being drafted, such as the Unified Enterprise Law, the Common Investment Law, which can have great implications for the agricultural sector.

II. Presentations/Reports

Dr. Le Van Minh , Director General, ICDMARD, Vice Chairman, ISG Steering Board presented a presentation on strengthening capacity for a system of FDI management and promotion for the agriculture and rural development sector. Dr. Minh mentioned the current status and existing issues of FDI management; on-going activities and put forward some recommendations. He said that the proportion of FDI in the sector is low (13,6% of the number of projects and 7% of the registered capital); FDI for agriculture and rural development tends to decrease; allocation of FDI is not evenly proportional among regions and zones; and countries of great potential have not practically invested into agriculture of Vietnam.

(Full report was circulated to all the participants and c an be obtained from ISG website).

The forum had chance to listen to the report by the secretariat of the meeting Day I, a forum with the community of enterprises, foreign and domestic. The report mentioned constraints facing FDI in rural areas and proposed solutions. Some conclusions of the forum were made.

(See the full summary of discussions of the Day I meeting in the Appendix 1 attached) .

Mr. Bui Tat Tiep , Deputy Director of MARD Department of Planning presented a report on domestic investment for agriculture, which put forward a lot of figures about domestic investment for the sector, including the total sum of in-country investments into agriculture during 2001-2005; structure of the investment into agriculture during 2001-2005; growth of invested capital into agriculture during 2001-2005. The report also made a comparison of growth in production value, value added output, and investment into agriculture. Finally, the report put forward some measures to increase efficiency of investment in ARD sector for the 5YP of 2006-2010, which include:

1. Restructure the capital for development investment in areas of the ARD sector toward better effectiveness;
2. Reform planning process and allocation of development resources, closer link between planning and budget planning;
3. Diversification of capital mobilization, facilitation of increasing investment from the private sector, households and FDI investing into infrastructure, and agricultural and rural services;
4. Strengthening the information system, transparency of plans and policies of the sector so more stakeholders can join, take part in and monitor the implementation.

(Full report was circulated to all the participants and can be obtained from ISG website).

Dr. Nguyen The Dzung , from Hanoi World Bank Office presented the study report entitled “Vietnam Rural Investment Climate – A Bird-Eye View”.

Some important recommendations were pointed out by the study team, which include:

• Clarify MARD's role & strategy for non-farm business development,
• Conduct further analysis of rural investment environment based on the two tools, including Investment Climate and Productivity Ass't (ICA) & Rural Investment Climate Survey (RICS), and regular monitoring,
• Maintain regular consultation and establish partnership with the private sector and other stakeholders,
• Develop policy guidance to support local authorities, particularly those related to agro industry.

(Full report was circulated to all the participants and can be obtained from ISG website).

Mr. Pham Manh Dung , Director General, Department of Legislation, MPI presented some new points in the Common Investment Law (CIL) and the points still under debate.

The Common Investment Law has formulated under the context that Vietnam is in the process of realize roadmaps and commitments for accessing WTO. The Law is formulated from different aspects including establishment of a level playing field in terms of investment policy to all the players (SOEs, private enterprises and FDI enterprises). This Law also reflects the investors' right in making their own investment decision . This report received much attention from the audience. Many questions were made and answered. See further in the summary of discussion later in this paper.

(Full report was circulated to all the participants and can be obtained from ISG website).

III. Summary of discussions

Risks of business in the agriculture sector: Government of Vietnam issued to encourage investment in the agriculture sector, however the outcomes do not meet expectation. There are encouragement policies for taxation, land lease but its benefits are relatively small in comparison with potential risks that might occur, especially in agriculture sector and remote/difficulty areas (e.g. forest fire in reforestation, epidemic in animal husbandry and feeding, natural disaster in cropping...)

Needed support to business in the agriculture sector , together with encouragement policies, there should be more practical supports:

• Infrastructure (roads, irrigation scheme)
• Development of a strong public services system (veterinary services, plant protection services, forest protection...)
• Human resources development, especially to local farmers involves in the production process.

Mobilization and utilization of resources:

• It is necessary to consider to best use of annual remittances from abroad worth US $ 3-3.2 billion. There should be studies, surveys on the usages of these resources in the last years. This source of fund could be considered as a large potential.
• It's also important to transfer funds from urban to rural areas to invest in development of production and business.
• It is very important to also strengthen mobilization of domestic investment for the sector.
• The households should also be a good source to be mobilized and should be encouraged.
• In the years to come, it is likely that the ODA flows will decrease and it's important in deed to increase the FDI sources and domestic investment from state budget for the agriculture sector.
• There will be a level playing field for both domestic investment firms and FDI. MPI is not only encouraging FDI but also domestic investment.

Enabling legal environment for attracting foreign direct investment and supporting to administration procedures:

• Regarding the registration issue, some participants expressed that there are overlapping between business registration and investment registration. It is necessary to consider and select the most suitable way of registration to minimize costs for investors and at the same time reduce operation budget for the Government.
• Provision of information to business community was also mentioned
• The investment incentives are very important. Agriculture and rural development is the priority sector for investment. For different regions, especially remote and poor areas, for each industry, Government will have different encouragement policies to suit the demand. Only by that will ensure the investors to invest in those remote areas.
• There should be sanctions/ punishments to illegal/ improperly operation businesses. This kind of measures will contribute to an enable business environment.
• Reform process and restructuring of state-owned enterprises is very important and should be accelerated. MARD has been very active in this effort.

Need for policy dialogue :

• The Royal Netherlands Embassy stressed that ISG forum has been improved, important for communication channels between the Government and donors. RNE congratulated MARD with the ISG process, which could serve as an example for other ministries.
• Regarding the Common Investment Law (CIL), it is recommended that there should be a meeting on CIL in a broader framework, with foreign companies, representatives from embassies and donors to have further discussion on CIL. CIL not only covers the agriculture sector, but also others of the national economy.

IV. Meeting conclusions

Dr. Cao Duc Phat closed the meeting:

• 2005 is a difficult year to the agriculture and rural development sector: the most severe drought in the last 50 years, high flooding, and epidemic threats. However, with the efforts of the whole sector and support from the Government, agriculture growths at 4% a year. Food production increases, agro-forestry export increases 32% to this period of time. To the end of this year the total revenues might reach US $ 5 billion. Living standard of a large majority of people is improving.
• On this occasion, at the ISG forum, Ministry of Agriculture and rural development would like to express its sincere thanks to the international community, donors for their great support and sharing to the sector.
• MARD is in the process of finalization of its next five-year plan and Plan 2006. The Government reconfirmed that agriculture and rural development is the top priority in the Vietnam social economic development strategy in the next five years. However, in order to realize this priority, there should be strategic adjustments to shift from quantity to quality, to obtain higher value added and efficiency, to create more jobs, to generate more incomes, to improve living conditions and to ensure social equity for the people.
• Key measures identified by the Ministry are science and technology studies and transfers, promotion of different types of businesses (business reform, encouragement of private and foreign investment). In the next five year, the ministry will focus on supporting the business sector, development of infrastructure in the rural areas, especially in remote areas.
• The Government issued many policies and directions to encourage investment, however the enforcement of some policies is still low. MARD will as soon as possible resolve remaining issues under its authorities, cooperate with MPI to report to the Government issues which beyond its mandate.
• A clear message from the Minister of agriculture and rural development in this forum is: MARD would like to be a reliable, good friend of the investors. MARD would like to continue to find, study arising issues and support to resolve (policy advisory, implementation of these policies) MARD would also like to request all the Ambassadors and participants to inform investors and enable investors from their countries to come to invest in Vietnam.
• MARD would like to extend its sincere thanks to H.E Andre Haspels, the Royal Netherlands Ambassador to Vietnam, and leader of MPI for co-chairing the Meeting and the proactive participation of the participants.

Approval by:
(signed)
Dr. Cao Duc Phat

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