Special administrative-economic zones require special conditions
At present the importance of the special economic zone model is no matter for debate as it has been clearly demonstrated in the success of Shenzhen (China), Dubai (United Arab Emirates) and the British Virgin Islands. Even Cuba established the Mariel SEZ in 2015. In Vietnam the search for a new development model has been carried out over a long period of time and received much attention during the 2012-2014 period when the proposal to establish the Van Don, Bac Van Phong and Phu Quoc SEZs was approved.
In early 2016 the 12th Party Congress once again emphasised the necessity of establishing a number of SEZs to create new drivers of growth and pilot new development policies. Most recently plans to establish the three special administrative-economic zones of Van Don, Bac Van Phong and Phu Quoc have been submitted to relevant competent agencies, which means a door has opened for SEZs.
The next task is to determine what the institutions and policies for these zones are. In fact, according to experts, one of the reasons why SEZs were not established earlier in Vietnam was due to concerns over the special institutions for these zones.
The first draft of the Law on Special Administrative-Economic Units compiled by the Ministry of Planning and Investment (MPI) has been submitted to the government. The contents of this law will not be discussed here as its finer details are awaiting government consideration on whether to make just a single law on special administrative-economic zones or make a general law and specific laws for each zone. Tran Duy Dong, head of the MPI’s Department for Economic Zones Management, affirms that this is a new model to help Vietnam achieve breakthroughs in socio-economic development. The formation of special administrative-economic zones to create new growth drivers and a spillover effect on the region and the whole country is both highly necessary and urgent.
Director of the MPI’s Development Strategy Institute Bui Tat Thang says the notion of a SEZ always means transcending current laws in various terms.
Economist Tran Dinh Thien says the most important thing is to convince investors that they will benefit from investing in special economic zones. To date Vietnam’s incentives remain lower than other countries in the world. As such it is necessary to increase the limits of current incentive policies, however, the question remains whether it will be possible in Vietnam or whether the Ministry of Finance will object to high tax incentives.
Director of the Central Institute of Economic Management (CIEM) Nguyen Dinh Cung has repeatedly stated that SEZs cannot be developed only by exceptions to normal regulations but by building a new special institution that extends beyond ordinary rules.
Details might not yet be clear but in a report assessing the impact of the Law on Special Administrative-Economic Units, the MPI highlights two groups of policies to be implemented. The first group includes socio-economic policies with higher incentives than the limits of current laws and Vietnam’s international commitments, ensuring that they are more effective and internationally competitive. The second group concerns policies designed to build a streamlined management apparatus.
Tran Duy Dong says the MPI also suggests permitting the special administrative-economic units to retain all revenues for a period of time and adjusting the proportion of revenues to be contributed to the central budgets that such units will have resources to invest in key infrastructure and train the workforce.
At a meeting with the Khanh Hoa leadership in February, Prime Minister Nguyen Xuan Phuc also stressed the need to build a separate law for the Bac Van Phong SEZ.
There is a high possibility that separate laws for SEZs will be passed. But a great deal of preparation is also needed. For example, according to estimates, the Van Phong SEZ needs up to US$12 billion. How such large resources will be mobilised remains unclear. Similar questions have also been posed to the Phu Quoc and Bac Van Phong SEZs. It is a challenging task but the central government and local authorities have shown strong determination to move ahead as planned.
According to economic experts, it should be restated that the development of SEZs is not the for the sake of SEZs themselves but is beneficial for the entire economy in terms of job creation, attracting resources for development, increasing exports, management expertise and technology transfer. Therefore, it is both necessary and urgent to implement this model and formulate relevant laws.