Dung Quat Economic Zone (EZ),
Quang Ngai promises to soar

Along with China and India, Vietnam is making the news in Asia due to its impressive growth (average at 7.8%) in recent years. As a result, more and more foreign businesses have turned their eyes to Vietnam, hoping to find success in this low cost country or hoping to obtain a share of profits in this booming new marketplace. However, a closer look into the Vietnamese economy will show an uneven development across the S-shape country: while regions around the two large deltas in the north and south of Vietnam – Red River and Mekong River Deltas – continue to grow at a rapid pace, the central region has remained more backward in almost every aspect.  This has been a concern to the Vietnamese government and international authorities like the World Bank and that Asia Development Bank as development of a newly emerging economy such as Vietnam is always best if the development is more distributed throughout the country instead of solely being focused in one or two locations.  

Picture above: Dung Quat Port

Similar to China with its “go West” policy, Vietnam has pushed to balance the economic development throughout the country with many projects and investment incentives for the central region of Vietnam. One of the most noticeable examples is the Vietnamese government’s keenness on two economic zones: Chu Lai and Dung Quat, located in Quang Nam and Quang Ngai, respectively. Although the two economic zones are less than 30 minutes from each other, no one has worried that their interests will conflict due to different structure and targeted industry development. While Chu Lai Open Economic Zone already went into operation in 2002, having attracted US$ 1.5 billion in investment and with another US$ 574 million waiting for approval, Dung Quat is a different saga - a saga of hope, a flurry of activity and then a gradual subsidence into a deathly silence.

Picture above: Oil refinery in Vietnam

Yet, as some analysts pointed out, the project seemed miss-directed due to the long distance to oil reserves (most of Vietnam’s oil reserves are located off the coast in the South), severe lack of infrastructure and the lack of a well-trained labor workforce. Consequently, investor after investor pulled out of the project, citing the project’s infeasibility for the main reason. The oil refinery’s due date therefore has been continually pushed from 2001 to 2009. Will the 2009 deadline be met?  No one knows for sure but this time, the government’s commitment to the project’s success has increased its credibility in the eyes of investors. After 13 months of construction, Technip Group, the major contractor, has completed more than 55% of the project, and expresses a strong belief that the deadline will be met. Meanwhile, the Prime Minister of Vietnam has also directly supervised the progress, making sure that everything is up to speed.

Dung Quat is a name that is familiar to me as I have been hearing it nearly continuously sine 1991 when I returned to work toward a new diplomatic relationship between the U.S. and Vietnam.  Given the track record to-date, I must say I was skeptical.  I therefore have been e-mailing frequently with Mr. Le Van Dung, Director of the Center for Investment & Trade Promotion at the Dung Quat Economic Zone Authority (DEZA) and met recently with Cao Xuan Chung, the Vice Director, and Ms. Bui Thi Ngan, a recent Fulbright scholar who has returned to work in the Dung Quat Industrial Estate Authority Representative office in Ho Chi Minh City.

According to Dung Quat authorities, Dung Quat EZ is ranked first among other industrial and economic zones in terms of large-size investment attraction, and is slated to maintain it’s standing in the years to come. What has made both domestic and foreign investors change their mind after a decade? Although investment incentives play an important role, the government’s commitment to the project’s success and Vietnam’s growth in recent years undoubtedly craft the credibility that persuades the investors. A one-price policy for both Vietnamese and foreigners, income tax reduction, import tax exemption, these are only some of the incentives that have helped to draw investors’ attention to Dung Quat EZ. A comparison of tax incentives between Dung Quat EZ and two of the largest and most high potential industrial zones in Vietnam, Binh Duong and Dong Nai, reveals the comparative advantages in favor of Dung Quat EZ.


Table: Comparison of tax incentives in Dung Quat EZ and other IZs in Vietnam


According to Mr. Le Van Dung and Mr.Cao Xuan Chung, this new policy is already bearing results.  The first phase of infrastructure has been completed and the 2nd phase is now extensively underway.  To-date 93 projects valued at over $5 billion have been approved including the $2.5 billion oil refinery.  Twenty-five projects are in actual operation including a large ship building venture (Vinasin) valued at over US$300 million that will be able to build ships up to 100,000 DWT.  The Vinasin ship building operation already has 500-600 workers and is expected to have 10,000 at full capacity in the future.  In addition to Vinasin, the Tycoon Steel Mill, a Taiwanese invested venture, has received approval from the Prime Minister and should receive an investment license from the MPI shortly.  Further, a large Korean company located in Pusan has received an MPI license to begin fabricating electricity transformers, cranes, heavy industry equipment and equipment for the oil industry in Dung Quat.

Unlike other IZs’ investors, Dung Quat EZ’s will not have to be concerned about transportation in the near future, thanks to the ongoing construction and expansion of Chu Lai airport and Dung Quat port, which will be able to receive ships of up to 70,000 DWT (dead weight ton). Instead of going through the major ports in the north and the south of Vietnam, more and more routes will be opened to connect Dung Quat directly with international destinations. The first phase of the project is supposed to be put into operation by early in the second quarter of 2007; ships of up to 30,000 DWT will be able to dock at Dung Quat port even during stormy season thanks to a large-scale breakwater.

Despite its recent success in landing the Taiwanese funded Tycoon Steel mill and the Korean funded heavy machinery project, Dung Quat EZ is still looking for investors for other areas including oil refining, petrochemical, infrastructure development, port development, and tourism. If things go right, the future looks bright for Dung Quat EZ and the central Vietnam’s economic development.  The Dung Quat authorities seem to realize that investment won’t just happen and that more needs to be done to promote investor name recognition of Dung Quat and full appreciation for the benefits this location may offer as a site for larger scale production, particular in Heavy Industry.  Dung Quat authorities told us that they seek greater investment participation from the U.S., Japan and Europe as well as major regional players like Korea, Taiwan, Thailand, Malaysia and others.  They plan to work to improve their investor outreach activities, which are definitely needed in such a competitive environment for investment.  We plan to continue to follow-up on this old name which is just now starting to be heard outside of Vietnam and will report periodically on the Estate Authorities progress.

Pictures: (left) Dung Quat Traning Schook and (right) Dung Quat International Hospital

About the Author:  

Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)