Minister Nguyen Chi Dung (R) and Japan’s minister of land, infrastructure, transport and tourism Kenichi Ishii (Source: Dautuonline)
$400 billion in infrastructure spending needed over next decade.
Facing fiscal constraints, Vietnam is turning to foreign enterprises for funding and expertise as it anticipates a need for $400 billion in infrastructure spending over the next decade.
Minister of Planning and Investment Nguyen Chi Dung told Japan’s The Nikkei that Vietnam is already in the process of crafting a legal framework to pave the way for foreign participation in building projects.
Minister Dung is visiting Japan until April 15, meeting with cabinet ministers and invited business leaders to promote partnerships and develop factories.
Vietnam “has many critical infrastructure projects planned, and a public private-partnership (PPP) set-up would be indispensable,” the Minister said, adding that the country seeks help from foreign businesses, “primarily in Japan.”
The country plans to tap the PPP format. The first target is the construction of some 1,800 km of highway connecting Hanoi and Ho Chi Minh City, the country’s largest road to date, with a maximum of ten lanes. The $13 billion-plus highway could alter traffic distribution in the Indochinese Peninsula as a whole.
Vietnam plans to make PPP a model for many other infrastructure plans, including the Long Thanh International Airport in the south, high-speed railways, metro-area transit systems, and power stations. The format should minimize government outlays and allow for the absorption of know-how from participating businesses.
The country has so far funded much of its infrastructure with official development assistance (ODA), mostly in the form of international loans, saddling the government with a great deal of debt. Its proportion of sovereign debt to GDP came to 64.7 per cent in 2016, just shy of the 65 per cent cap set by the National Assembly.
Mr. Akio Mimura, Chairman of the Japan Chamber of Commerce and Industry, visited Vietnam in January. “I understand that the government wants to use PPPs, but if the benefits of investing in the project are not made clear, private businesses will be hesitant,” he said.
The Ministry of Planning and Investment is central to the ongoing process of crafting related legislation, such as for allocating risk and profit. It aims to finish the process within this year, with input from Japanese businesses. Minister Dung said he wants to help Japanese companies “feel secure in participating” in the projects.
Vietnam’s public and private sector infrastructure investment has averaged 5.7 per cent of GDP in recent years, the highest in Southeast Asia and comparable to China’s 6.8 per cent, according to the Asian Development Bank (ADB). Indonesia and the Philippines spend less than 3 per cent, while Malaysia and Thailand spend even less, at under 2 per cent.
The ADB estimates that emerging economies in the region will need to invest as much as $26 trillion to 2030 to build transport networks, boost power supply, and upgrade water and sanitation facilities. Vietnam, among the fastest-growing nations in the world, is boosting infrastructure to lure more foreign investors as it positions itself as Asia’s next Tiger Economy.
Foreign direct investment surged to a record $15.8 billion in 2016 and the economy is forecast by the World Bank to expand more than 6 per cent until 2019; among the top performers this decade.
Vietnam needs about $480 billion to 2020 for infrastructure, including eleven power plants with total capacity of 13,200 MW and about 1,380 km of highways, according to the government. Last month, Prime Minister Nguyen Xuan Phuc ordered the transport ministry to speed up plans to attract more private investment for infrastructure as the State budget can only meet one-third of financial needs.
The share of private investment in infrastructure spending in Vietnam may be less than 10 per cent, according to Mr. Rana Hasan, ADB Director of Development Economics. In India, the private sector plays a bigger role, accounting for more than 30 per cent of total infrastructure investments in recent years, he said.