Foreign investors have plenty of opportunities to take part in infrastructure projects in Vietnam as the government prioritizes the sector’s development while the state funding remains insufficient.
Ho Chi Minh City wants private investments in 85 infrastructure projects
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In Ho Chi Minh City alone, authorities have recently called upon investors to participate in 85 transport infrastructure projects, worth a combined US$41.9 billion.
Experts said conventional funding sources, such as the state budget and official development assistance (ODA) from bilateral and multilateral donors, and government bonds, could only cover 50 percent of the total cost of infrastructure projects. Therefore, investors at home and abroad are expected to be involved in infrastructure development through the public-private partnership (PPP) model.
According to Sajal Kishore, head of Asia-Pacific Infrastructure and Project Finance at Fitch Ratings, to meet Vietnam’s capital demand for infrastructure development, the country will need to leverage on domestic and international capital markets and attract foreign direct investment.
Increasingly, the government has also sought privatization and divestment as a means to handle the challenges of infrastructure financing, Sajal said, adding private financing, through PPP schemes, is another channel that is being promoted for infrastructure development in Vietnam.
Growing foreign interest
The government is making efforts to encourage the foreign private sector to not only invest money, but also contribute specialized technical know-how for these projects. Ongoing regulatory reforms and privatization of state-owned enterprises encourage the private sector to maintain and increase their existing level of investment in infrastructure.
According to experts, all Vietnamese transportation sectors, including airports, seaports, toll roads and railways, would be attractive to foreign investors in a general sense. There are favorable drivers at play supporting demand for these assets.
Sajal said Vietnam remains one of the fastest-growing economies in the Asia-Pacific. The country also has the highest share of infrastructure spending relative to GDP in all ASEAN countries.
“Demand for transportation assets benefits from strong GDP growth due to a rapidly growing middle class, increasing urbanization and improving connectivity in Vietnam, with future growth rates expected to outstrip GDP growth. Road and rail network investment will be key to drive infrastructure investment across other sectors in Vietnam. Demand for these assets reflects strong traffic and freight volumes supported by strong and sustained economic growth as well as increasing connectivity and improving logistics,” he said.
With increasing household incomes and the emergence of low-cost carriers, more people in Vietnam can now afford to travel and this is increasing their propensity to fly and will continue to drive air traffic growth. Increasing containerization across developing Asia, including Vietnam, and globalization will drive continued investment in port capacities. Demand for the ports will also rise with continued investment in improving logistics and export-oriented facilities in the country.
According to experts, continued improvement in regulatory, investment and capital market frameworks, which provides visibility and stability in a longer term, will help attract foreign investment inflows into infrastructure.
The development of a bankable and investable PPP project pipeline will also facilitate stronger growth in foreign inflows in infrastructure, the experts said, adding that Vietnam has done well to develop a PPP framework to attract private capital in infrastructure, although the pace of such inflows remains inadequate to meet the financing gap and is also restricted to a few sectors such as electricity infrastructure.
