Will Vietnam maintain its economic growth?

Foreign investment is flooding into Vietnam, but without an infrastructure overhaul, the benefits could slip from Vietnam’s grasp.

By Oliver Ward

The Vietnamese economy has exploded since 2000. However, an infrastructure deficit grips the country. Unless the issue is addressed, Vietnam will face serious challenges to maintain the same level of growth in the coming years.

The government are chasing foreign investment

Prime Minister Nguyen Tan Dung committed to maintaining a GDP growth rate of between 6.5% and 7% over the next five years. The Vietnamese government is turning to foreign direct investment to maintain growth. They are pursuing a mixture of high-profile, big money investment projects from foreign backers and smaller-scale real estate investment.

By removing obstacles to foreign investors and accelerate the process of dispersing development capital, Nguyen Tan Dung’s government has secured foreign investment deals for big money projects across the country.

Large international companies like Samsung and LG want to increase their capital in Vietnam. Samsung has three projects currently under construction in Vietnam, worth a total of US$5.5 billion. The Korean electronics giant is constructing a new plant in Thai Nguyen which will employ 30,000 workers and a research and development centre in Ho Chi Minh City. LG also has plans to increase its registered capital at its display-making plant in Hai Phong by

In conjunction with these multi-billion dollar, high-profile projects, the government is also encouraging foreign investment in Vietnamese real estate. , housing demand is increasing. With 50,000 to 60,000 new properties constructed every year in Hanoi and Ho Chi Minh City, the property segment is an attractive industry to foreign investors.

Vietnamese company, Bitexco, is working with Japanese firm, Mitsubishi, to develop 240 low-rise buildings and two high-rise buildings in Hanoi. The Mitsubishi group has invested US$290 million in the project. Sanyo Home and Vietnamese company, Tien Phat are also cooperating on the Ascent Lakeside Project in Ho Chi Minh City in a similar deal.

The infrastructure deficit could hold the country back

With so many new production plants, power plants and real estate developments on the horizon, Vietnam is in desperate need of an infrastructure update to fully reap the benefits. But plans to increase the efficiency of logistics across the country have been dogged with funding problems which have caused serious delays.

In Ho Chi Minh City, the construction of a new six-line railway was first decided in 2001. However, 16-years later, the government has found just 30% of the US$87.9 million needed for one small section.

To realise the full potential of the planned big foreign investment projects, the Vietnamese government needs to spend US$480 billion in essential infrastructure updates. This includes funding for a new highway connecting Ho Chi Minh City with Hanoi and a new, US$16 billion airport in Ho Chi Minh City.

The only way out is to increase private-public collaboration

The government estimated that it can provide one third of the US$480 billion required but the rest will need to come from the private sector.

The World Bank recommends “systematic engagement with freight stakeholders”. Ultimately, the private sector stands to make significant gains from an updated national infrastructure system. They are in a good position to advise the government on potential areas for improvement and offer help in funding the projects to maximise their future revenues.

Currently the private sector contributes just 10% of funding for infrastructure development projects in Vietnam. More public-private collaboration is essential for getting these projects completed and providing Vietnam with a logistics system fit for driving growth.

The private sector stands to get the most out of any improvements, and should therefore accept some of the financial burdens that go with it. The foreign investment needed to maintain economic growth is already present, but it will slip through Vietnam’s fingers unless the government can address the looming infrastructure challenges.