Infrastructure Financing in Viet Nam: Challenges

Hung Tran

CEO – Monitor Consulting

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National Workshop on Infrastructure Financing Strategies in Viet Nam

Hanoi, 3rd October 2017

Viet Nam has successfully sustained a high level of infrastructure investment in recent years

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4.4 4.6 4.7

4.7

5.0 4.2 4.75.6

5.8 6.0 6.5 6.56.7

7.08.8

9.8

10.3% 10.1% 9.7%

8.2%7.5%

6.5%7.3%

8.0%

0%

2%

4%

6%

8%

10%

12%

0

2

4

6

8

10

12

14

16

2008 2009 2010 2011 2012 2013 2014 2015 Infr

astr

uct

ure

Inve

stm

ent

to G

DP

(%

)

Infr

astr

uct

ure

Inve

stm

ent

($b

illio

n)

Electricity, gas & water supply Transport & Telecommunications

Infrastructure Investment to GDP (%)

Source: Vietnam General Statistics Office, World Bank, Bloomberg and Author’s Research and Analysis

However, its infrastructure competitiveness needs to be improved

3

0

20

40

60

80

100

120

140

Cambodia Indonesia Lao PDR Malaysia Phillipines Singapore Thailand Viet Nam

Ran

kin

g (o

ut

of

13

8 e

con

om

ies)

Roads Railroad infrastructure Port infrastructure

Air transport infrastructure Electricity supply Mobile telephone subscriptions

Fixed- telephone lines Overall

Source: World Economic Forum, Global Competitiveness Index Report 2016-2017

Projections of infrastructure investment demand in Viet Nam

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Source of

Estimation

Time horizon Infrastructure

investment needs

($ billion)

Annual average

($ billion)

ADB 2015-2025 167 16.7

WB Annual average 25 25

HSBC 2016-2030 259 17.2

KPMG 2013-2020 170 24.2

Author 2016-2020 116.9 23.4

Financing gaps in infrastructure investment in Viet Nam

• Annual infrastructure investment in 2011-2015 is $12.6 billion

• Infrastructure investment demand in 2016-2020 is projected about $24 billion- almost twice the previous 5 years

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Key Challenges:

1. Fiscal constraints and less room to finance large transport projects by state funding

2. Inefficient investment planning and public finance allocating

3. Undeveloped capital markets

4. Lack of necessary in-country capacity

5. Lack of enabling environment for private investment

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Challenge #1: Fiscal constraints and less room to finance infrastructure by state funding

• High budget deficits and less budget allocated for infrastructure investment

• High level of government debt and pressure to reduce

• Less concessional ODA access as a middle income –status

• Decline tendency of capital expenditure in State budget

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Challenge #2: Inefficient investment planning and public finance allocating

• Shortcomings in its planning and budgeting processes

• ADB(*) noted: “Within the development budget, investment projects are not well aligned with the government’s Socio-Economic Development Plan, 2016–2020”.

• As decentralization emerges, provinces are incapable of enabling efficient planning of infrastructure development

(*) ADB, Sector Assessment (Summary): Public sector management (Public expenditure and Fiscal management)

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Challenge #3: Underdeveloped capital markets

• Limited capacity of domestic banks to provide long-term loans in local currency

• Small bond markets mainly with short-term maturities

• Inactivity of institutional investors in infrastructure-related assets

• Securitization schemes are not prevailing

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Challenge #4: Lack of necessary in-country capacity

• Weak project preparation and appraisal

• Lack of bankable infrastructure projects

• Poor coordination among government agencies

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Challenge #5: Lack of enabling environment for private investment

• Complexities and incomplete legal system including PPP legal framework

• Governance in policy making and project procurement : SOE treatment and vested companies

• Competitive bidding is not prevailing in the procurement of infrastructure projects

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Hung Tran – CEO

Email: hung@monitor.com.vn

Mobile: (84) 903443690

Monitor Consulting

16th Floor, Icon4 Tower, 243A De La Thanh Street,

Dong Da District, Hanoi, Vietnam

www.monitor.com.vn

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