General

Vietnam Infrastructure Development- The Backbone of Economic Growth

Trường Lăng

June 20, 2022

General

Vietnam Infrastructure Development- The Backbone of Economic Growth

Trường Lăng

June 20, 2022

Vietnam views investing in infrastructure development as the key to a sustainable socio-economic growth. Despite certain challenges hindering the development of infrastructure, Vietnam has taken substantial measures and is seeking more private investment to stimulate its growth. 

Vietnam Government gives top priority to infrastructure development

After more than two decades since the launch of Doi Moi, Vietnam has entered the stage of development which requires more strategic investments in infrastructure.

Over the past decade, the Vietnam Government has put considerable effort into  improving infrastructure. They stressed that infrastructure played an important role in Vietnam’s development strategy. According to automatic data processing, in 2019, Vietnam spent about 5,7% of GDP on infrastructure. This number surged to 6% by 2020. 

For strategic planning in the 2016-2020 period,  the Government allocated VND 2,000 trillion (US$87 billion) for investment to over 1,100 projects, nearly half of the number of the previous five years. During this period, the average disbursement rate was estimated at 83.4%, the highest being 97.46% in 2020.

Indeed, the close relation between infrastructure investment and economic growth has always been top of mind for the Government, especially as Vietnam is among emerging nations in the world. In addition, developing public and transport infrastructure is one essential step of Vietnam to build smart cities and smart urban areas in the future. 

While investment is always important in infrastructure development, the efficiency cannot be overlooked. The recent years have seen several major problems in the planning and execution of some large-scale projects in Vietnam, that led to prolonged delays and cost overrun. Therefore, Vietnam is seeking more foreign investment in the infrastructure and construction industry.

A large-scale project faces prolonged delays

Hanoi’s second metro line known as Nhon – Hanoi Station metro line has been Hanoi’s ambitious metro strategy for the past 13 years. The Project will establish an integrated sustainable public transport system in six districts of Ha Noi by constructing 12.5 kilometers of a dual track rail metro line from Nhon to Hanoi railway station. Notably it includes a combination of elevated and underground sections. The route passes through eight elevated and four underground stations.

nhon hanoi station metro line expected to run in
Nhon-Hanoi metro line – an important infrastructure project in the city development

Once completed, the Nhon – Hanoi Station metro line will facilitate public transport connectivity, enhance access in six big districts in Hanoi, and be an important integral part of an advanced public transport system of Vietnam.

Despite its significance, the project has been delayed four times since it was approved in 2006. First, the project was expected to finish in 2010. However, until December 2022, only about 95% of the elevated section has been accomplished. Meanwhile, the underground section is still under construction with only 33% accomplished. While the elevated section is expected to be put into commercial operation in December 2022, the implementation of the underground section was delayed by nearly a year.

There are several factors that hampered the project’s progress. Among these are land clearance, the impacts of Covid-19 pandemic, inappropriate policies and conflicts with international contractors over extended contracts and increased costs.

The Government is well aware of the impact of an extended infrastructure project on socio-economic growth. Therefore, recently they have actively responded to all problems of this project.

On August 13, 2021, the Hanoi People’s Committee decided to establish an inter-agency task force group to strengthen their coordination and handle difficult issues during implementing the project in order to speed up the progress of the Nhon – Hanoi Station metro line.

Most of the issues under Hanoi’s jurisdiction have been resolved. For instance, Ba Dinh and Dong Da district have been resolving land clearance issues. Other issues outside the city’s authority have been handled by the national task force group formed by Prime Minister Pham Minh Chinh.

Effort to combat constraints 

On the one hand, the Government attributed the extended progress to poor master planning and project design, lack of capability in site management and supervision, financial difficulties and even inappropriate policies. 

On the other hand, they also acknowledged that this situation might hinder Vietnam from further growth in the future. Therefore, in recent years, Vietnam has taken considerable measures to promote infrastructure development.

For instance, on June 18, 2020, the National Assembly of Vietnam passed the new Law on Public-Private Partnership (PPP) replacing its previous version under Decree 63. Taking effect on June 1, 2021, the law aimed to establish an umbrella legal framework for all PPP projects and attract more private investment to the development of Vietnam’s infrastructure.

The appeal of this law stems from government support, government guarantees and investment incentives. The government support can come in many forms such as support for the construction of works and infrastructure systems for a PPP project; payment for land clearance, compensation and resettlement. In addition, investment incentives include tax incentives, rights to mortgage project assets, rights to utilize public services, rights relating to the purchase of foreign currency and foreign currency balancing, etc.

In the post-pandemic period, the Government views public infrastructure as an economic driver that can help overcome the pandemic’s negative effects. Promoting infrastructure development can be the key to fast track economy recovery. Therefore, they have taken immediate action to eliminate impediments during implementing infrastructure projects.

Pham Minh Chinh, Prime Minister of Vietnam, has approved Decision No.548 to establish six task force groups to urge Government agencies and localities to accelerate infrastructure progress. The task force groups’ responsibilities include identifying bottlenecks and difficulties of major projects and proposing measures to improve state capital management efficiency.

Furthermore, the National Assembly issued Resolution No.43/2022/QH15 in early 2022. The Resolution authorized monetary and fiscal support programs worth a combined total of VND350 trillion (US$15.4 billion) to aid socio-economic recovery and adaptation to the new normal. It will take effect in the 2022-2023 period.

Together with the Resolution No.43, the Prime Minister also sent a directive No.126/CD-TTg to ministers and leaders in provinces and cities. The directive aimed to urge them to ensure swift and effective implementation of that US$15.4 billion socio-economic recovery program.  

“The goal would be to fully disburse 100% of the allocated funds in 2022 with high quality and efficiency,” stated the directive. There would also be strict punishment for a suspended infringement during the disbursement of public funds.

In addition, the Government also asked certain agencies to support businesses to attract more private investment. For instance, the Finance Ministry has reduced value-added tax for businesses. The State Bank of Vietnam (SBV), the country’s central bank, is drafting a decree on subsidizing loan rates for businesses and households.

All of these above actions demonstrate Vietnam’s significant effort to prevent and eliminate impediments which cause a delay in capital allocation, implementation, and disbursement.

Undeniably, the significant investment and effort from the Government has yet to unlock all potentials of Vietnam’s public infrastructure. The development of this sector is still in the nascent phase. Due to Vietnam’s integration into the world market, the Government will pay more and more attention to infrastructure and create more favorable conditions to attract domestic and foreign investment. With insightful knowledge about the state of development regarding infrastructure and its related policies, Viettonkin can give you valuable guidance to make wise investment opportunities.

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