Doing Business

The current development state of infrastructure financing in Vietnam

Trường Lăng

August 23, 2023

Doing Business

The current development state of infrastructure financing in Vietnam

Trường Lăng

August 23, 2023

Vietnam, a nation marked by its breathtaking landscapes and vibrant culture, has transformed into an economic powerhouse in Southeast Asia. As foreign investors set their sights on Vietnam, they recognize that the journey toward sustainable growth hinges on robust infrastructure. The backbone of a thriving economy, infrastructure lays the foundation for trade, investment, and innovation. Modern transportation networks, energy grids, and digital connectivity form the arteries that pump vitality into every corner of the nation. Thus, understanding the current landscape of infrastructure financing becomes a compass guiding investors towards lucrative opportunities.

Current landscape of infrastructure financing in vietnam

Vietnam’s vision for the future is painted on an infrastructure canvas that spans transportation, energy, technology, and urban development. Projects like the North-South Expressway, which seeks to connect the country’s two major cities, Ho Chi Minh and Hanoi, epitomize the scale and ambition of these initiatives. Urban hubs like Ho Chi Minh City and Danang are poised for transformation through smart city solutions. These projects mirror Vietnam’s determination to craft an infrastructure ecosystem that fosters efficiency, sustainability, and competitiveness.

Yet, the path to realizing these grand ambitions is lined with challenges. The financial demands of such projects often exceed conventional funding sources. Navigating the complexities of regulatory frameworks and mitigating risks in unfamiliar environments can be daunting for potential investors. There’s a delicate balance between the need for profitable investments and the socioeconomic impact of these projects. As a result, innovative financing mechanisms and partnerships are being explored to bridge the funding gap.

Vietnam’s government has emerged as a pivotal player in driving infrastructure development. The introduction of Public-Private Partnerships (PPPs) is a testament to the government’s commitment to attracting private sector involvement. By facilitating collaboration between public and private entities, PPPs infuse fresh capital, expertise, and innovation into infrastructure projects. The government’s role also extends to providing a stable regulatory environment, reducing bureaucratic hurdles, and establishing dedicated funds to support these initiatives.

Government initiatives to attract foreign investors

Vietnam’s pro-business stance is reflected in its policies designed to attract foreign investors. 

Incentives for the chosen investor in the form of PPP

According to Article 30 of Decree No. 35/2021/ND-CP, investors with approved project proposals shall get a 5% preference when assessing bids. In addition, a 3% preference shall be granted to investors who commit to use domestic contractors for at least 25% of the project’s total investment value.

Meanwhile, when participating in the selection of international investors, if the investors pledge to use domestic goods, supplies, materials and equipment for at least 25% of the project’s total investment value, they shall enjoy a preference of 2% in the assessment of bids.

Incentives for Smart City investment

Vietnam, with 48 out of 63 provinces and cities under central governance, is actively shaping smart city initiatives. These encompass plans for entire provinces or specific urban areas.

To foster smart city development, Vietnam has introduced key documents, such as:

  • Official Letter No. 10384/VPCP-KGVX on outlining sustainable smart city principles globally and domestically, 
  • Document No. 58/BTTTT-KHCN on guiding ICT principles for smart city construction in Vietnam, 
  • Decision No. 950/QD-TTg on approving the sustainable smart city project from 2018 to 2025, 
  • Document 693/BXD-PTĐT on detailing the implementation of sustainable smart city development in Vietnam, among others.
Incentives for Smart City investment
Incentives for Smart Cities investment. Source: Viettonkin Consulting

Particularly, the Politburo’s Resolution 31 charts Ho Chi Minh City’s path to 2030 and beyond, envisioning digital leadership and development across various sectors. Initiatives include the Digital Transformation Program, the Ho Chi Minh City smart city project, and support for the innovation startup ecosystem.

In addition, on June 16, 2023, Decision No. 700/QD-TTg sanctioned Hanoi’s Master Plan adjustments toward a modern smart city. The Hanoi Party Committee’s Program No. 03-CTr/TU focuses on urban enhancement and economy until 2025, aiming to invest in new smart-oriented urban areas by then.

Notable Smart City Projects Include:

  • Tay Mo – Dai Mo – Vinhomes Park new urban area project in Nam Tu Liem District, Hanoi.
  • Hanoi’s Dong Anh district, with a 4.2 billion USD investment, prioritizes the Smart City project, streamlining initial construction procedures.

Incentives for Developing Key Economic Zones (KEZs) in Vietnam

As outlined in Article 23 of Decree 35/2022/ND-CP:

  • Economic zones are given priority for investment, with funding from state budget and legal sources, dedicated to constructing technical, social, and environmental projects.
  • Key infrastructure projects, essential for economic zone advancement, may secure additional funding through compliant bond issuance.
  • Investment in vital technical and social infrastructure, public utilities, and service projects in economic zones grants investors support from official development assistance (ODA), concessional loans, and technical aid, as per the law.

Types of infrastructure financing in Vietnam

Vietnam stands at the forefront of Asia’s infrastructure drive, channeling substantial resources to spur economic growth, elevate living standards, support energy transition, and bolster resilience, all accounting for around 5.7% of GDP.

The National Master Plan, spanning 2021-2030 with a visionary outlook to 2050 as outlined in Resolution No. 81/2023/QH15, underscores the imperative of a spatial development model. This blueprint accelerates modernization and synchronicity across Vietnam’s infrastructure landscape.

Moreover, Vietnamese Government-led endeavors promote sustainable infrastructure, manifesting through investments in renewable energy sources, incentivizing green buildings, and advocating for electric vehicles. PwC also emphasized the necessity for green infrastructure components, advocating for projects that facilitate a just transition to a low-carbon economy while strengthening climate responsiveness. This clarion call highlights the pivotal role of renewable energy sources, necessitating capacity building and skill development. 

To call for investment in infrastructure development, Vietnamese Government has facilitated various modes of infrastructure financing within Vietnam, including:

Types of infrastructure financing in Vietnam
Types of infrastructure financing in Vietnam. Source: Viettonkin Consulting
  • Direct Government Investment: Presently, government agencies, including local governments and state-owned enterprises, predominantly finance Vietnam’s infrastructure initiatives. However, private sector involvement remains limited.
  • Bank and Credit Institution Financing: The backbone of private sector projects in Vietnam, loans from banks and credit institutions serve as the principal funding source.
  • Public-Private Partnerships (PPPs): Enacted through the Law on Public-Private Partnership Investment No 64/2020/QH14, PPPs forge fixed-term collaborations between the state and private-sector entities, enticing private sector engagement.
  • Market-Based Instruments: Regulatory frameworks such as Securities Law No. 54/2019/QH14, Enterprise Law No. 59/2020/QH14 (pertaining to shares and equity), and Decree No. 153/2020/ND-CP (pertaining to privately placed corporate bonds and corporate bonds in international markets) facilitate capital mobilization through bonds, stocks, and securities.
  • Official Development Assistance (ODA): Regulated by Decree No 114/2021/ND-CP, ODA constitutes foreign donor-provided capital to bolster developmental and social welfare initiatives. It spans various forms, including programmes, projects, non-projects, and budget support.

Recently, a groundbreaking seminar by the Vietnam Center for International Arbitration, Vietnam Confederation of Commerce and Industry (VCCI), and United States Agency for International Development (USAID), underscored the need for innovative investment methods. One such proposition involves leveraging existing infrastructure assets to finance new projects using an Asset Recycling (AR) approach. This approach, utilized by Indonesia and India, harnesses revenue from current government assets to fuel new infrastructure development.

Final Thoughts

In a world of interconnected economies, Vietnam emerges as a captivating investment destination. Its evolution from a nation marked by its history to a nation driven by its future is a testament to the power of vision, determination, and collaboration. As the Vietnamese government paves the way for foreign investors through favorable policies and partnerships, the role of infrastructure development in shaping the nation’s destiny becomes clearer.

Foreign investors venturing into Vietnam are not merely joining a growth story; they are contributing to its authorship. With infrastructure financing as the cornerstone, the canvas of Vietnam’s future awaits the brushstrokes of those who recognize the beauty of progress. As the journey unfolds, the world watches with anticipation as Vietnam transforms, and foreign investors reap the rewards of their foresight.

Don’t miss your chance to be part of this transformative journey. Take action now and explore the possibilities of doing business and investing in Vietnam. Reach out to our team to gain valuable insights and guidance on navigating Vietnam’s dynamic investment landscape. 

Together, let’s unlock the immense potential and build a prosperous future in the vibrant Vietnamese market!

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