Vietnam Looks To Go Big on Transport Infrastructure

 

Infrastructure is having a moment right now. The United States is now discussing a trillion-dollar infrastructure plan, while Singapore has stated that it will raise billions of dollars through financial markets to strengthen its national infrastructure. As a result, it is not surprising that Vietnam, one of the world’s fastest developing economies, is seeking to invest heavily in infrastructure. The Transport Ministry unveiled this month its 2030 master plan for transportation infrastructure, which may be valued at up to $65 billion. It would include the construction of 5,000 kilometers of expressways, a deepwater port in Hai Phong, high-speed rail routes running along major north-south arteries, and the completion of Long Thanh International Airport near Ho Chi Minh City.

Essentially, Vietnam is in a scenario where the economy is rapidly expanding and the government is always attempting to catch up and provide an appropriate amount of supporting infrastructure to keep growth humming. In its most basic form, the Vietnamese economy is built on investment, production, and exports. Investment flows to locations with certain factor endowments, such as a plentiful labor supply, where value-added products are created or processed and then exported. This is comparable to the growing methods that catapulted South Korea, Taiwan, and Singapore to high-income status. And so far, it’s one that is working for Vietnam as the country has seen large capital inflows, fast per capita income gains, and a healthy current account surplus.

Transport infrastructure capable of handling the fast-rising amount of commerce is critical to this growth model, especially as it expands up. As industrial capacity expands, excellent roads and rail links are required to transfer products throughout the country, as are larger airports and seaports to accommodate the rising amount of imports and exports. LG Display of South Korea, for example, has spent more than $3 billion in manufacturing facilities in the northern city of Hai Phong, which is one of the reasons why expanding the port’s shipping capacity is a top priority in 2030 master plan.

Of course, this is nothing new. The magnitude and financing techniques have evolved. The Vietnam National Transport Strategy Study, commissioned by the government and issued in 2000, made similar recommendations, focusing on building the north-south route between Hanoi and Ho Chi Minh City, as well as increasing international shipping ports. The overall cost between 2000 and 2010 was expected to be $12.6 billion, the majority of which would come from international development aid. A second assessment was commissioned in 2010, with the minimum cost of national transportation infrastructure between 2009 and 2020 anticipated to be $40.7 billion. This second report recommended a larger role for the private sector and less reliance on development assistance, which was meant to reflect Vietnam’s improved economic circumstances.

The latest iteration of the master plan estimates the cost at $65 billion and continues to push for more private sector solutions, with Transport Minister Nguyen Van The suggesting the ministry “consider the option of issuing government bonds for traffic infrastructure development and then collecting toll fees to repay the state.” This naturally raises the question of whether it is acceptable for the state to issue bonds that are subsequently used to develop privatized national infrastructure such as expressways, but that is a topic for another time. What is clear is that as the costs and complexity of these infrastructure projects in Vietnam rise, all while supporting an ever-expanding economic edifice, the state’s institutional capacity to handle these demands and deal with thorny issues like land disputes and long-term financing will be increasingly tested.