» » Mobilising individual capital for infrastructure development

Vietnam Real Estate - As Vietnam is facing a number of difficulties and challenges due to high inflation and import surplus, it is important and necessary to research how to use capital effectively to ensure infrastructure development.

To achieve the target of becoming an industrialised and modernised country in the first 20 years of the 21st century, Vietnam must completely revamp its infrastructure. Doing this requires huge resources, including State funds and capital from individuals in the country and overseas as well as close co-ordination between the State and individuals in developing the nation’s infrastructure in general and the transport infrastructure in particular.

The issue was discussed at a seminar on co-operation between the State and individuals in Vietnam held by the Ministry of Planning and Investment (MoPI) and the World Bank (WB) in Hanoi on June 25.

Reports at the seminar said that to cope with the difficulties and challenges caused by inflation and price rises, Vietnam must devise measures to use capital effectively and to ensure infrastructure development in a large scale in order to achieve high and sustainable growth in next years.

Over the past years, significant progress has been made in infrastructure development, especially in transportation. However, since the transport infrastructure was in such a poor state at the start it still remains limited despite great efforts by the Government and businesses. Vietnam mainly uses the State budget, official development assistance (ODA), government bonds and project bonds guaranteed by the Government to invest in upgrading its transport infrastructure.

According to a report on Vietnam Development 2007 from the WB, Vietnam’s annual investment in infrastructure accounts for 9-10 percent of the GDP (the highest rate compared to international standards). However, both the WB and the Asian Development Bank said that to maintain the current growth rate, Vietnam should raise investment in infrastructure to 11-12 percent of its GDP.

Deputy Minister of Planning and Investment Nguyen Bich Dat said that investment in infrastructure development must be twice as much as in economic growth if not things will be held back.

Private sector’s investment in infrastructure development is still limited

To realize its goal to become a developed industrial country by 2020, Vietnam has to build a comprehensive and modern infrastructure system. In the 2007-2008 period, the country will need about US$30 billion for infrastructure development annually. At present, nearly 40 percent of the total investment in infrastructure development is granted by international capital sources, while only 15 percent comes from the private sector.

Regarding the demand for capital investment in improving the traffic network till 2020, each year Vietnam needs VND117,744 billion (roughly US$7.4 billion), while its current capacity to meet such demand is estimated at US$2-3 billion, mostly contributed by the State budget, ODA and Government bonds. This can only meet 20-30 percent of the total demand, according to the Bank for Investment and Development of Vietnam (BIDV).

BIDV Deputy General Director, Nguyen Khac Than, said that the encouragement of the private sector’s investment in infrastructure development will prove effective thanks to its strict capital management which is more flexible than the State’s investment incentive policy. The participation of the private sector in infrastructure development will contribute to combating corruption and wastefulness, he added.

Mr Than also quoted assessments by the World Bank (WB), the Asia Development Bank (ABD) and the Japan Bank for International Cooperation (JBIC) as saying that Vietnam has a good legal framework and incentive policies, and that private businesses will perform better than service providers in the public sector. It is essential to encourage the private sector’s investment via Build-Operate-Transfer (BOT) or direct capital contributions. However, he said this type of investment should have a specific long-term plan, and there should be a close link between the State and the private sector.

According to Tong Quoc Dat, deputy head of the Urban and Infrastructure Development Department under the Ministry of Planning and Investment, the research on the implementation of a cooperation model between the State and the private sector will help to complete the traffic infrastructure network, with a focus on developing key large-scale construction projects, promoting poverty reduction in rural areas and improving the urban traffic network.

Pham Phan Dung from the Ministry of Finance said that to carry out the investment cooperation model in Vietnam, apart from learning from similar models in foreign countries, ministries and relevant agencies, including the Ministry of Planning and Investment, the Ministry of Transport, the Ministry of Construction and the Ministry of Finance, should conduct research on the feasibility of implementing a public investment cooperation model in Vietnam and creating good conditions for Public Private Partnership (PPP) projects.

Mr Dung’s view was shared by Truong Tan Vien from the Ministry of Finance, who said that one important measure is to mobilize non-State capital investment by finalizing a legal framework, policies and institutions. The Government should have the necessary legal avenues to limit risk for investors, Mr Vien added.

Vietnam Real Estate

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