Road, rail investment to push Vietnam infrastructure growth

This would be the result of government investment in new expressways and urban transit networks to handle the country’s logistics shortcomings, Fitch Solutions Macro Research, said in a new outlook report on Vietnam’s infrastructure sector.

It said the transport sector would be a driver of the infrastructure industry’s growth as the government invests in new road and rail projects aimed at alleviating some of the country’s logistics infrastructure gaps.

This investment would be predominantly concentrated in the road and rail segments, which account for 54% of the total infrastructure industry value.

Growth in the road and rail segments was predicted to outperform to reap an annual average surge of 7% in real terms between 2018 and 2027.

Meanwhile, the rail sector was expected to expand by an annual average of 5.4% in the period.

Investment and construction activity in these two sectors would help boost overall growth of the transport infrastructure sector to 5.9% annually.

Vietnam was aggressively upgrading and expanding its road and expressway networks.

The report quoted a 2016 announcement by the Directorate for Roads as saying that Vietnam plans to develop roads in 14 underdeveloped provinces and invest VND9.2 trillion (US$409 million) to build more than 4,000 bridges by 2021.

At the same time, investment in toll expressways was gradually expanding the footprint of Vietnam’s highway network, which was still comparatively small compared to other large markets in ASEAN.

Highways were attracting interest from private parties, who sought to benefit from the growing traffic volumes portended by the country’s strong and sustained economic growth, though efforts to launch public-private partnerships had run into numerous regulatory hurdles in recent months.

This risk was most recently noted in the government’s decision to halt the US$750 million Dau Giay-Phan Thiet Expressway, which would have been the first public-private partnership (PPP) transport project in the country, after potential investors withdrew their bids over financing uncertainties.

In particular, Vietnam’s PPP laws did not include loan guarantees which were required by multilateral financing institutions like the World Bank.

If these regulatory barriers were resolved, however, Vietnam would still remain a favoured destination for foreign and private investment in road projects, in part because of the current lack of toll roads and also because local companies lacked the project management experience and technical expertise required to efficiently build large-scale roads.

Metro projects to drive railways growth

In the first half of the 2018 - 2027 period, ongoing and proposed urban transit projects in Hanoi and Ho Chi Minh City would drive growth in the railway segment.

Vietnam’s metro projects also reflected the strong and diverse involvement of international financiers and contractors in the railways sector – the four lines across Hanoi and Ho Chi Minh City were being built by four consortia from the Republic of Korea (RoK), China, Japan, and Europe.

Hanoi was currently building two metro lines - Lines 2 and 3 - and had another four lined up.

The $890 million Line 2, to run 11.5km between Nam Thang Long and Tran Hung Dao Street, was being built by a consortium led by RoK’s Daelim, and was scheduled to open in 2018.

The US$1.4 billion Line 3, to run 12.5km from Nhon to the Hanoi Railway Station, had its opening date pushed back from 2015 to 2020.

In Ho Chi Minh City two metro lines totaling 32km were under construction, and five other lines were in the planning stages.

As such, there was significant development potential in Vietnam’s regional and long-distance railways, though concrete and financed proposals had yet to emerge.

Vietnam’s rail network was centered on a 1,726 km single-track mainline running from Hanoi to Ho Chi Minh City that was outdated and suffers from low operating speeds and capacities.

In the longer run, Vietnam planned to build a standard-gauge high-speed railway parallel to the current line that would integrate with a proposed Southeast Asian high-speed rail network.

But huge amounts would be needed and the plan would not be feasible without external financing, the Fitch report added.