Developing Vietnam’s Transportation Infrastructure

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SACRAMENTO, California — Since the 1986 economic reforms during the Communist Party of Vietnam’s (CPV) sixth national congress, Vietnam has experienced incredible economic growth. Over three decades, these new economic policies, meant to prioritize the market, resulted in both an explosion of economic activity and a slash in the poverty rate. However, Vietnam’s transportation infrastructure is still woefully behind many other developed economies.

1986 Doi Moi Reforms

In 1986, the CPV set off a series of economic reforms. The Doi Moi reforms prioritized a market-based approach to the economy rather than a centrally planned one. The reforms became necessary following an economic crisis born from the centrally planned economy. The financial situation became so dire that inflation reached 700%. Additionally, the changing geopolitical environment made relying on aid and trade from the Soviet Union no longer a sufficient option.

These reforms resulted for the first time in the CPV encouraging private enterprise and private markets on a large scale. At the same time, they focused on deregulating domestic markets, enforcing private land rights and ending its collective farming policy. Moreover, the reforms scaled back subsidies to State-Owned Enterprises and encouraged foreign direct investments. A free market has, therefore, become a crucial component of the Vietnamese economy and its development.

These reforms resulted in a massive cut to poverty across the country. Between 2002 and 2018, poverty rates declined from more than 70% to just less than 6% while GDP per capita increased over twofold. Additionally, Vietnam has transformed from one of the world’s poorest countries to a lower-middle-income country with its sights set on upper-middle-income status.

Infrastructure Development and Economic Activity

Improving travel networks will have a profound impact on Vietnam’s transportation infrastructure by increasing viable economic activity. It will better connect consumers with producers and decrease the transportation costs for moving products and resources by increasing the efficiency of transporting them.  The World Economic Forum empirically supports the economic impact of transportation investment. It argues that “every dollar spent on a capital project, such as transport, generates an economic return of between 5% and 25%.”

Additionally, developing Vietnam’s transportation infrastructure directly affects those who suffer from poverty by better connecting areas with little economic opportunity to vital economic centers. Therefore, people who otherwise wouldn’t be are better connected to social services such as health and education. By increasing connectivity to these services, transportation development also increases both economic and social mobility for many.

North-South Expressway

The government has responded to this need by creating a nationwide connectivity project, the North-South Expressway. The North-South Expressway is a project that was first conceived in 2010 but only began construction in 2019. The $5 billion project covers the country at 2,109 kilometers of road, more than doubling the 1,000 Kilometers of current Vietnamese highways. This project looks to directly connect all 32 provinces in Vietnam from the mountainous northern province of Lạng Sơn to the southern province of Cà Mau. This project will revolutionize the Vietnamese transportation network by connecting the entire country for the first time in its history. The government, therefore, considers it a “national priority.”

Financing Roadblock

Unfortunately, the central government has run into issues with financing the project. Originally, the government split the project into 11 sub-projects with eight being public-private partnerships (PPP). After rejecting Chinese investments due to domestic opposition and a lack of foreign interest, the government awarded eight contracts to domestic companies. However, after multiple companies that had received the bids failed to secure credit to develop the projects, only three remain a PPP. The state now entirely funds the remaining eight.

Unfortunately, the government’s ability to finance the project on its own is questionable at best. Moreover, although the project itself is attractive, the unclear and often opaque PPP legal structure is likely what is dispelling investors. It is common in Vietnam to create broad, interpretive regulations that give ministries the power to be flexible when implementing them. However, this ambiguity can be very frustrating for investors who require reliability and structure.

Public-Private Partnership Law

Beginning next year, the recently passed Public-Private Partnership Law (PPPL) will come into effect, strengthening the Vietnamese legal framework for PPP projects. The law will clarify the process of investing in Vietnam by creating standard form contracts, government guarantees to fulfill its end of the project and for foreign investors to pay investments in the proper foreign currency and a risk-sharing mechanism.

At its core, the PPPL elevates and integrates previously passed laws, decrees and circulars that regulated PPPs into one authoritative law. The government will implement the law in January 2021 with the goal of making private and foreign investment in Vietnam’s transportation infrastructure projects simpler, less risky and, therefore, more appealing.

Vietnam is at a crossroads in its development and requires investment in its transportation network to sustain and expand its growth. Although they have run into trouble financing the North-South Expressway, the implementation of the PPPL aspires to fix this problem by making PPPs in infrastructure projects simpler and more attractive.

Vincenzo Capoale
Photo: Pixabay

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