Public-private partnerships should drive Vietnam's growth

By Dinh Vu
Wed, May 10, 2023 | 12:20 pm GMT+7

Public-private partnerships (PPPs) are going to be one of the effective cooperation models between the government and private investors in Vietnam’s infrastructure development as long as obstacles facing PPP projects are properly tackled.

Unlocking capital for infrastructure PPPs. Photo courtesy of the government portal.

Unlocking capital for infrastructure PPPs. Photo courtesy of the government portal.

Status quo

According to the Global Competitiveness Report 2020 published by the World Economic Forum (WEF), Vietnam’s infrastructure quality is much lower than other emerging market countries including Malaysia, India, and Indonesia.

The Asian Development Bank (ADB) estimates Vietnam’s need for infrastructure investment will be around $480 billion by 2030. The Global Infrastructure Outlook, a G20 initiative, estimates that Vietnam will need more than $600 billion to achieve its infrastructure targets in 2040.

Significant infrastructure investments will be required in the coming decades requiring even larger amounts of capital. With the government’s strict limits on public debt and the constraints on taking loans from multilateral development banks, new avenues to access capital are required.

Vietnam, like many other developing countries, is facing financial and budgetary hurdles to develop and maintain its infrastructure because of rapid urbanization, rapid economic growth, and the need to improve public services quality serving the steadily increasing needs of the people. It is therefore essential to enable private capital to invest in infrastructure development, thereby reducing reliance on the state’s budget. PPP projects will attract private capital and increase the efficiency and effectiveness of current resources.

In investigating the potential to mobilize PPP capital, the Global Infrastruture Investor Survey Report in 2019, by Singapore’s Infrastrure Research Institute EDHEC, articulates that Vietnam is in the top five emerging countries globally with the highest potential for infrastructure development, along with India, China, Brazil, and Indonesia. But several PPP experts, both private and from the ADB, noted that only 10% of Vietnam’s infrastructure is currently financed by the private sector, much lower than other Asian middle-income countries.

Private investors are showing interest in PPPs by selling their management abilities and experience, especially in delivering public services. They can earn a rate of return through user-paid fees or government payments.

The PPPs Committee of the National Council for Sustainable Development and Competitiveness Enhancement stated that attracting private investors will bring efficiency in offsetting resource gaps. Expansion of PPPs can also help the government take advantage of the expertise and new technologies by using the private sector for construction and management of infrastructure and public services. It will benefit the people by improving services and making them more affordable, develop national infrastructure and the economy, and bring more socio-economic benefits.

New frontiers

Most of Vietnam’s current infrastructure is financed directly by the government and other public agencies such as local authorities and state-owned enterprises, while the private sector’s participation is very limited. This traditional approach to finance for infrastructure projects will not be able to address the infrastructure needs of the future. PPPs will help bridge that gap.

Dr. Tran Chung, associate professor and chairman of the Vietnam Association of Road Traffic Investors (VARSI), said that to access private-sector capital and expertise for PPP projects, the government needs to make changes to its institutions, policies, and administrative procedures.

Vietnam has passed the PPP Law to mobilize social resources, but it has proved unattractive to potential investors. Secondly, the current limit on the state’s contribution, including land clearance, compensation, and resettlement costs, is capped at 50% of the total project value, and this limit will eliminate many projects from being considered under a PPP model. This is especially relevant to projects with large clearance costs.

PPP infrastructure projects have large capital requirements that are usually financed through long-term loans. In international best practices, projects are mainly financed through project finance with limited recourse. Lenders are not interested in the project’s underlying assets but in future cash flow that is adequate to replay loans and interest.

In many countries where PPPs form a significant form of instructure investments, governments have risk-reducing mechanisms available to protect lenders. These mechanisms can take the form of revenue guarantees, minimum usage guarantees, or termination payments, to name a few.

Bonds may play a key role in financing infrastructure projects. Deo Ca, for example, issued VND2,700 billion ($115 million) in corporate bonds for the Cam Lam-Vinh Hai Expressway project. There have been some proposals on how to encourage use of the bond market.

One option is the use of convertible bonds. When a company issues convertible bonds, the holders of those bonds have a right to convert their bonds into equity, typically between three and five years. After converting the bonds into equity, the bond issuer will no longer have a debt obligation but will be allowed to use the proceeds to develop the business and projects.

Another proposal is to establish a National Infrastructure Investment Fund that will specialize in providing preferential loans or making investments in infrastructure or project bonds. This fund can “crowd in” additional investments by providing initial funding and making capital investments to build confidence in the market.

Institutional investors, including pension funds, insurance companies, and sovereign wealth funds, often have a low appetite for risk but are willing to make long-term investments, and are an important source of capital for infrastructure projects in many countries. They represent an untapped source of capital that can potentially be unlocked if appropriate policies and incentives are created.

Institutional investors are attracted by these assets because of their characteristics: low competitiveness, stable cash flows, and long-term predictability (10 to 30 years or even longer), allowing debt reciprocity and protection from inflation. However, institutional investors need appropriate financial mechanisms and a favorable environment for their investments.

Some enterprises propose allowing the government to contribute capital during the operations phase of the project, in addition to the development and construction phases, to address unexpected challenges.

There is also an expectation from foreign investors to convert Vietnam dong to foreign currency for payments made under a PPP contractual obligation and for debt repayments.

Looking at the future

With all that said, the VCCI, with the support of the United States Agency for International Development (USAID), has collected recommendations from the private sector on mechanisms to improve the PPP regulatory framework. The key takeaways are focusing on attracting investment in PPPs in the key infrastructure sectors such as energy, transportation, healthcare; studying and improving the revenue-sharing mechanism; and applying effective and transparent risk controls and management tools.

The cooperation between the VCCI and USAID will strengthen the on-going efforts to enable and improve the environment to attract private investors to develop sustainable infrastructure in Vietnam.

VCCI and USAID are now cooperating to launch a PPP website to provide up-to-date information, share international experiences, and address PPP-related questions. The PPP website is a much-needed tool to improve PPP capacity and knowledge for stakeholders in Vietnam, both public and private enterprises, and features online PPP training, a PPP helpdesk, and many information articles. The website can be visited at https://vcci-ppp.vn

Comments (0)
  • Read More
Elon Musk company okayed to pilot Starlink satellite internet service in Vietnam

Elon Musk company okayed to pilot Starlink satellite internet service in Vietnam

Vietnam has allowed the U.S.'s SpaceX to pilot Starlink low-orbit satellite internet service in the country on a pilot basis until January 1, 2031.

Industries - Wed, March 26, 2025 | 5:18 pm GMT+7

Danish toymaker Lego to open $1.3 bln Vietnam plant next month

Danish toymaker Lego to open $1.3 bln Vietnam plant next month

Denmark's Lego will officially open its factory in VSIP III Industrial Park in Vietnam's southern province of Binh Duong on April 9.

Industries - Wed, March 26, 2025 | 4:18 pm GMT+7

Top Singaporean firms earn high incomes in Vietnam

Top Singaporean firms earn high incomes in Vietnam

Singapore is the second-biggest foreign investor in Vietnam, with over $84 billion in registered investment capital as of end-January and many prominent investors raking in high incomes.

Companies - Wed, March 26, 2025 | 3:45 pm GMT+7

Vietnam, Singapore ink significant deals in Hanoi

Vietnam, Singapore ink significant deals in Hanoi

Vietnamese Prime Minister Pham Minh Chinh and his Singaporean counterpart Lawrence Wong on Wednesday witnessed the signing of many cooperation deals between agencies and enterprises of the two countries.

Economy - Wed, March 26, 2025 | 2:51 pm GMT+7

Vietnam's major policies are reshaping economic development

Vietnam's major policies are reshaping economic development

Major policies are reshaping Vietnam's approach to economic development, which focuses on science, technology, and private enterprises, said a leader at the Vietnam Chamber of Commerce and Industry (VCCI).

Economy - Wed, March 26, 2025 | 12:11 pm GMT+7

PM okays over $10 bln urban area project in central Vietnam

PM okays over $10 bln urban area project in central Vietnam

The over VND260.3 trillion ($10.16 billion) Cam Lam New Urban Area project in the south-central province of Khanh Hoa has received in-principle approval from Prime Minister Pham Minh Chinh.

Real Estate - Wed, March 26, 2025 | 8:58 am GMT+7

S Korea's KIM Fund raises stake in Vietnam's marine transportation firm VIPCO

S Korea's KIM Fund raises stake in Vietnam's marine transportation firm VIPCO

South Korea’s KIM Fund has increased its stake in Hai Phong city-based Vietnam Petroleum Transport JSC (VIPCO, HoSE: VIP) to 2.73%, making it the latter’s second-largest shareholder.

Companies - Wed, March 26, 2025 | 8:30 am GMT+7

Vietnam, Singapore seek cooperation chances in semiconductor industry

Vietnam, Singapore seek cooperation chances in semiconductor industry

The Vietnam Trade Office in Singapore, in collaboration with the Singapore Semiconductor Industry Association (SSIA), organized a hybrid seminar on Monday to introduce Vietnam's potential, advantages, and development strategies for the semiconductor industry.

Southeast Asia - Tue, March 25, 2025 | 10:55 pm GMT+7

OV intellectuals in UK suggest blueprint for Vietnam’s int’l financial hub ambition

OV intellectuals in UK suggest blueprint for Vietnam’s int’l financial hub ambition

Vietnam can rise as a major international financial centre, both regionally and globally, with a strategic vision that highlights transparency, a skilled workforce, modern infrastructure, robust financial markets, and strong international branding, the Vietnam Intellectual Society in the UK and Ireland (VIS) told visiting Vietnamese Permanent Deputy Prime Minister Nguyen Hoa Binh in a recent meeting.

Southeast Asia - Tue, March 25, 2025 | 10:55 pm GMT+7

Vietnam Deputy PM discusses financial center development with ECB

Vietnam Deputy PM discusses financial center development with ECB

Vietnam's Standing Deputy Prime Minister Nguyen Hoa Binh on Monday met with representatives of the European Central Bank (ECB) to discuss plans for the establishment of financial centers in Vietnam, as part of his working visit to Germany – the final stop in his European tour.

Southeast Asia - Tue, March 25, 2025 | 10:52 pm GMT+7

Indonesia keeps commitment on energy transition

Indonesia keeps commitment on energy transition

Indonesian Coordinating Minister for Economic Affairs Airlangga Hartarto on Monday affirmed that the U.S. decision to pull out of the Just Energy Transition Partnership (JETP) will not impact the other partners' commitment to it.

Southeast Asia - Tue, March 25, 2025 | 10:35 pm GMT+7

Malaysia’s electric vehicle sales surge

Malaysia’s electric vehicle sales surge

Malaysia’s automotive industry is gaining momentum, with electric vehicle (EV) sales soaring over the past two years and continuing to rise in 2025, driven by both domestic and international manufacturers.

Southeast Asia - Tue, March 25, 2025 | 10:23 pm GMT+7

Japan turns to Vietnam, Indonesia to tackle truck driver shortage

Japan turns to Vietnam, Indonesia to tackle truck driver shortage

Logistics and transportation companies in Japan have begun recruiting foreign nationals as drivers now that their industries qualify for a special employment visa amid a severe labor shortage.

Southeast Asia - Tue, March 25, 2025 | 10:19 pm GMT+7

Malaysia expected to achieve economic growth of 4.5-5.5% in 2025

Malaysia expected to achieve economic growth of 4.5-5.5% in 2025

The Malaysian economy is projected to expand between 4.5% and 5.5% in 2025, underpinned by resilient domestic demand and ongoing investment activity, despite external uncertainties, according to the country’s central bank Bank Negara Malaysia (BNM).

Southeast Asia - Tue, March 25, 2025 | 10:10 pm GMT+7

Singapore’s core inflation falls in Feb

Singapore’s core inflation falls in Feb

Singapore’s core inflation declined for the fifth straight month in February after falling sharply in January as most spending categories saw smaller year-on-year price increases.

Southeast Asia - Tue, March 25, 2025 | 10:01 pm GMT+7

China’s apparel giant 'unwinds' Texhong Industrial Park expansion in Vietnam

China’s apparel giant 'unwinds' Texhong Industrial Park expansion in Vietnam

China-headquartered Texhong, among the largest core cotton textile suppliers in the world, will “unwind” the expansion of its Texhong Industrial Park (Texhong Hai Ha Industrial Park) in the northern Vietnam province of Quang Ninh, the firm said on Monday.

Industrial real estate - Tue, March 25, 2025 | 9:28 pm GMT+7