Vietnam Infrastructure Report Q1 2010

This quarter BMI has introduced new data series for infrastructure and its subsectors (Transport and Energy & Utilities). This is an effort to address a significant deficiency in the availability of globally comparable, infrastructure-specific indicators and forecasts across a wide range of countries. The new infrastructure data series enables users to quantify trends and growth patterns in the infrastructure sectors of the 35 main emerging and developed markets out of the 62 countries in the infrastructure service.

According to our forecasts, infrastructure will make up an average of 48% of total construction industry value each year between 2009 and 2014 in Vietnam. This is above the global average of 36.4%, indicating that investments in infrastructure in Vietnam will continue to dominate the construction sector.

Furthermore, our data indicate that transport infrastructure industry value will see its share of total infrastructure industry value rising, meaning that the share of energy and utilities will be reduced. Large scale transport projects in railways, urban transport infrastructure and maritime infrastructure will increasingly account for a larger share of infrastructure industry value compared with projects in energy and utilities.

Foreign investment pledges for the port sector proliferated over the third quarter of 2009. Taiwan's Formosa Plastics Group – which is rapidly emerging as one of the largest, if not the largest, foreign investors in Vietnam – disclosed that it will live up to its commitment to the government to build a deepsea port in Son Duong, next to the Vung Ang Economic Zone, where it is investing US$19.2bn in petrochemical, steel and oil refinery projects.

In the Q110 Vietnam Infrastructure Report our forecasts remain along the same level as in the previous quarter. New preliminary estimates from the national statistics agency indicate that construction industry value real growth for 2008 was a mere 0.4%. In addition, according to the latest data by the general statistics office, foreign direct investment inflows from January to September of 2009 have been US$2.6bn, a reduction of 78.6% compared with same period in 2008.

The construction industry real growth forecast for 2009 is 0.12%. Fixed capital formation is forecast to decline from 23% in 2007 to an estimated 3.8% in 2008 and 2% in 2009. This is the key factor that weighs down our estimates for 2008 and 2009. Infrastructure industry value real growth for 2009 is estimated to be 0.3%, with value reaching VND47trn (US$2.6bn), though a strong recovery is anticipated for 2010 onwards, when real growth is forecast to be close to 28% and industry value is predicted to reach VND64trn (US$3.4bn). The later reinforces our medium-term view that Vietnam’s infrastructure sector will post strong growth .Not only did new projects break ground in early summer, but the county has significant projects in the pipeline for building and upgrading infrastructure that should sustain the industry.

Our optimism for the country is tamed by the weak regulatory environment governing long-term private sector participation in the sector. Though bits of legislation exist, there is no clear-cut set of responsibilities for ministries and authorities involved in infrastructure, making PPP ventures and procedures more opaque than they need be. This is reflected in the weak score and regional standing the country receives in the Asia Pacific Infrastructure Project Finance and Business Environment Ratings.

Country Risk analysts have revised up the 2009 real GDP growth estimate from 4.5% to 5.1% on the back of the stronger-than-expected resilience of domestic demand suggested in recent data. As a consequence, the government may actually achieve the 5.0% growth target approved by the National Assembly in May.