According to the draft five-year social economic development plan (2005-2010) compiled by the Ministry of Planning and Investment (MPI), required investment capital is US$139.4bil.

In addition to capital from the state budget and official development assistance (ODA), an important source of finance for this period will be private projects.

Under the draft plan, private capital will account for a high proportion of the sum, around VND568-607tril ($35.5 – 37.93bil). Investment from the state sector will be VND356tril ($22.25bil), ranking second, and VND252-VND277.5tril ($15.75-17.34bil) will be sourced from ODA.

Ministry of Transport expert Pham Thanh Binh, said that Vietnam needs an average of VND118tril ($7.4bil) every year from now to 2020 to invest in transport infrastructure development while the current sources of capital from the state budget, ODA and government bonds offer only $2-3bil.

According to Mr. Binh, the Ministry of Transport is looking to attract capital from other sources, such as the private sector and domestic and foreign financial organisations. To raise capital from the private sector, the ministry will issue construction work bonds or call for investment in the form of build – operate – transfer (BOT) or build – transfer (BT). It will call for investment from financial institutions by borrowing at market interest rates.

ADB calls for increase private capital

The Asian Development Bank (ADB) has suggested Vietnam should raise more capital from the private sector for its five year development plan. The donor is concerned that sluggishness in construction of power and port infrastructure may affect Vietnam’s growth targets.

According to an ADB report, Vietnam has invested around 9-10% of gross domestic product (GDP) in infrastructure development over the past decade. This investment has helped the country gain a per capita GDP growth rate of 7% per year, and reduces hunger and poverty from 58% to 29%. However, the bank said that Vietnam must increase its investment in infrastructure to 11-12% of GDP to maintain growth over the next decade.

Alan Johnson, coordinator of the ADB-funded project on improving market effectiveness for the poor, said that once Vietnam becomes a member of the World Trade Organisation (WTO), its need for infrastructure services will soar. The appearance of limitations in terms of budget, and with the country about to be struck from preferential assistance sources, mean that it has to seek other sources of funding for infrastructure development.

“Participation of the private sector in providing infrastructure service and related services will be a very important transition in satisfying the need for infrastructure in general,” said Alan Johnson.

Doors not open for investment

The ADB report shows that the private sector has taken little part in providing infrastructure funding in Vietnam. Over the last 12 years, only 18 BOT and business cooperation contracts (BCC) have been entered into by private foreign firms, accounting for just 15% of investment in infrastructure. The majority of those projects were in energy and telecom sectors.

According to ADB, the reason is that Vietnamese government doesn’t have a consistent attitude towards private investment and has impractical expectations about the effectiveness brought about the public sector.

The ADB representative said that to promote participation of the private sector in infrastructure investment, Vietnam has to have pilot projects and diversify public – private partnership (PPP), instead of applying only BOT or BCC in this field as it has in the past.

(Source: VNE)