Vietnam holds key to expediting infrastructure investment: Moody’s

13-Feb-2020 Intellasia | The SaigonTimes | 6:02 AM Print This Post

Vietnam’s rapidly growing economy, rising income and urbanisation are fuelling a strong need to develop the country’s infrastructure, particularly for more and improved power utilities and road connectivity, Moody’s Investors Service stated in a new report.

The report, called “Infrastructure in Emerging Markets: Focus on Vietnam,” said that infrastructure development is essential for Vietnam to sustain its favourable long-term growth prospects, as well as support the scaling-up of the value chain in the country’s industrial activity.

“The importance of investment from private investors is highlighted by the sizeable infrastructure task required in Vietnam together with the country’s nascent capital markets,” said Mic Kang, Moody’s vice president and senior credit officer.

“The government’s further progress in developing the country’s contractual legal framework for infrastructure will help attract more private capital, while the evolving regulatory framework and administrative deficiencies will remain key challenges for infrastructure projects.”

Based on the World Economic Forum’s assessment, Vietnam’s overall infrastructure competitiveness ranked in the mid to low range out of 141 countries and territories globally, mainly because of its relatively weak quality of electricity supply, road connectivity and quality and the efficiency of its air and water transportation services.

This is despite the country’s continued progress in developing infrastructure, particularly in the power sector, where more than 98 percent of the country’s population has had access to electricity since 2010, up from some 86 percent in 2010.

The report indicated that the government plans to develop further infrastructure, with power and toll roads likely to be the main areas for expansion and quality improvements. Other infrastructure, including ports and railways, will also be developed.

The continued development of Vietnam’s power sector is needed to meet the fast-growing power demand from increasing industrial activity and residential customers’ rising power consumption.

There is also a need to develop renewable sources of energy given the government’s commitment to reduce greenhouse gas emissions by 8 percent with domestic resources and by 25 percent with international support by 2030 on a business-as-usual basis.

Renewables (excluding hydro) accounted for only 0.2 percent of the country’s power generation mix in 2018, which was much lower than the government’s target of around 7 percent in 2025 and about 11 percent in 2030, according to the report.

Recognising its vast infrastructure needs and constraints, the government aims to increase public-private partnerships and foreign direct investment. Multilateral development banks (MDBs) will also continue to help fill some of the funding gaps.

However, Vietnam’s graduation to a lower middle-income country will likely reduce the availability of MDB funding, which is generally provided to poorer countries.

State-owned companies will remain important to the country’s infrastructure sectors, given their status as the main executors of government policy to develop infrastructure and their dominant market positions in the sectors.

“We expect State-owned companies, whose credit quality is typically linked to the government’s, will continue to be under the government’s control and supervision, given their essential nature and strategic importance to the economy,” said Moody’s.

The agency explained that State-owned companies will be the off-takers of various infrastructure projects and will therefore have a significant impact on the credit risk of these projects in Vietnam.

Those companies will likely fill gaps in planned infrastructure developments that could be left over by slow investments from the private sector, to the extent that they can obtain funding from the government and bank loans, issue bonds domestically and overseas and/or establish joint ventures with foreign investors.

The government has been making progress in developing a contractual legal framework for infrastructure, but improvements are still needed in terms of the efficiency of regulatory approval processes, risk allocation and framework consistency.

“We expect the private sector to invest in infrastructure projects on a selective basis, depending on the projects’ credit risk relative to the expected returns,” said Moody’s.

It noted that foreign investors have participated in projects with acceptable risk allocation between the government and private investors and/or with export credit agencies’ or multilateral financial institutions’ credit enhancements.


Category: Economy, Vietnam

Print This Post