Transport Infrastructure to Vietnam

Trends and opportunities

The market

The Asia Pacific region has reconfirmed its driving force position for the global economic dynamism in the coming years. However, a substantial lack of infrastructure in many countries in the region has made trade competitiveness much less efficient, and the economic growth less sustainable. Vietnam is not an exception, for both of its infrastructure quality and quantity are far below the development requirements.

Due to severe shortage in logistics and shortages of electricity, Vietnam has a strong project pipeline in power and transport. The Vietnamese Government is trying to draw investment from the foreign private sector to attract not only equity but also specialised technical knowledge into these projects. Ongoing regulatory reforms and privatisation of state-owned enterprises encourage the private sector to maintain and increase their existing level of investment in infrastructure.

(Source: World Economic Forum, the Global Competitiveness Report 2016-2017 )

Between 2016 and 2020, Vietnam will need an investment of approximately US$ 38 billion per annum for various socio-economic infrastructure projects. These projects are mostly in transport and power infrastructure, irrigation, water, education and healthcare. Transport infrastructure alone will require US$ 120 billion for the whole period. Conventional funding sources from state budget, and official development assistance (ODA) from bilateral and multi-lateral donors and government bonds can cover just some 50 per cent of the total need. Local capital market as well as foreign private investors are expected to step up and make their contribution in infrastructure investment and development under Public Private Partnership (PPP) scheme.

Rapid urbanisation in Vietnam is a strong growth driver for the development of the transport and utilities sector. The rising population in major cities in recent years has strained and exceeded capacity of the existing connectivity networks and utilities systems. With 50 per cent of Vietnam’s population expected to be living in cities, Hanoi and Ho Chi Minh are building rapid transit systems exceeding US$ 22 billion in the hope of reducing private vehicle ownership and improving air quality.

Various expressway projects are planned and underway to improve connectivity within major cities. Similar to transport infrastructure, urban utilities infrastructure is also struggling to cope with the rapid rate of urbanisation coupled with effects of climate change. Both Hanoi and Ho Chi Minh cities have recently announced multi-billion dollar projects to build and upgrade drainage systems, pumping station and waste treatment plans over the next decade. The nature of these projects is highly capital-intensive and technologically complex, requiring participation from experienced international firms.

There are 44 planed PPP projects with total investment value worth up to US$ 120 billion in the road and power sectors. However, the government lacks fiscal capacity to meet financing requirements for large infrastructure projects, Vietnam is gradually liberalising various industries and embracing PPP through decisions in 2014 and 2015 to lift restrictions on foreign real estate investments and ownership. This effort will help improve the attractiveness of Vietnam for PPPs.

Despite a challenging business environment, foreign firms are interested. According to Business Monitor International, half of all ongoing projects involve a foreign partner. The government has been making efforts to break up state monopolies and privatise SOEs. An example is in the power market - after the government started allowing independent producers to sell electricity to state operator EVN in 2012, IPPs now control 40 per cent of the country's installed capacity. Similar efforts are underway to introduce private-sector participation in the roads and rail sectors.

Austrade is working closely with key government, aid and industry stakeholders, including DFAT/Australia Aid, to introduce relevant Australian expertise at the early stage of these projects, including technical assistance, design, consultancy and EPC.

Opportunities

It is expected that the transport infrastructure industry value alone will grow by an average of 4.5 per cent year-on-year between 2017 and 2025 (Source: Business Monitor, Infrastructure Report Vietnam Quarter 3, 2016).

The projected growth in construction and related services in transportation include:

• expressways
• metro/monorail
• airport and urban development
• industrial and residential waste treatment

The increasing adoption of Build Operate Transfer (BOT) and PPP models and the track record and reputation of Australian infrastructure expertise, technology, equipment and services offer significant opportunities for businesses in the medium to long term, especially in:

• architecture
• consultancy services and technical assistance
• engineering services
• concept design
• construction management
• project management

Other areas of opportunity also include: supply of metallic materials (aluminium, steel sheets), high-end architectural interior products and designs, fire safety and building materials (energy efficient, HVAC, lighting and high end building materials).

Tariffs, regulations and customs

Normal tariffs for imported construction materials are subject to duties, ranging from 5 to 35 per cent. As a general rule, higher tariffs are applied to imported products that compete against locally produced products.

The ASEAN-Australia-New Zealand Free Trade Agreement will eliminate tariffs on 96 per cent of Australia’s current exports to ASEAN nations by 2020 and may benefit certain companies. Currently, only 67 per cent of Australia’s exports to the region are tariff-free.

Marketing your products and services

Market entry

Australian businesses preparing to enter the market must plan strategically and be persistent and consistent with face-to-face follow-ups. It can take up to one or two years to make a successful sale.

To enter or expand in Vietnam, depending on the nature of the business, Australian companies may directly deal with project developers or indirectly through the appointment of an agent or distributor. In order to be successful, Australian suppliers are highly encouraged to visit the market and spend time assessing market needs, sales potential and possible distributors for their products. It is important to conduct a detailed analysis of the market prior to entry.

Firms seeking a direct presence in Vietnam can do so by establishing a representative office, branch or foreign investment project.

The infrastructure sector is a highly competitive market and many international architecture and construction services firms have a foothold in Vietnam. However, Australian products and services can compete, owing to the expertise and reputation for quality among suppliers and the increasing demand among developers for new, innovative technologies and services.

Product demonstration and educational seminars on the latest technology, services and products in line with market demand can be a positive way to build brand recognition among potential end-users. An appropriate agent/distributor can assist in contacting developers, potential buyers/users, provide after sales service as well as organising product demonstrations. Providing technical support to your local partner will also signal your commitment to the market.

Links and industry contacts

Government, business and trade resources

Asian Development Bank
Ministry of Construction
Ministry of Planning and Investment
Ministry of Transport
The World Bank Group

Please note: This list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.

Contact details

The Australian Trade and Investment Commission – Austrade – contributes to Australia's economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

• develop international markets
• win productive foreign direct investment
• promote international education
• strengthen Australia's tourism industry
• seek consular and passport services.

Working in partnership with Australian state and territory governments, Austrade provides information and advice that can help Australian companies reduce the time, cost and risk of exporting. We also administer the Export Market Development Grant Scheme and offer a range of services to Australian exporters in growth and emerging markets.