Vietnam is growing at 7%. Hanoi can do a lot better
Vietnam is buzzing. Global companies from Samsung Electronics Co. to Lego Group are opening mega factories there.
Apple Inc. is in talks to make Apple Watches and MacBooks in the Southeast Asian nation for the first time, while the tech giant’s Taiwanese and Chinese suppliers jostle in a bidding war for local talent.
But Vietnam can do a lot better. The government is only aiming for 7% growth this year — meager compared to the double-digit expansions China registered during its export-driven boom in the early 2000s. Even though there have been talks of shifting supply chains, progress in moving mass production of more advanced tech products to Vietnam has been slow.
The bottleneck is poor infrastructure. The nation, shaped as a long and curvy letter “S,” still relies on roads — which can be narrow, congested and bumpy — for three-quarters of freight and 90% of passenger traffic. Meanwhile, not all ports along the coast can be used for the biggest container ships. By comparison, even during Shanghai’s Covid-related lockdown, the nearby Ningbo port was still operating and exporting.
Road modernization, while a national priority, has been slow. A planned North-South Expressway, described as the future transport backbone, has seen long delays, as the government struggles with cost overruns.
The frustration goes beyond exporters, who have to absorb higher transportation costs, to the services sector. Long project delays are the norm even in the financial hub of Ho Chi Minh City (formerly Saigon). For instance, the city’s first metro line began construction in 2012, was scheduled to start operation in 2018. The grand opening has been pushed to 2023.
It turns out, this metro project’s ballooning price tag had to be re-approved by Vietnam’s parliament, which took its time deliberating, even though the Japanese government was willing to absorb much of the cost. Many other projects in the city, such as the ring roads, were also planned more than a decade ago and delayed many times over.
Amid General Secretary Nguyen Phu Trong’s anti-corruption drive, which he has likened to a “blazing furnace,” bureaucrats have become more cautious with the public purse. In the first seven months of 2022, the government disbursed only 34.5% of what it had planned for the whole year. Currently, about 90% of Vietnam’s infrastructure spending comes from public sources. So when that bureaucracy slows, construction projects stop, too.
As a result, in the newer, eastern part of Ho Chi Minh City, it’s quite common to see modern high-rises soaring out of grasslands, an odd mismatch thanks to efficient private-sector real estate developers and very inefficient government contractors.
Vinhomes JSC’s Grand Park project is beautiful. It boasts a community school, and even big cast-iron burners for ancestral worship. But during the monsoon season’s fierce downpours and floods, residents’ commute to the city center can become impossible. They are eagerly awaiting the metro line.
To be sure, Hanoi is trying. A much-anticipated public-private partnership law, which came into effect in January 2021, is one step forward. But there are many wrinkles to be ironed out. For instance, contractors would insist on risk-sharing agreements with the government, and resist projects that pay up only upon completion. This kind of tension has slowed infrastructure work. As of February 2022, a 50-kilometer (31 miles) section in the central segment of the North-South Expressway, which took in private money, was only 1.5% completed.
Say whatever you will about its debt pile, China has built a lot of roads, rails, airports and metros. Shanghai, which Ho Chi Minh City aspires to be — at least on the real estate front — finished its metro lines on schedule. From geopolitics to female labor-force participation, Vietnam’s got everything to its advantage. What’s holding the country back is Hanoi’s policy inertia, and its failure to build up its infrastructure.
By Shuli Ren – Bloomberg – August 19, 2022