Infrastructure

The views presented   last quarter have fully played out in Vietnam, and we expect that the attempts of both the Vietnamese government and the State Bank of Vietnam (SBV) to cool the economy will lead to a further moderation on construction activity. In spite of this, Vietnam's construction sector still holds significant value, as the country is in dire need of both new transport and energy infrastructure. We anticipate that growth for the sector will remain positive over the forecast period (2011-2015), and industry value will reach US$13.9bn by 2015..

Major developments over the past quarter include:

• A hike in electricity price approved in March 2011 by the Vietnamese government. Artificially capped prices have long made it unprofitable for foreign infrastructure companies to invest in the Vietnamese power sector because most of the equipment for power stations needs to be purchased from other countries at global market prices. The price increase represents therefore a noteworthy improvement.
• Japan's Overseas Development Assistance (ODA) coordinator Japan International Cooperation Agency (JICA) is set to team up with Japanese companies to construct the JPY140bn (US$1.7bn) Lach Hyuen port project in northern Vietnam. We believes that this project highlights the attractiveness of this sector in the country as well as the importance of foreign investment in Vietnam's port infrastructure.
• Plans to improve Vietnam's urban transport system have moved forward significantly over the past six months, with funding secured and construction companies selected for many of the country's metro railway projects. For instance, in March 2011, the Asian Development Bank (ADB) agreed to provide US$293mn to support the construction of Hanoi's US$1bn metro railway line 3.
• A new recent draft housing development plan, which includes spending for US$19.7bn between 2015 and 2020, with an emphasis on low-income housing provision. This is an encouraging sign, as it shows that the government is taking the necessary steps to deal with the country's expanding housing deficit.

We also stress that Vietnam's business environment continues to be an issue for the country, as Vietnam's score has slipped to 53.72 from the already low 54.9 of last quarter. Although the country's infrastructure market continue to score quite well, downside risks from market volatility and country risk have further dragged down the overall score. Corruption still remains a problem for Vietnam and is likely to continue to impede infrastructure development until government reforms can change the landscape. Yet, with increased foreign investment on the back of attractive growth rates there have been signs that the country is moving in the right direction in invoking structures to improve the business environment such as PPP regimes.