Heading for the up-coming two-day conference Transport Infrastructure Viet Nam 2012 in April, guest speaker Lieven Jacquemyn, managing director of Plektics, shares his opinions with Viet Nam News on the risks and challenges for foreign investment in infrastructure projects in Viet Nam.
What kind of interest does Viet Nam hold for foreign investment?
Viet Nam has painted a very promising picture over the last decade. Strong fundamentals supporting foreign investment interest are the stable political system, political support and a consistent rapid economic growth.
During the 2008 financial crisis and its aftermath, Viet Nam's real estate and stock market have suffered; however, in hindsight it probably triggered an overdue correction bringing things back to reality and perspective.
Many foreign investors still regard Viet Nam as a prime investment destination but are, at the same time, expecting the government to further develop and enhance its infrastructure to support and advance economic growth; especially in the areas of transportation and energy.
Could you outline the risks and challenges for foreign investment in infrastructure projects in Viet Nam?
The risks related to investment in infrastructure projects in Viet Nam are quite well known by the investment community. They range from lack of transparency, depth of debt market, procurement process and a lack of well-prepared projects. All of these risks and challenges are equally well known by the Vietnamese government, in particular to the team at the Ministry of Planning and Investment. The Ministry of Planning and Investment therefore has, although a bit slower than some might want to see, taken steady steps to reform the public-private partnership (PPP) legislation and put in place a framework which addresses most of these risks in a comprehensive manner. Some progress of testing key provisions has already been made through the bid process for Nghi Son power plant.
With respect to transportation, a pilot project with Bitexco (Dau Giay – Phan Thiet) had been selected as part of World Bank efforts to help Viet Nam develop its PPP framework. However, this project might not be perceived as an ideal test case by all parties, therefore other pilot project are being considered such as the elevated Highway 1 in HCM City.
What are the risks investors face and are they willing to take them. What can be done to minimise these risks?
Some of the key risks we have identified on various transportation projects in Viet Nam are exchange rate risks, patronage risks and land acquisition risks. These risks are of paramount importance to investors due to the fact that they are controlled by the government. Thus a reliable framework for private investment in infrastructure has to be enacted to address those risks. To give an example: the financial markets do not provide hedging instruments for Vietnamese dong exchange rate. Given that it is the Vietnamese government setting the rates it can be argued that the risk should be borne by the government. Similarly, the execution of land acquisition can be assisted by the private sector but a mechanism is required to enable evacuation and place a cap on compensation. Other governments in the region have already enacted measures of a similar nature which could serve as a reference for Viet Nam.
Looking ahead, how will Viet Nam's transport infrastructure evolve by 2020 and how will this impact the country's economy?
A few years back, Viet Nam was identified by the private sector as a potential investor in infrastructure. Although it has taken time to build a consensus, the approach has been much steadier than some of its neighbouring countries. Also, with the help of various multilateral and bi-lateral aid, the building blocks for Viet Nam's framework are being implemented one by one. At the same time pilot projects are being implemented which put new legislation to the test. This provides confidence to investors that a pipeline of projects will come to the market in the midterm. It is fair to assume that by 2020, some of those first projects will have been in operations for a few years already. — VNS