05 February 2020

 

Full Report

Predictions

  • Growing demand for infrastructure investment will create new opportunities for foreign firms, particularly in energy sector
  • International development banks will support Government’s drive to increase investment, including through joint ventures and public-private partnerships
  • US-China trade war and coronavirus outbreak will lead to investment opportunities outside infrastructure, as firms relocate Asian supply chains

 

Event

The Asian Development Bank (ADB) agreed on 22 January to provide a USD 37.8 million loan to a subsidiary of Thailand’s Gulf Energy Development (GED), a listed company, to finance a solar power plant in southern Vietnam. When completed, the plant will have a capacity of 50 megawatts and will provide power for residents and businesses in Ho Chi Minh City and the surrounding areas.

Separately, local authorities granted Singapore-based Delta Offshore Energy approval to develop a 3,200 megawatt liquefied natural gas (LNG) power plant in the Mekong Delta on 21 January. This is scheduled to be completed by 2027 and will be the largest foreign direct investment project in the Mekong Delta region.

Context

Vietnam’s economic growth and rising population mean domestic energy demand is rising by around 10% every year. This is becoming a growing challenge for the Government, with the Ministry of Industry and Trade saying last year that a lack of energy infrastructure and long delays to projects could cause power shortages and blackouts by as early as 2021.

At the same time, Hanoi has sought to diversify away from traditional energy sources, and currently aims to increase the proportion of renewables in its energy mix, from around 9% in 2018 to 21% by 2030. This is driven both by Vietnam’s particular vulnerability to climate change, since its 3,000 km east coast frequently experiences tropical storms and typhoons, and by public concerns over environmental pollution, which are a common cause of protests (see our 22 August 2019 Report).

Analysis

Energy is not the only area where Vietnam’s infrastructure is lacking. For example, only around 20% of the country’s roads are properly paved, significantly less than other countries in the region such as India, Malaysia and Indonesia. Meanwhile, its recent economic growth has rendered it ineligible for many traditional international development aid packages, as the World Bank now classifies it as a middle-income country. The Government has sought to address this, including by budgeting 5.7% of GDP for infrastructure development, the highest ratio in South East Asia. However, it also recognises that foreign investment will be crucial to meeting this infrastructure gap, and the latest solar power project demonstrates the support that development banks, such as the ADB, are providing to facilitate this. The solar and LNG deals, which involve Thai and Singaporean firms, also reflect the Government’s efforts to increase foreign investment more broadly, both as a means of reducing public debt and also maintaining strong economic growth.

Outlook

As Vietnam continues to grow, both economically and demographically, ensuring the provision of reliable infrastructure will remain a priority. The Government will therefore strongly encourage international investment opportunities, including through joint ventures and public-private partnerships. This will create new opportunities for firms working on renewable and other energy sources, as well as in other sectors such as manufacturing, construction, logistics and project management. The Government will also seek to attract interest from firms looking to relocate operations to Vietnam, either due to the ongoing US-China trade war, or as a result of the current coronavirus outbreak. While the latter is unlikely to have a significant long-term economic impact in Vietnam, or the region more broadly, it will nonetheless affect business continuity for firms in a range of sectors across the region, in particular tourism and retail, and may lead to some firms accelerating existing efforts to relocate and diversify their Asian supply chains.

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