Bridge to better infrastructure remains illusive

Business communities are increasingly concerned at the impacts of underdeveloped infrastructure and unskilled human resources on their operations.

The message was quite clear. “When Vietnam stands still on infrastructure, Vietnam falls behind,” Jocelyn Tran, chairwoman of the American Chamber of Commerce (Amcham) in Vietnam, told the Vietnam Business Forum held in Hanoi last week.

She said that the transport infrastructure system in Vietnam had fallen far behind economic growth and was an impediment to those who wished to expand their businesses in the nation. She also warned about the impact the lack of unskilled human resources would have on the nation’s economic development.

Tran’s warnings are not new. Both underdeveloped infrastructure and unskilled labour are seen as the biggest hindrances to Vietnam’s socio-economic development. But, her complaints also reflect the fact that many attendees at the forum, who are also captains of industry in Vietnam’s foreign business community, are growing tired of waiting for improved infrastructure.

“The critical issue of improving Vietnam’s physical infrastructure has been raised by AmCham and other business associations at every Vietnam Business Forum meeting for the past five years. The question is when we will see a greater sense of urgency and purpose in this key area,” said Tran.

The port system is one of the most important areas for foreign investors in Vietnam. With 3,200 kilometres of coastline, Vietnam has 266 ports, about 144 of which are seaports. However, most ports are relatively small with obsolete facilities and poor support services.

Congestion has regularly occurred in Ho Chi Minh City’s ports, which handles about 60 per cent of import and export goods in Vietnam. Domestic and foreign investors have been investing in the new Hiep Phuoc port in Ho Chi Minh City and the Cai Mep-Thi Vai port complexes in southern Ba Ria-Vung Tau province. However, port construction is moving slowly and the operations of these ports face difficulties due to the lack of port-related inland infrastructure.

Logistical costs associated with infrastructure investment made up 25 per cent of Vietnam’s gross domestic product, higher than 9.5 per cent in the US, 11 per cent in Japan and 21 per cent in China.

The Vietnam Business Forum’s infrastructure working group estimated that the lack of suitable port infrastructure was costing Vietnam approximately $1.7 billion in logistical costs per year, because local companies had to ship goods via Hong Kong and Singapore.

While congestion is a serious issue at important ports, there are still deficiencies and delays in the development of other key infrastructure works, especially interprovincial roads, bridges, intra-city public transportation and power projects.

Traffic jams have become more severe in big cities like Hanoi and Ho Chi Minh City, while Electricity of Vietnam has to ensure power security by cutting off electricity in shifts.

The lack of skilled human resources also remains a major source of concern for enterprises in Vietnam. According to the Ministry of Labour, Invalids and Social Affairs, around 65 per cent of the country’s total workforce is unskilled. Some 78 per cent of Vietnamese people aged 20-24 are either untrained or do not have the skills they need.

A recent survey conducted by Japan External Trade Organisation (Jetro) showed that recruiting labour, especially middle management staff, was one of the biggest difficulties for Japanese companies in Vietnam.

“It has never been easy to find the right and best talent in the Vietnamese market and the situation will remain unchanged in the near future,” said Nguyen Thi Van Anh, managing director of Navigos Group.

Nguyen My Thuan, secretary general of Can Tho City’s Business Association, said training programmes did not match socio-economic development. “Furthermore, such programmes have strongly emphasised theories rather than responding to the ongoing changes in the labour market,” said Thuan.

He believed that this would have serious repercussions and would be quite difficult to resolve in the short term. The infrastructure and workforce deficiencies are not only impacting on domestic and foreign companies’ business expansion plans, but also threatening the country’s strategic development.

The government recently announced it would focus on foreign direct investment quality by luring hi-tech investment projects to ensure sustainable development.

A EuroCham statement said that Vietnam was still at a comparatively early stage in its development, mainly exporting raw materials like oil, gas and coffee, or simple low added-value finished goods like leather products, garments and shoes. It added that one of the keys to sustainable economic development would be to shift from these basic low added-value exports to more sophisticated and high added-value exports, particularly in the high-tech sector.

But the statement said the government had to deal with infrastructure, energy and skilled human resources before shifting to high-tech manufacturing and attracting quality foreign investment projects.

Since the country did not boast good infrastructure systems or a skilled workforce, there were only a few hi-tech manufacturing projects invested in Vietnam, said Matthias Duhn, director of EuroCham in Hanoi.

Hiroyuki Moribe, chief representative of Jetro in Hanoi, said that infrastructure and human resources should be improved for Vietnam to enhance its international competitive edge.

“Japanese companies are studying to see if Vietnam is the first priority for investment in comparison with the investment climate of other countries, especially ASEAN countries. In 2018, tariff barriers in the ASEAN area will be removed and it is necessary for Vietnam to clarify its orientation for the development of manufacturing sectors and to think of how to attract more foreign investors. It is also necessary for Vietnam to specify how it will compete against, or work together with, other ASEAN countries,” he said.

Vietnam’s government has been increasing investment to improve infrastructure in line with the economy’s development. However, vice minister of Transport Truong Tan Vien admitted that public investments were not enough to satisfy the requirements and private investors remained hesitant to invest into this sector.

“A dearth of investment capital, especially from private investors, is the reason for the slow pace of infrastructure development,” said Vien.

The Vietnam Business Forum’s infrastructure working group has identified five reasons why private sector infrastructure is not growing as fast as in China and other countries, including regulatory inadequacy, financial limitations, risk profiles, administrative burdens and affordability gaps.

Tony Foster, a working group representative, said that many foreign investors felt dispirited when they had to negotiate for large infrastructure projects in Vietnam, because of the multiple layers of departments and bureaucracy that were involved.

For example, the US-based AES Group spent nearly four years implementing negotiations for the Mong Duong coal-fired electricity plant in Quang Ninh province. Meanwhile, private investors also had difficulties seeking financial support for large-scale infrastructure projects in Vietnam, said Foster.

He said the domestic banking sector generally did not have the ability to lend large amounts of money on a long-term basis, while international commercial banks were likely to lend only if there was significant participation by multilateral institutions and the commercial loans were covered for political risks and counterparty default risks.

Many private investors hoped that the draft public-private partnership model, expected to take effect later this year, would remove obstacles for the private sector in infrastructure development.

Vice minister of education and training Nguyen Minh Hien said that a decree on encouraging private investments in the education sector was under preparation and would be effective soon. The decree was expected to improve the quality of the workforce over the next few years.

However, Hien admitted that the lack of a skilled workforce would not be resolved over night.

VIR

Tags: Vietnam Infrastructure