Infrastructure gap puts Vietnam’s appeal to foreign investors at risk
If Vietnam isn’t able to fast-track progress in closing its infrastructure gap, it risks losing its “mini-China” status.
Infrastructure gap, among other factors, is putting Vietnam’s appeal as ideal investment destination to foreign investors at risk, Bloomberg reported.
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But Vietnam is starting to see expectations outrun reality. More and more businesses are complaining about congested ports and roads, rocketing costs for land and labor, and regulations that aren’t being loosened fast enough. Tapestry Inc., owner of the Coach and Kate Spade brands, has lamented insufficient infrastructure investment that’s left some containers stalled on the waters. Eclat Textile Co., a supplier to Nike Inc., says it needs to diversify beyond Vietnam, including to cheaper locations.
If Vietnam isn’t able to fast-track progress in closing its infrastructure gap, it risks losing its “mini-China” status that has drawn so many of Bain & Co.’s toy-supplier clients there since 2015, said Gerry Mattios, Bain’s Singapore-based vice president. Costs could outweigh the benefits, sending producers to the likes of Sri Lanka or Cambodia, he said.
For now, the money keeps rolling in. Total disbursed foreign direct investment rose 6.3% to US$12 billion in the first eight months of the year from the same period in 2018, according to government figures, with the number of new registered projects surging 25% to 2,406.
Infrastructure is the big challenge for Vietnam, especially at its ports. China claims six of the top 10 ports by container traffic in the world -- including Shanghai at No. 1 -- while Vietnam’s two biggest ports, Ho Chi Minh Seaport and Cai Mep, rank No. 25 and No. 50, according to data compiled by Bloomberg Intelligence.
Vietnam’s share of global container traffic was just 2.5% in 2017 versus 40% for China. Shipping container capacity will need to grow at almost twice its 10%-12% pace of the past decade, as well as fold in third-party logistics and freight-forwarding practices to keep up with new demand, BI research shows.
The government estimates it would cost about VND80-100 trillion (US$3.44-$4.31 billion) to develop its ports. Big-figure deals -- around new ports or revamping of old ones -- have yet to come to fruition.
Congestion at the ports often means rising inventory costs and less diverse production lines that are limited to non time-sensitive goods, according to the BI analysis. What would help: massive investments for warehouses, seaports, rail terminals, and inland container depots, for starters. BI also recommends a national or quasi-national container shipping company in order to support large-scale cross-border trade.
Demand is certainly growing. More than 530 million tons of cargo were shipped through Vietnam seaports last year, up 20% from a year earlier, according to the Vietnam Maritime Administration’s website. The volume of exported goods handled rose 15% to 142.8 million tons. And 18.1 million TEU of containers were transported last year, up 26% from the previous year.
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