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Since our last update, it is the ports sector that has seen the highest level of pledges for new investments, strengthening our view that it potentially remains one of the highest growth infrastructure sectors in Vietnam. These investments, however, were not the major news this past quarter. Japan Vietnam Consulting, the consultant on the high-speed railway plan, issued a final cost estimate for the project of close to US$56bn. The astronomical price tag, almost 65% of the country's GDP in 2008, raises concerns regarding the project's financial and economic viability.
We have seen little tangible evidence of a rebound in industry yet so in the Q309 Vietnam Infrastructure Report we remain cautious for the short term. In anticipation of much slower growth, we now see the VND124tn industry value we were forecasting to come in 2009 to materialise instead between 2010 and 2011. New preliminary estimates from the national statistics agency indicate that the construction industry value real growth for 2008 was a mere 0.4%. Given that the macroeconomic outlook is bleaker for 2009, we have revised our real growth forecasts for 2009 down to 0.1%. Fixed capital formation is forecast to decline from 23% in 2007 to an estimated 16% in 2008 and 2% in 2009 respectively. This is the key factor that weighs down our forecasts for 2008 and 2009.
Our medium-term view of strong growth remains unchanged, and we have significantly revised our industry value growth expectations upwards for 2010 onwards. The county has significant projects in the pipeline (and more pledges were made in Q309) for building and upgrading infrastructure that should sustain the industry. We believe that growth will pick up in 2010 and significantly accelerate in 2011 onwards.
Our optimism for the country is tamed by the weak regulatory environment governing long-term private sector participation in the sector. Though bits of legislation exist, there is no clear-cut set of responsibilities for ministries and authorities involved in infrastructure, making public private partnership (PPP) ventures and procedures more opaque than they need be. This is reflected in the weak score and regional standing the country receives in the Asia Pacific Infrastructure Project Finance and Business Environment Ratings.
The transport sector has witnessed the largest degree of activity in 2008 and has the largest number of projects in the pipeline for 2009. The ports sector has been particularly attractive for private investors, responding to the government's calls for greater participation in developing Vietnam's maritime hubs. In the roads sector, significant opportunities are opening up for construction and infrastructure players, as the government's plans to build expressways and secondary road networks are buttressed by loans and official development assistance from multilateral institutions.
In an announcement contradicting earlier claims, Electricity of Vietnam said that it will implement a multi-billion dollar capital expenditure programme in 2009, despite having given up projects earlier citing financing concerns. The first quarter of 2009 saw greater penetration of the private sector in the utilities market with new multi-billion dollar power generation (IPP) projects announced by US-based AES and Malaysia's Janakuasa. The report has maintained that private sector participation is pivotal for addressing Vietnam's long-term power generation shortfall.
Vietnam Infrastructure Report Q3 2009: http://www.companiesandmarkets.com/r.ashx?id=90T80J8V185724
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