Infrastructure Development

The major topic of the week of course is the One Belt One Road summit, which started in Beijing on Monday this week.  The project aims at connecting all countries along the old Silk Road by sea routes, road and train, connecting Asia, Middle East, Europe and Africa.

The massive project is aimed at increasing the interconnectivity through the development transportation infrastructure, energy and communications. China and the new AIIB are already committing huge sums of money to supporting infrastructure development in countries, which will be part of the One Belt One Road. Vietnam is also expected to be a beneficiary of this increased spending because the relatively underdeveloped state of infrastructure in the country.

According the Asian Development Bank and HSBC[1] Vietnam will require between US$ 30 and 35 billion a year for infrastructure development including energy and transportation projects for both domestic benefit and to support greater international trade. Current projects requiring significant loans and investment include the North South expressway, Long Thanh International Airport, subway systems, roads and energy projects many of which lend themselves to PPP and which the Government will have to look to the private sector because of the cap on Government borrowing.

ADB’s statistics show that over the period 2010-2014 Vietnam spent 5.7% of GDP on infrastructure development with 39% of this coming from foreign sources, such as ODA and 61% from local sources, much of this being from the State budget. However with ODA reducing because of Vietnam’s status as a middle income country and the cap on foreign borrowing much of this will now have to come from the private sector and new financing structures.