Driving Construction Market in Vietnam by Focus on Developing Infrastructure

A synchronously and modernly constructed infrastructure system will boost economic growth, increase productivity and efficiency, and contribute to the resolution of social issues. In many developing nations today, poor infrastructure has produced resource stagnation, difficulties in absorbing and deploying capital, and "infrastructure bottlenecks" that have a direct impact on economic growth.

Overview of the Construction Industry in Vietnam

Current Situation

The industry grew by 5.59% in the first six months of 2022, owing to the experience gained in 2020 and the good adaptation of enterprises, above the 4.54% growth rate in the same time in 2020. However, due to the fourth epidemic's extended impact and significant breakout, many communities were forced to implement social separation.

The majority of projects in remote areas had to halt building. Outside the exclusion zone, projects were also delayed owing to delays in the availability of materials and human resources. The expense of maintaining the apparatus, the cost of epidemic prevention, and the cost of deploying resources after the lockdowns… are the most evident economic losses. Over 20% of the projects/contracts were delayed or disrupted by the COVID-19 epidemic, according to 37.9% of firms polled by the Vietnam Report.

Aside from the intricate evolution of the pandemic, changes in raw material prices have proven a "nightmare" for building builders. Over the same time period, the price index for raw materials, gasoline, and building materials grew by 6.4%. The reason for this is that building material demand has grown but the supply chain has not been disrupted since 2020. Prices for steel and cement have risen by 40% and 8.4%, respectively. A rise in construction material prices has a direct impact on the cost of construction investment. Several industry analysts said that the "price storm" has wiped away any residual potential earnings, forcing many enterprises into losses.

According to the General Statistics Office, the overall industry's growth rate in 2021 will be 0.63%. This is a fairly low level when compared to the 10-year average growth rate of 7.2%. According to a Vietnam Report poll, 53.3% of firms in the industry are still growing in revenue. However, the growth rate is mostly below 25%.

In light of the industry's overall issues, this is a highly positive result. According to the majority of experts contacted by the Vietnam Report, the Government's pandemic adaptation policy is the most essential and decisive contributor to favorable business performance.

Difficulties of Business

Businesses are currently hesitant to work on government infrastructure projects. The pace of investment work in the first six months of 2022 is glacial. The fundamental objective reason for the delay is not the building companies' subjective fault.

Firstly, public investment projects such as highway projects and the operational unit price system are far too old and expose several flaws. The necessary regulations do not persist, while outdated regulations that do not reflect market conditions continue to exist.

Currently, public investment projects must use standard unit pricing (for costs, jobs, etc.). Provinces and cities, on the other hand, update and apply unit pricing of input materials. Budget money is required for public investment projects, but local authorities have curtailed or even kept a portion of their local budgets. As a result, they do not closely update pricing, and they are frequently lower than the actual market price, making it difficult for contractors.

Second, inflation has led raw material, fuel, and material input costs to skyrocket, causing transportation and logistics costs to skyrocket many times again. According to statistics from an Oil reporter, the price of diesel oil was just 12,640 VND/ liter at the beginning of 2021, but it rose to 17,570 VND/ liter by the end of 2021. The current price was 30,010 VND/liter, implying that the price of oil has climbed by around 140% from the start of 2021 and is now lower at 22,908 VND/liter, still a significant increase compared to 2021. Steel, sand, asphalt, cement, and other commodities have all seen significant price increases. As a result, the company won the offer but could not afford it.

Government Plans

Architect Le Viet Hai, a scientist with the Vietnam Construction Association (VCA), stated that collaboration with associations is required to develop an appropriate environment in the construction business. This is a prerequisite for developing a building industry ecosystem in Vietnam that achieves resonance and maximizes collaboration efficiency. Furthermore, the building sector needs the Government's and the State's attention and assistance.

VCA also recommended creating a national plan. In which policymakers identify opportunities, problems, critical tasks, and solutions to increase the overall competitiveness of the construction sector, therefore assisting the construction industry in exporting success.

The Vietnam Construction Contractors Association suggested that the Prime Minister assign the State Bank to offer recommendations on extra suitable objectives for construction finance in order to alleviate issues for member firms. Key initiatives in terms of supporting production, in particular, require increased attention.

In addition to credit and interest rate suggestions, the Vietnam Construction Contractors Association advocated wiping off all outstanding construction debts from prior years in order to permanently settle for contractors. At the same time, they requested that the Prime Minister appoint the Ministries of Planning and Investment and Construction to investigate sanctions requiring the investor to obtain a payment guarantee from a bank for 20% of the project's final payment to assure project completion.

Vietnam's transport ministry released a transportation infrastructure development plan that will cost between 43 billion USD and 65 billion USD between April 2021 and 2030. Three implementation solutions have been prepared by an industry research institute within the Ministry of Transport (MOT). Implementing the new PPP law in January 2021 is expected to play a critical role in completing major infrastructure projects. As a result, the MOT developed a plan to enhance the North-South railway infrastructure, which included the building of a dual-track broad-gauge line linking Hanoi and Ho Chi Minh City, two express railway sections, and modifications to the current railway.

In September 2021, the Vietnamese government approved the country's road construction plan for 2021-2030. The plan aims to build over 5,000 kilometers of expressways by 2030, up from 3,841 kilometers in 2021. Vietnam is to build 172 national highway networks totaling 29,795 kilometers by 2030, up from 5,474 kilometers in 2021. It also plans to build 3,034 kilometers of coastal roadways connecting 28 cities and provinces.

Prime Minister Pham Minh Chinh signed Decision No. 548/QD-TTg and established six inspection teams to handle concerns linked to public investment capital allocation. In particular, the government will adopt a number of radical measures to promote public investment in the second half of the year and next year. The frequency will be boosted with which material costs in areas are updated and maintaining project diaries to assure contractor payment.

The government is rushing to accelerate public investment distribution, most recently at the fourteenth meeting on August 15. According to the Deputy Prime Minister, the Government has submitted a medium-term public investment plan for the period 2021-2025 to the National Assembly. The Government has submitted to the National Assembly Standing Committee for comments before handing over the medium-term public investment plan (phase 3) of more than VND 100,000 billion.

To Sum Up ...

The construction market in Vietnam remains turbulent as a result of the Covid-19 pandemic. Viettonkin believes in its abilities and position in this field. We are ready to advise you and keep you up-to-date on changing market trends as well as government policies to promote the growth of infrastructure. Contact us right now to increase exponentially.