Spending in the construction sector will grow at a compound annual growth rate* (CAGR) of 5.5%, from US$805 million in 2005 to US$1,369 million in 2015.
- The government plans to develop 11 key industries by providing loans, special budget allocations, and official development assistance capital during 2006-10. This will provide an impetus to the industrial sector, which in turn will drive spending on residential as well as nonresidential construction over the next five to ten years.
- Spending in the residential construction sector will increase at a CAGR of 4.2%, from US$398 million in 2005 to US$603 million in 2015. Factors such as a steady rise in population, an increase in the rate of urbanization, and an increase in number of households, will induce expenditures in the residential sector over the next ten years.
- Nonresidential spending will grow at a CAGR of 6.5%, from US$407 million in 2005 to US$766 million in 2015. Such government policies as modernization of customs services, privatization of state-owned enterprises, and encouragement of foreign direct investment (FDI), will create a favorable business environment in the country, thereby increasing expenditures in the nonresidential sector over the next ten years.
- Vietnam is a high-risk country; its one- and five-year risk scores are higher than the world average scores. Vietnam is an economy in transition; the judiciary and financial systems have not yet completely developed, and these economic and operational systems shortcomings contribute to the risk factor.
Market Segments: Residential
Current Environment: Spending on residential construction has grown from US$381 million in 2004 to US$398 million in 2005 registering a growth of 4.6%. Urban development projects, such as the Trung Hoa-Nhan Chinh Urban Area Project, worth US$16.4 million (VND 273.6 billion at the average exchange rate of 2005) and estimated to be completed in 2006, have contributed to increased spending on residential construction during this period.
Outlook: Expenditures in the residential sector will grow at a CAGR of 4.2%, from US$398 million in 2005 to US$603 million in 2015. Although short-term interest rates will rise, they will come down in the long term, owing to the improving socio-economic condition of the country. This will drive long-term expenditures in the residential sector.
- Projects such as the construction of apartment blocks for 12,000 workers of Thang Long Industrial Park, at a cost of US$18.6 million (VND 310 billion at the average exchange rate of 2006), and the construction of a residential block that comprises 54% of the Vinaconex Residential and Commercial Combining Block Project, valued at US$186.4 million (VND 3,107 billion at the average exchange rate of 2006), are in the planning stage. These large-scale projects will boost expenditures in the residential sector in the next five to ten years.
- The number of households is estimated to grow at a CAGR of 2.3%, from 17.2 million in 2005 to 21.5 million in 2015. This will boost the demand for housing units, thereby increasing the spending on housing during 2005-15.
- The increasing population, coupled with an increasing rate of urbanization from 26.5% in 2005 to 31.6% in 2015, will stimulate demand for housing units, there by increasing spending on residential construction in the next ten years.
Global Construction 2006: Vietnam
Market Segments: Nonresidential Infrastructure
Current Environment: Expenditures on infrastructure construction have increased by 6.4%, from US$17.1 million in 2004 to US$18.2 million in 2005.
The Asian Development Bank had sanctioned loans worth US$997.5 million to the government for development activities in transport and energy, leading to active growth in infrastructure spending over the past few years.
Outlook: Spending in the nonresidential infrastructure segment will grow at a CAGR of 5.7%, from US$18.2 million in 2005 to US$31.6 million in 2015. Key drivers of this segment will be the construction activities carried out in electricity, gas, water, transportation, and communications.
- The government plans to invest US$79.9 billion in power generation and the development of the electricity network, according to the National Electricity Development Strategy for 2006-25. This will increase spending on energy infrastructure in the next 10-15 years.
- The government also plans to develop 117 industrial zones by 2015 with orientations through 2020. The industrial zones would require a strong infrastructural support in the form of transport facilities, sewerage, and electricity transmission facilities. This will increase spending on infrastructure development in the next 10-15 years.
- Viettel Mobile, the leading mobile service provider of Vietnam, plans to expand its mobile network in 2007. In addition, the leading mobile companies -- VinaPhone, MobiFone, and Viettel -- will open to foreign investment during the same year, thereby improving the communications business environment. This may increase long-term investment in the communications infrastructure.
Global Construction 2006: Vietnam Construction Market Risk
Vietnam is a high-risk country and its one- and five-year scores are higher than the world average scores. Although the country's short-term risk is high, it will reduce over the long term owing to government efforts to introduce economic reforms. The increasing FDI in the country will also help reduce the risk.
- Currently, the country enjoys political stability. However, rising discontent with the ruling party and concerns related to human rights may adversely affect the political environment of the country in the next few years.
- Vietnam will gain membership in the World Trade Organization in the near future. However, uncertainty regarding sustainability of the current banking system and the growing regional economic disparities may hamper economic progress of the country.
- Legal and taxation regulations are still in a nascent stage and pose significant operational risk for foreign investors. Also, red-tape, along with a high level of corruption will make the business environment risky for operation.
- The present government is striving to attract foreign investment by altering the Foreign Investment Law and developing the tax system in the country. However, the reforms will not come to fruition for quite some time, resulting in slow development of the economy.