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Why Is A Cost Of Road Construction In Vietnam So Expensive Compared To The World?

Road costs in Vietnam are expensive compared to the world

A series of shortcomings in investment in the sector have been identified in the recently published report on public expenditure in the transport sector by the Government of Viet Nam and the World Bank. Along with that, recommendations are made to improve the restrictions.

One of the issues raised in the report is to address why the cost of road construction in Vietnam is high compared to many countries in the world.

Specifically, the World Bank study carried out in 2013 to analyze the unit price of construction works in Vietnam has pointed out some issues that make use of investment capital in the road sector is not high.

Through the study of design and construction costs, bidding costs of 92 WB contracts, 27 projects funded by other donors and 42 government funded projects were signed. In the period from 2004 to 2012, it was found that construction cost was only equivalent to other areas.

However, the increase in total road construction cost is due to the extensive roadside facade, which accounts for up to 30% of road construction costs. This is because the curb structure is stiff in the national road construction standard.

This is due to the slow progress in Vietnam, although there have been positive changes in recent years but are more frequent than in other countries, leading to higher costs.

Road costs in Vietnam are expensive compared to the world
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The WB’s next conclusion is that the competitiveness of Vietnam is much lower than that of other parts of the world. Research shows that although domestic bidders still dominate the market, the overall low bid volume and lack of competition make it difficult to reduce costs.

Accordingly, the study recommends increasing the size of the contract to reduce overall road construction costs. Road contract lengths in Vietnam are usually two to ten times smaller than those in Europe, Central Asia or sub-Saharan Africa.

Regarding the cost of road construction, the Prime Minister also asked the Ministry of Transport to coordinate with the Ministry of Construction announced the investment rate of 1 km to see the road in Vietnam expensive or cheap.

In the past time, public opinion has raised questions about the cost of investment, construction costs of roadworks are team capital compared to the actual fee. Accordingly, the roads “most expensive planet” succession was born.

Even so, according to road experts, investment costs for highway projects in Vietnam are 1.5-2 times higher than those of other countries in the region such as China, Thailand and Indonesia, Malaysia, even higher than America, …

Concerned about the lack of capital

According to data released in the Public Transport Assessment Report, about 50% of the total investment in transport infrastructure in Vietnam, equivalent to about $4 billion per year for the period 2009-2012, is funded by ODA preferential loans.

However, this source of funding is not available in the near future as Vietnam strengthens its status as a middle-income country. It is expected that in the 2012-2020 period, Vietnam’s transport infrastructure development will require about $10 billion a year, equivalent to 5-6% of the national GDP, significantly higher than the 3.5% after 2002, the main source of compensation for this large shortfall will come from the private sector.

Faced with a serious shortage of capital, the Government recognizes that it is necessary to consider private-sector mobilization models with good results to date. The Ministry of Transport has been implementing many domestic BOT projects to improve roads.

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Road costs in Vietnam are expensive compared to the world
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However, the projects mainly use state budget through SOE loans and are accompanied by/without competitive bidding, meaning that they do not reduce the risks for the government.

In addition, the business environment and the legal framework in Vietnam are not favorable for the implementation of public-private partnership (PPP) projects.

In addition to the above issues, the report also pointed to the inadequacies in the allocation of resources in the transport sector. In particular, the allocation of funds between modes of transport still lavishes much on the road sector, which is detrimental to other methods of economic efficiency and less capital intensive.

If government bonds are not included, the central budget has 73% of a road by land, followed by sea (13.5%). The rest is allocated to waterway and rail transport (more than 10%).

Over the past 10 years, from 2005 to 2014, the road length has increased by 30%, the road surface coverage increased from 19 to 50%. The research team reported that although the length of the road increased, the national highway network did not meet the demand for growth and trade.

Despite accounting for 73% of total government transport expenditure, Vietnam’s road freight represents the second highest transit time (2 hours per 100 km) in the region after Indonesia hindering the competitiveness of Vietnam.

At the same time, inland waterway and inland waterway transportation has the lowest transportation cost and highest efficiency in terms of budget expenditure on volume of transportation not well invested. “The transport sector will benefit from increased investment and maintenance of these two areas, especially along the Mekong Delta”, the WB expert said.

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Why Is A Cost Of Road Construction In Vietnam So Expensive Compared To The World?
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