However, it is really difficult to mobilize private capital within the country, because the investment is large while the payback period is long, which is not suitable for business activities of Vietnamese enterprises. Compared to other countries, Vietnamese enterprises are mostly of medium size, and there are only a few large enterprises.
Therefore, the source of investment capital in projects in general and in infrastructure in particular should come from foreign private investors. Accordingly, with their current capacity and ability to mobilize finance, domestic private enterprises can participate in parts of the local projects. For example, in the North – South high-speed railway project, domestic private investors may be involved in station building, logistics center construction, or partly in operation of the railway system, or may also be partially involved in ship procurement and supporting industries.
To attract foreign private capital, it is necessary to overcome 4 issues, and if they are solved, foreign private investors will certainly enter Vietnam.
For example, the clearance has never been finished on time according to plans but always lasts for 2 or 3 years more instead. With such a long delay, no investor wants to pour their money on any project. This is considered one of the biggest risks in investing in infrastructure projects of Vietnam.
To be more specific, if at the present time, they are spending 23 million VND / thousand USD, when the project is finished, will the exchange rate of Vietnam dong still be 23 million VND / 1 thousand USD? If this is considered a risk of macroeconomic policy, it can be overcome, with only a few percent increase each year, it will not be a problem. However, if the investment project lasts decades, it is really a problem for investors.
This can be understood as when appraising the project, the investor predicts that the density of people participating in traffic on that route is a certain number per year, but when everything is done, what if the real number is much smaller than the predicted one? Accordingly, in some projects, in the first years, revenue may not reach as estimated, however, the following years it will be even higher than expected. This risk is also an indispensable risk of the market and is acceptable.
Although the investment contract is made on the basis of PPP, it stipulates a profit for investors of 14%. According to investors, such regulations are unreasonable. The reason is that when investing in a PPP project, investors have to accept to be a part of the "profit and loss" game, but the State regulates and restricts the profit rate, making investors question “why 14%?”. If the investor has a profit of 30%, will the State revoke it? Or if investors only get 10%, will the State make up for additional losses?
Normally, when an investor invests in something, he has accepted a profit and loss. In the case of a specified rate of return, the investor believes that it should be higher, at 17-18% or more.
These are the 4 risks that foreign corporations and investors always consider when investing in Vietnam under PPP model. However, for Vietnamese investors, besides these 4 risks, there are 2 other ones that they are concerned about. One is the retrospective of the Law and the other is long implementation time of the project.
>>> Expert opinion: Why Vietnam attracts foreign investors?
Dr. Le Xuan Nghia - Former Vice Chairman of the National Financial Committee
