We maintain our positive outlook for Vietnam's construction sector, which will continue to be supported by strong economic growth and regulatory changes. We forecast transport infrastructure to outperform in 2016, followed by the energy and utilities sub-sector. We also maintain our positive outlook on the residential and non-residential construction sector, supported by large FDI inflows and a strong project pipeline, which will register the strongest growth over the long term.
Latest Updates And Structural Trends
The government's decision to select investors for 23 large-scale transport infrastructure PPP projects worth VND39.9trn (USD1.83bn) in 2016 poses upside risks to the transport infrastructure sector, which we forecast to grow at 7.1% in 2016.
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We maintain our positive outlook for the residential and non-residential segments, which we forecast to grow at an annual average of 6.5% between 2016 and 2020. Real estate and manufacturing sectors will continue to be the key drivers of growth in the sector.
We forecast Vietnam's energy and utilities sector to grow at 5.9% in 2016, following the transport infrastructure sector. The growth will slow beyond 2016, averaging at 5% between 2016 and 2025.
Despite our positive outlook for Vietnam's infrastructure sector, we highlight that fiscal weakness poses major risks to construction growth. Consistent fiscal deficits in Vietnam as a result of a lack of spending prudence could undermine much needed infrastructure development and weigh on economic growth.
Vietnam has achieved a score of 54.3 out of 100 in our Asia Pacific infrastructure Risk/Reward Index. It remains in the lower half of the rankings in 14th position, out of 21 countries. This is largely owing to the high business risks due to corruption and significant potential for delays to project development.
That said, the country actually has one of the fastest moving business environments in the region. Rapid expansion has raced ahead of the regulatory environment and after Indonesia the country is an outperformer among emerging South East Asian countries in terms of rewards.
Industry Risks represent the largest hurdle for Vietnam at present, as the country continues to score only 40 in this category, below the regional average of 61. This is indicative of structural weaknesses in the infrastructure sector, which in turn pose long-term risks to investors.
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