Stuck in Traffic – Southeastern Vietnam’s Infrastructural Bottlenecks Stymie Further Development

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Southeastern Vietnam, comprised of the five provinces of Ho Chi Minh City, Binh Duong, Dong Nai, Ba Ria-Vung Tau, Binh Phuoc and Tay Ninh, continues to be the fastest-growing region in Vietnam—growing about 50% faster than the national average. Much of this growth is driven by industrial FDI investment, with the Southeast accounting for over 50% of the value and 60% of the number of FDI projects in the country in a typical year.

Figure 1. Map of Southeast Region
  • At the region’s core is Ho Chi Minh City (HCMC). Vietnam’s largest city by population, it has a highly attractive investment environment due to its prevalence of nationally known universities, technical schools, and scientific research institutions; principal container port; cargo airport; and abundant and skilled workforce.
  • HCMC together with Binh Duong and Dong Nai provinces form the largest industrial manufacturing cluster in Vietnam, home to a total of over 40,000 foreign invested and Vietnamese manufacturing firms as well as the most developed manufacturing ecosystem in the country.
  • Ba Ria-Vung Tau is the location of the newly developing Cai Mep deep-water container port and is Vietnam’s center for its offshore oil and gas and petrochemical industries.
  • Binh Phuoc and Tay Ninh provinces bordering Cambodia are less developed and more rural, with investment in agricultural and food processing and more significant investment in solar power production.

While seemingly endowed with all the characteristics of an ideal investment location—skilled labor force, container ports and airports, educational institutions and supporting industries—the road infrastructure that ties the region together can no longer sustain its growth and significant investment into it is needed. Insufficient investment has led to significant bottlenecks that result in high transportation costs, transportation delays and inefficiency and greater environmental impact, which is increasingly becoming a key issue companies evaluate as part of their location decision.

All roads lead to Ho Chi Minh City

Economic growth in the HCMC region has declined in recent years and its role as the driving force of the country’s economy has weakened over time. The lack of regional connectivity is a significant factor in this slowdown. The existing national road system in the Southeast was originally designed as a spoke system with HCMC as the hub, resulting in the little interconnectivity among provinces we see today.

Four principal national arterial roads link the provinces in the region—National Road 22 (Northwest), 13 (North) and 51 (Southeast) and the HCMC-Long Thanh-Dau Giay Expressway (East). Except for the expressway (motorcycles are not allowed), none of the roads have limited access. Traffic jams are common as commercial vehicles, passenger cars, motorcycles and public and private buses crowd the roads. Crucially, all these roads lead to HCMC. The interconnecting roads are typically small, two-lane provincial roads. Within HCMC, traffic connections near Cat Lai Port can lead to hours of delays in delivering containers, and so trucking schedules need to be managed carefully to avoid missing sailings at the busiest times of the year.

Ambitious plans to improve

The government has had ambitious plans to develop the logistics infrastructure in the Southeast, and some of the major projects are finally taking shape. The new Long Thanh Airport, a long-awaited replacement for Tan Son Nhat Airport in downtown HCMC, has finally begun construction after years of delay. Cai Mep deepwater port is continually being expanded with new berths, although it currently only has a few shipping lines serving Europe and North America and its capacity is insufficient to completely take over from Cat Lai Port in HCMC.

The crucial tie that will bind these major logistics projects with the rest of the economy is an expanded limited access road system linking the commercial and industrial centers to the ports and airports. To make that happen, the Southeastern provinces are trying their best to accelerate road projects, enhancing connectivity.

The upgrade and expansion of the existing national road system has been underway for some time and is planned to be completed by 2025. The key to interprovincial and inter-port and airport connectivity lies in the development of limited-access expressways and ring roads around HCMC. However, implementation is behind both the planned schedule and the demand for transport.

Along with the three arterial national roads (No. 22, 13 and 51) connecting HCMC to the provinces in the Southeast, an expressway system (HCMC – Moc Bai [1], HCMC – Chon Thanh [2] and Bien Hoa – Vung Tau [3]) were planned to relieve pressure on the national roads, respectively (see Figure 2 below). In addition, the objective of Ring Roads No. 3 and No. 4 is not only to connect expressways but also to solve traffic congestion for the inner city by helping trucks avoid crossing the urban area. The initial schedule was to put Bien Hoa – Vung Tau expressway and Ring Road No. 3 in operation by 2020, HCMC – Moc Bai and Ring Road No. 4 by 2025 and HCMC – Chon Thanh by 2030. Although some progress for the approvals required was made, only 18% of Ring Road 3 has been completed and is in use.

Figure 2. Map of Southeast Region Connectivity

Sorry I’m late…traffic was bad

Regional development is now suffering because of this poorly developed infrastructure. Logistics delays and higher costs make the region less attractive to investors, resulting in direct impacts on economic development. Gross Regional Domestic Product per capita in the Southeast grew 6.7% from 2016-2018 but has slowed to 5.2% annually since 2019.

The road development gridlock stems from several issues. While Vietnam is a centrally planned economy like China, where one would expect that significant national infrastructure projects would be prioritized and accelerated, Vietnam is different. The government wields less of a heavy hand and doesn’t use its power to ensure projects are executed at all costs. It operates in a more decentralized and consultative way, resulting in significant delays and unintended consequences.

The greatest impact on development schedules comes from inadequate funding. Costs for acquiring the land needed for road projects have skyrocketed, resulting in insufficient funds to complete projects and limited scope for using eminent domain to foreclose on land over which individuals have perpetual, if not freehold, property rights. The budget reconciliation process is cumbersome and time-consuming and has resulted in significant delays.

Key national road and expressway projects are conceptualized, and organizational plans are developed at the national level and then delegated to the provinces to execute. When provincial-level obstacles are encountered (i.e., insufficient budgets) the whole process must start over again at the national level.

Finally, the well-known adage “all politics are local” applies well to Vietnam’s planned economy. Oftentimes, national-level projects are deprioritized at the provincial level when they are delegated for execution. Projects whose benefits are shared across provinces are particularly prone to this, taking a back seat to projects whose benefits are more focused on the province itself.

The stakes are high

The consequences of delaying the development of the Southeast’s road infrastructure are large. Delays are constraining the ability of the government to promote investment further away from the HCMC-Dong Nai-Binh Duong core. The full execution of the interregional expressway network will significantly improve the competitiveness of firms investing in the Southeast. Access to Cai Mep Port will be improved, taking the stress away from Cat Lai Port. The new road network will shorten commute time from HCMC to industrial areas in Binh Phuoc and Tay Ninh provinces, making them more attractive for industrial development.

What Tractus can do

Tractus has been assisting companies to make informed decisions about where to invest and how to expand their business in Asia for over 25 years​. Our partners and senior management leverage their experience running successful manufacturing and service businesses, bringing this commercial perspective to our client work. We have proven experience advising companies on their location strategy and identifying the optimal sites to support their company’s growth. Let us support you to make your investment a success. 

Authors

Dennis J Meseroll, is Executive Director based in the Bangkok office; Tram Phan is a Consulting Manager and Ha Ngo is an Analyst in the Ho Chi Minh City office.


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