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Better logistics, water transport will drive Vietnam growth: World Bank

   A cargo vessel arrives at Cat Lai Port in Ho Chi Minh City. Photo courtesy of Tuoi Tre

More efficient logistics and greater investment in inland and coastal waterways can create a foundation for Vietnam's future growth through their positive impact on productivity and business competitiveness, the World Bank has said in two reports.

The reports, released Tuesday, say that while Vietnam has a strong track record of economic growth in the last 20 years, the drivers that fueled this growth are rapidly depleting, making it critical to develop new ones going forward.

Victoria Kwakwa, the bank's country director for Vietnam, said: "Many of the country's past sources of economic growth -- such as a shift in economic activity towards higher-productivity manufacturing and a rapidly growing labor force -- are quickly depleting and need to be replaced with new sources of productivity growth.

"Moreover, Vietnam's exposure to the risks caused by climate change -- such as sea level rise and increasingly unpredictable severe-weather events -- make it imperative for Vietnam to find less carbon-intense development trajectories.

"We believe that more efficient transport and freight logistics can play a critical role in meeting both these challenges." 

A report titled "Efficient Logistics: A Key to Vietnam's Competitiveness" finds that logistics operations in Vietnam are costly relative to key regional peers like China, Malaysia, and Thailand.

Vietnam's shippers spend an estimated US$100 million annually in extra inventory carrying costs incurred due to import-export clearance delays, and this amount is projected to reach $180 million by 2020.

Various factors contribute to the high cost, such as cumbersome and inconsistently applied government regulations and major supply-demand imbalances in infrastructure.

For trucking firms, corruption costs are substantial. About 8 percent of the costs of trucking firms goes to "facilitation payments" such as bribes. By comparison, fuel costs amount to about 65 percent of operating costs, salaries amount to 16 percent of operating costs, a study conducted by the World Bank in 2010 showed.

To improve logistics, the World Bank recommends that Vietnam should minimize paper-based processes in the customs and technical clearance of imports and exports, ensure transparent regulations, and create "multimodal logistics corridors" where containerized flows on trucks or barges can move on adequate infrastructure and with minimal regulatory delays.

Opening the logistics market and promoting a more sustainable supply-demand balance in the trucking industry can also help, the bank says.

The report argues that better performing logistics can provide international and domestic investors with an environment where they can source products for export at a lower cost than in other countries.

A stronger logistics sector is also consistent with Vietnam's long-term vision of spurring export-led growth, the report concludes.

The other report, on Vietnam's inland and coastal waterways and titled "Facilitating Trade through Competitive, Low-Carbon Transport," says that investment in waterborne transport goes well beyond the need to match demand and supply since larger barges not only result in lower unit transport costs but also lower emissions of pollutants and greenhouse gases -- a major benefit to Vietnam, given the country's exposure to the risks caused by climate change.

The report provides many recommendations to realize the potential benefits of waterborne transport, including capacity expansion for the corridor linking Vinh Long and Ho Chi Minh City -- including the Cho Gao Canal, the network's most pressing bottleneck at present.

Investments in the northern corridor from Quang Ninh to Viet Tri and a dedicated coastal shipping terminal at Hai Phong port also appear to be economically viable.

The report also calls for the establishment of a waterway maintenance fund to better pay for maintenance of the core sections of the national inland waterway network.  

"We hope that the recommendations made in the reports can contribute to the shaping of policies that can make logistics operations more competitive, which would generate employment opportunities, spur economic growth, and improve import-export performance," says Luis Blancas, the lead author of the two reports.

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