• Private car ownership is set to jump as the government removes import duties from other Asean countries.
  • FTCR data suggest that people in Hanoi and Ho Chi Minh City are embracing ride-sharing services.
  • Traffic congestion will worsen as commuter railways in Hanoi and Ho Chi Minh City face delays and cost overruns.

Vietnam is well-known for its two-wheeled traffic. Some 50m motorbikes are used every day, with nearly a third of them jamming the streets of Hanoi and Ho Chi Minh City. Their number keeps on growing and congestion and pollution get worse.

FTCR data indicate that, while motorbikes continue to make up most of the traffic, the growing use of private and ride-sharing cars by urban Vietnamese has added to the gridlock.

The government has promised an extensive public transport system for Hanoi and Ho Chi Minh City by 2030, the year when Hanoi plans to ban motorcycles from its inner districts. Until then, rapidly growing car ownership and delays in the completion of commuter rail projects will lead to worsening road conditions.

From two wheels to four

Private cars are becoming more affordable for the Vietnamese middle class as incomes rise on the back of a rapidly growing economy. 

From a low base, car sales in Vietnam have surged, growing 241 per cent between 2012 and 2017. We think a slight dip in 2017 is temporary and sales are set to rebound this year as the remaining intra-Asean car import tariffs were eliminated in January. FTCR’s first-quarter 2018 Automobile Purchase index for Vietnam shot up 9.4 points from the previous quarter, suggesting a surge of car-buying in the next six months.

Grabbing a ride

As in other south-east Asian countries, ride-sharing services have expanded in Vietnam. Uber and Grab entered the market in 2014 and elbowed aside the local taxi industry. 

Both companies have poured money into the country. Grab alone accrued a loss of 938bn dong ($41.3m) between 2014 and 2016, according to the local tax authority. Grab’s heavy promotional spending has made it affordable for urban Vietnamese, persuading many to leave their motorbikes and cars at home and ditch traditional taxis. 

According to an FTCR survey in late 2017, ride-sharing services, using cars and motorcycles, became the most popular means of transport in Hanoi and Ho Chi Minh City after private motorcycles. 

Transport ministry data revealed that 36,000 ride-sharing cars were registered in the two cities by the end of 2017, overtaking the 30,000 taxis in operation. In Hanoi, we have noticed an increasing number of Grab and Uber vehicles, typically small South Korean cars, joining the traffic.

With its recent acquisition of Uber’s entire south-east Asia operations, Grab is set to consolidate its status as market leader in Vietnam. The fast-growing market is believed to be attracting other foreign investors, such as Indonesia’s Go-Jek, while also forcing domestic transport companies to develop their own apps and network. 

Pressure on public infrastructure

Road construction has not kept up. Official data show that between 2011 and 2016, the road network in Hanoi grew on average 3.85 per cent each year, while the number of cars rose 10.2 per cent. 

The government wants to expand public transport by building commuter railway networks. For now, the bus network is the only form of public transport in Hanoi and Ho Chi Minh City and it can carry just 10 per cent of commuters. 

Our first-quarter 2018 survey showed that only 18 per cent of Hanoi respondents, and 12 per cent of those in Ho Chi Minh, used a bus daily or several times a week. The figures were even lower than our survey in late 2016. 

Both cities are scheduled to have eight urban railway or metro lines by 2030 in the hope that, together with buses, these will meet up to half of the public’s commuting needs.

The first phase of the commuter rail network is well under way. Hanoi’s Cat Linh to Ha Dong line was scheduled to open in 2015 but Hanoians are expected to get their first ride in December 2018 at the earliest, with costs having ballooned 36 per cent to nearly $900m. A second line, from Nhon to Hanoi Railway Station, is seven years behind schedule and will not be ready until 2021. In Ho Chi Minh City, the cost of Metro line No. 1, between Ben Thanh and Suoi Tien, has more than doubled to $2.49bn and operations have been delayed by two years to 2020. 

These first projects relied entirely on concessionary loans from foreign governments and institutions. However, these loans will be harder to find in the future as Vietnam becomes wealthier. Moreover, the government is becoming increasingly selective when financing infrastructure through borrowing, as public debt has edged closer to the statutory limit of 65 per cent of gross domestic product in recent years.

Instead, local governments are turning towards public-private partnership schemes, but the huge amount of money involved makes it difficult to attract investors. Hanoi alone estimates that $20bn of funding is needed between 2017 and 2030 for its urban railway, and the actual figure is likely to be even higher, based on previous cost overruns. So far only domestic companies have signed up for the initial phase of the PPP scheme. The cost for Ho Chi Minh City is similarly high, and so a funding shortfall will result in even lengthier delays. 

The current rate of progress makes the 2030 goals for both cities unrealistic. Meanwhile, the growing number of vehicles means a frustrating decade ahead for Vietnamese commuters.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and south-east Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.