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Private U.S. firm Warburg Pincus is forming a joint venture with a state-run Vietnamese company to provide logistics services in the country's key economic and industrial zones.
Warburg Pincus and Vietnam’s Investment & Industrial Development Corp., also known as Becamex IDC, will pour more than $200 million into the joint venture, Warburg Pincus said in a statement sent to Bloomberg on Monday.
The venture, BW Industrial Development JSC, will develop and operate modern warehouses and factories in Vietnam, Jeffrey Perlman, head of Southeast Asia at Warburg Pincus, was quoted by Bloomberg as saying.
“With the transformative shift of the manufacturing base from markets like China to Vietnam as well as with the rapid rise of domestic consumption, the logistics and industrial real estate market in Vietnam is in the ‘early innings’ and at an inflection point for outsized growth,” Perlman said in the statement.
The Asian Development Bank forecasts Vietnam’s economy will expand by 6.7 percent this year, the second highest growth among its Southeast Asian peers after the Philippines.
Vietnam itself expects economic growth of 6.5-6.7 percent next year, and thinks that the target of 6.7 percent set for this year is within reach.
Warburg Pincus is a private equity firm that has invested in more than 780 companies in over 40 countries around the world. Becamex IDC, based in Vietnam's southern province of Binh Duong, works in the field of investment and development at industrial, residential, urban and transportation infrastructure projects.
Domestic logistics services in Vietnam are less competitive than services provided by foreign firms, according to experts, despite the fact that logistics firms are growing in number in Vietnam thanks to strong imports and exports.
Data from the Vietnam Logistics Business Association (VLA) shows that the country's logistics sector is growing strongly at an annual rate of 15-16 percent.
Around 1,300-1,500 logistics firms are performing well in Vietnam, accounting for 80 percent of the sector.
With the import-export industry developing positively, securing a total revenue of more than $400 billion in 2017, the highest since 2006, the logistics sector has considerable room for expansion.
In 2014, the World Bank ranked Vietnam’s logistics performance index at 53rd out of 160 markets. Two years later, the country dropped to 64th and stood fourth in Southeast Asia after Singapore, Malaysia and Thailand.
The cost of logistics services in Vietnam currently accounts for 25 percent of the country’s GDP, while the rate stands at only 9.5 percent in the U.S., 11 percent in Japan, 16 percent in South Korea, and 21.6 percent in China, according to the Vietnam Chamber of Commerce and Industry (VCCI).
Le Duy Hiep, chairman of the VLA, was quoted by Nhan Dan newspaper as saying in Jauary that limited scale, capital, experience, management, high-tech application and staff are to blame for the high cost of Vietnamese logistics services.
