Overview

Linking Economic Growth andPoverty Reduction
Large-Scale Infrastructure in the Context of Vietnam's CPRGSGRIPS Development Forum
November 2003

Linking Economic Growth and Poverty Reduction—Large-Scale Infrastructure in the Context of Vietnam’s CPRGS—

Overview

November 2003

GRIPS Development ForumCopyright © 2003 GRIPS Development Forum
Cover photo: DFID, JICA, and GRIPS.

Preface
This study responds to the initiative by the Government of Vietnam to expand theComprehensive Poverty Reduction and Growth Strategy (CPRGS) to include the role oflarge-scale infrastructure in economic growth and poverty reduction. This initiative isbased on the agreement at the 2002 Consultative Group (CG) Meeting for Vietnam (heldin Hanoi), and the government plans to present a new chapter of CPRGS (on large-scale
infrastructure development and poverty reduction) at the 2003 CG Meeting scheduled for
December 2-3, 2003, after consulting with various stakeholders concerned.
The study aims at providing an intellectual input to the current effort by the governmenton the expansion of CPRGS, and is built on the government-donor partnership. While theexpansion of CPRGS itself has been conducted under the ownership of the Vietnamese
government, several donors (which are actively involved in the country's infrastructuredevelopment) have expressed their willingness to assist the government in parallel—
particularly in the area of establishing an analytical framework regarding how large-scale
infrastructure can contribute to sustainable growth and poverty reduction in Vietnam.
The study was conducted by the GRIPS Development Forum* under the initiative of theGovernment of Japan and with the financial support of JBIC, in close coordination with
the Government of Vietnam (through the Ministry of Planning and Investment) and theWorld Bank, the Asian Development Bank (ADB), UK (DFID), and Australia (AusAID).
*****This is an overview of the main report. The study has greatly benefited from collaborationby the concerned partners. The GRIPS study team expresses its deep appreciation to theGovernment of Vietnam (MPI, MoT, MoH, EVN), provincial authorities, and donors
including the World Bank, ADB, Japan (Embassy of Japan, JBIC, JICA), UK (DFID),
Australia (AusAID), researchers, consultants (ALMEC) and NGOs (JOICFP) for theirvaluable advices and research support.
The Concept Paper for this study was distributed at the mid-term CG Meeting in Sapa in
June 2003, and its preliminary findings were presented at the workshop on large-scale
infrastructure, held in Hanoi in September 2003. (See http://www.grips.ac.jp/forum-e/ forthe main points discussed at the workshop.)
While the views in the document are closely coordinated with the above partners, thefinal responsibility rests with GRIPS Development Forum.

November 2003
GRIPS Development Forum* The GRIPS Development Forum is an independent policy research unit within the National Graduate Institute for Policy
Studies (Japan). The study team included: Izumi Ohno (team leader), Yumiko Niiya (researcher) and Asuka Suzuki(research assistant). The study team received support from national consultants, CONCETTI (contracted by JBIC). Kenichi
Ohno provided general advice to the team.

Linking Economic Growth and Poverty Reduction—Large-Scale Infrastructure in the Context of Vietnam’s CPRGS—

Overview

Contents
Preface
1. Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Economic Growth and Poverty Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. Analytical Framework for Assessing the Role of Large-Scale Infrastructure . . . . . .3
Linkage Effects of Large-Scale Infrastructure
4. Linkages among Infrastructure, Growth and Poverty Reduction . . . . . . . . . . . . . . . . .5
Specific Features of Vietnam
Findings of Case Analyses
Cross-Cutting Issues
5. Future Role of Large-Scale Infrastructure and Aid Partnership in Vietnam . . . . . .22
Vietnam's Development Challenges and the Role of Infrastructure
Key Issues for Future Strategic Planning
Toward Enhanced Government-Donor PartnershipAppendices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Overview
1. Objective
The main objective of this study is to analyze the role of large-scale infrastructure in economic growthand poverty reduction in the context of Vietnam, with special attention to various channels and linkages
among infrastructure, growth and poverty reduction. The study focuses on large-scale infrastructure(benefiting many (or more than one) provinces) in the transport and power sectors, in view of their corefunction as economic and industrial infrastructure to promote economic growth.
More specifically, the paper is designed to:Develop an analytical framework for assessing the role of large-scale infrastructure in the povertyreducing growth process;
Clarify various linkages among infrastructure, growth, and poverty reduction in the Vietnamesecontext, based on case analyses;
Suggest their implications for the country's future development challenges; andHighlight key issues, considered essential for Vietnam's future strategic planning of infrastructuredevelopment and donor partnership.
■

■

■
■

The study does not intend to propose prioritization among individual projects or develop an
infrastructure investment strategy. It is understood that these tasks would be handled separately by the
Vietnamese Government under its future cycles of strategic planning.

2. Economic Growth and Poverty Reduction
There is broad consensus that growth is essential to sustained poverty reduction, although it may not bea sufficient condition. At the same time, recognizing that recent discussions on pro-poor growth tend tobe narrowly focused on direct poverty-targeting measures, there has been increased awareness of theneed to analyze how to generate a dynamic growth process, while ensuring social equity ("pro-poor
growth" or "inclusive growth") in the country-specific context1.
To achieve sustainable growth and poverty reduction, interaction among the following three channels is
critically important:Box 2-1: Three Channels of Pro-Poor Growth(1) Direct channel, which impacts the poor directly (such as programs for basic health, sanitation,
education, and rural roads);(2) Market channel (or “trickle down”), where growth helps the poor via economic linkages (such as intersectoral and inter-regional labor migration, increased demand, reinvestment through formal, informal
and internal finance); and(3) Policy channel, which supplements the market channel and guides the development process toward
greater equality (through subsidies, fiscal transfer, public investment, proper design of trade, investment
and financial policies, and so on).

1

For example, the PRSP progress report presented at the 2002 World Bank Annual Meeting [IMF/World Bank 2002] notes
the importance of in-depth, country-specific understanding of sources of growth, elements which make growth pro-poor, andconcrete policies which make pro-poor growth possible. The PRSP Unit of the World Bank (PRMPR) is currently organizing
a series of studies around these topics.

1

Linking Economic Growth and Poverty Reduction

Infrastructure can play a vital role in each of these channels. For example, basic rural infrastructure canaddress poverty problems through the direct channel. Large-scale infrastructure can contribute to
growth and poverty reduction through the policy channel, but also serve as a pre-condition for realizing
the market channel and affect the patterns and quality of growth. In fact, there has been increased
recognition of the critical role of infrastructure investment for economic growth, as well as its linkages
with the provision of social services and the attainment of the Millennium Development Goals(MDGs)[Box 2-2]. Furthermore, greater attention is being paid to the importance of addressing
infrastructure needs, particularly in the context of improving the investment climate in respective
developing countries and the living conditions of their peoples2.
The Vietnamese government is keenly aware of the importance of growth promotion in poverty
reduction and recognizes the interaction of the channels noted above. The Comprehensive Poverty
Reduction and Growth Strategy (CPRGS) has set an economic target of 7.5% of annual growth for
2001-2005 and proposes priority policies and resource requirements to achieve this goal (policy
channel). At the same time, the CPRGS and the Public Investment Program (PIP) include the nationaltargeted program for poverty reduction, and the government plans to double its funding, compared to
the 1996-2000 period (direct channel) [SRV 2002a, SRV 2002b].

Box 2-2: Infrastructure and MDGs
Statement by Mr. Shengman Zhang, Managing Director of the World Bank
I know of no country that has achieved continuous development without a corresponding development of
infrastructure. It would be like trying to drive a car without gas. It is hard to imagine poor people being able
to link up with technology and markets if they do not have access to modern energy sources such as
electricity. Another link is more indirect, but just as important, particularly from the perspective of theMillennium Development Goals: access to clean water and sanitation services contributes to reduction inchild mortality. In addition, reliable transport services tend to facilitate access to schools and increaseenrollment.
Thus, infrastructure development, economic growth, and poverty reduction are all connected, althoughcauses and effects may vary. Looked at another way, to the extent that the Millennium Development Goals
are ultimately about improving human welfare, we must pay attention to both social development issues andinfrastructure investment needs. The two mutually reinforce each other.
(Quoted from “The Bank should Invigorate Infrastructure Lending: Interview with World Bank Managing
Director Shengman Zhang” in the World Bank Newsletter, Transition)
Source: World Bank [2003b], Transition (The Newsletter About Reforming Economies), Volume 14, No. 1-3, pp.1-3,
http://www.worldbank.org/transitionnewsletter.

2

These points were emphasized at the 2003 Spring Meeting of the World Bank/IMF Development Committee (held in
Washington D.C., April 2003). More recently, the Executive Board of the World Bank approved a new infrastructure action
plan in July 2003. In the OECD, DAC Network on Poverty Reduction (POVNET) also plans to include infrastructure in the
2003-05 work program.

2

3. Analytical Framework for Assessing the Role of Large-Scale Infrastructure
It has long been recognized that infrastructure contributes to economic development by increasing
productivity of firms and individuals and by enhancing the quality of life. In particular, large-scale
infrastructure generates significant structural changes in national and regional economy.
Compared with small-scale infrastructure whose beneficiaries are clustered narrowly around the projectsite, the impact of large-scale infrastructure is much broader and more complex. It takes time to emerge
fully and depends on supporting policies and the supply of other infrastructure. A comprehensive viewis required to study its effect on income and employment generation. Moreover, large-scale
infrastructure involves large expenditure flows. Additionally, the mode of its utilization andmanagement affects the efficiency and the effectiveness of the infrastructure services.
Economically, large-scale infrastructure is part of investment. As such, investment has two different
impacts on the economy, one through the supply-side effect of increasing the capital stock and the otherthrough the demand-side effect of providing additional effective demand. Due to the special properties
arising from its nature as "public goods," the supply-side effect of large-scale infrastructure investment
should be construed as contributing to general productivity enhancement. For example, transport andenergy infrastructures are intermediate inputs for firm production, and they raise the productivity ofother factors. With respect to social service delivery, they contribute to improving the productivity ofhealth workers and equipment. Consumption of infrastructure services also enhances the welfare ofpoor people. Furthermore, large-scale infrastructure contributes to economic growth that may provide
private and public resources to reduce poverty.
Largely due to the multiplicity of linkage effects, a methodology for quantitative analysis of its poverty
impacts is yet to be established. Thus, this study relies primarily on qualitative analysis3.
Linkage Effects of Large-Scale Infrastructure
To analyze the linkage effects of large-scale infrastructure, it is important to recognize the first round
impacts and the broader and more general impacts (realized through fiscal and private spending
channels) on poverty reduction.
In the first round, there are two initial impacts of development of large-scale infrastructure that could
lead to poverty reduction through economic growth. These are the supply-side and the demand-side
effects.
(1) On the supply side, improved infrastructure services in terms of costs, availability, and reliability
could create, at least, two types of linkage effects:• Investment-inducement effect: This is a channel through which new investment is generated byenhanced business climate. Attraction of FDI and domestic investment could promote industrial
growth, and generate jobs and income at the newly invested firms and in related industries/
services (through increased procurement of local inputs and services).
• Regional economy activation effect: This is a channel through which new economic opportunities
are opened up, and productivity of the existing economic activities is enhanced (even without
additional investment). For example, better access to markets and information could generate jobs
and income in rural households through improved agricultural productivity, diversification ofagricultural products, and promotion of off-farm industry in rural areas, etc.

3

In particular, the study team has greatly benefited from the preceding works of the ADB [Ali and Pernia 2003, Balisacan,
Pernia, Asra 2002], DFID [2002], ODI [Booth et al. 2002], and IFPRI [Fan et al. 2002] in developing the analyticalframework presented in this paper.

3

Linking Economic Growth and Poverty Reduction(2) On the demand side, it is possible to expect the effective demand effect of infrastructure
construction. This is a channel through which jobs and income are generated by implementing the
project itself. For example, effective demand from construction work could generate jobs andincome during the construction period-directly and indirectly (through the procurement of local
inputs and services).
(3) In the social dimension, better infrastructure services (particularly, the availability of transport andpower supply) could increase access to basic social/public services and thus improve the living
conditions of the poor.
Moreover, the impact of large-scale infrastructure should be understood in a broader and more generalcontext. In the subsequent rounds, fiscal revenue and multiplier effects can be created. Increased fiscal
revenues (through growth) could generate additional budget for pro-poor targeted programs that
improve the living conditions of the poor. Private spending could also generate multiple-round impacts.
This virtuous circle makes poverty reduction sustainable. (However, it should be noted that the extent
and feasibility of creating such a virtuous circle depend on the government's commitment and capacity
to effectively implement pro-poor programs, as well as country-specific initial conditions.)
Figure 3-1 indicates hypothetical illustration of such linkages.

Figure 3-1: Linkages among Large-Scale Infrastructure, Growth, and Poverty Reduction:
Hypothetical Illustration

Infrastructure Development

Improved
infrastructure services• Availability• Cost reduction• Time saving• Reliability

Effective demand of
infrastructure
construction(& operations)

Poverty Reduction(1st Round Impacts)
Social Dimension
Improved access tobasic social/public
services,with availability oftransport & power
supplyEconomic Dimension
Market creation/
expansion• Increased
incentives to entry• Opening up new
economicopportunities• Improved
productivity ofexisting economic
activities
Procurement• Materials• Labor demand

Poverty Reduction(Broader Impacts)

Sustainability
Improvedsocialindicators
Foreign residents/
travelers’ demand
New investment• FDI• Localinvestment
Regional economy
activation• Rural• Urban....via: agriculture,
off-farm business,tourism, services,manufacturing etc.

4

Growth

Employment
creation

Higher
IncomeFiscal channel:
Increased
revenues for:• Pro-poor
programs• Infrastructure• Recurrent
costs etc.

Private channel(Trickle down)• Investment• Consumption

4. Linkages among Infrastructure, Growth and Poverty Reduction
Specific Features of Vietnam
Vietnam's experiences in the early 1990s confirm that robust growth had raised government revenue,
with the result that by the mid-1990s public expenditure on infrastructure, education, and health hadrisen sharply. Furthermore, because per capita GDP had increased substantially, real per capita
government expenditure also increased (e.g., nearly twice as high in 1994 as in 1989)4. Greater fiscal
revenue, together with increased aid flows, has enabled the government to intensify its efforts in growthpromotion and poverty reduction, especially since the mid-1990s.
Figure4-1: Government Revenue and Expenditure (percentage of GDP)
30.0%
25.0%

Expenditure

20.0%
15.0%
Revenue

10.0%

FiscalBalance

5.0%
0.0%
-5.0%
-10.0%
1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000p

Source: The data from 1986 to 1993 are based on MPI/JICA [1998], Table 6 “Budget operations: in proportions to GDP (%),”
p.84. The data from 1994 to 2000 preliminary are based on IMF [2002], Government Finance Statistics Yearbook andInternational Financial Statistics Yearbook.

As the results of the latest VHLSS 2002 show, Vietnam continues to make progress in improving theliving standards of the population. Between 1998 and 2002, poverty has further declined in both ruraland urban areas. The percentage of population living below the poverty line decreased from 37% (in1998) to 29% (in 2002). In all regions, household incomes of the poorest quintile increased, comparedto those of 1999. Three regions—North East, South Central Coast, and Mekong Delta—haveexperienced a large reduction of poverty incidence. Despite such progress, poverty remains a largely
rural phenomenon in Vietnam. Furthermore, the rate of reduction in rural poverty is slower than that ofurban poverty, and urban-rural inequality tends to increase.
The existing studies suggest that despite several weaknesses, Vietnam has an extensive safety net bypoor country standards. Public social expenditures are more equally distributed than household
expenditures, playing an important re-distributive role. Other studies indicate that in Vietnam the poorand the rich are not static groups. A high proportion of the population is clustered around the poverty
line. While this implies their vulnerability to shocks, it also means that even small increases in mean
per capita expenditure will be quite effective in moving a large number of households over the poverty
line. This suggests the effectiveness of creating income "opportunity," including "trickle-down" effects
through backward and forward linkages.

4

See "Macroeconomic Reform and Poverty Reduction in Vietnam" by Dollar and Litvack in Dollar et al. [1998].

5

Linking Economic Growth and Poverty Reduction

Box 4-1: Opportunities vs. Vulnerability
In Vietnam, a high proportion of the population is clustered just around the poverty line. Moreover, the poorand the rich are not static groups. Both quantitative and qualitative data indicate that the poverty status ofhouseholds fluctuates over time.
Histogram of Per Capita expenditures, 1998
-15

Share of population

Food Poverty line
Poverty line

0
2500

5000

7500

10000

Real per capita expenditure (VND ooos, Jan 1998)

Box 4-2: Continued Progress in Poverty Reduction and GrowthPreliminary Results of VHLSS 2002
Vietnam’s Poverty Incidence (as measured by per capita expenditure)
70%

66%

50%

1993

58%

60%

1998
45%

40%

2002
37%

36%

30%

29%

25%

20%

9%

10%

7%

0%
Rural

Urban

National

Source: GSO and World Bank estimates based on VLSS 93, VLSS 98 and
GSO [2003b] based on VHLSS 2002.

Poverty Incidence by Region, 1993-2002 Headcount Index (%)
Regions

1993
63
79
75
50
70
33
47

Red River Delta
North East
North West
North Central
South Central Coast
Central Highland
Ho Chi Minh City and Vicinity
Mekong Delta

1998
29
59
48
35
52
8
37

2002
23
38
69
44
25
52
11
23

Note: In VHLSS 2002, the survey sample was selected based on the areas covered in the Population and Housing Census
1999. The sample size was greatly expanded from the previous surveys, comprising of 75,000 households
representing the whole country, urban and rural areas, and 61 provinces/cities (expenditure data were compiled,based on the sample of 30,000 households).
Source: VLSS 1993, VLSS 1998, and VHLSS 2002.

6

Findings of Case Analyses
Case studies of selected large-scale infrastructure projects—particularly national highways and power
generation and transmission constructed in the 1990s—confirm their important role in recent povertyreducing growth in Vietnam. On the basis of the case analyses, it is fair to say that such trunk
infrastructure has helped: (i) the creation of sources of growth; and (ii) the spreading of linkages
between growth centers and their surrounding rural areas, particularly through the investmentinducement effect and rural-economy activation effect. A large number of the Vietnamese population
has participated in and benefited from such processes. Thus, large-scale infrastructure (trunk roads andmajor power production) provides the foundations on which economic growth for the formal, non-farmeconomy is built.
Cases for this paper's analysis are selected from the large-scale infrastructure projects in the transportand power sectors, which were recently completed and are under operation:

Box 4-3: Selected Large-Scale Infrastructure Projects for Case Studies(1) Improvement of National Highway No.5 and the expansion of the Hai Phong Port (funded by Japan/JBIC
and Taiwan, completed in 2000);(2) Construction of the My Thuan Bridge (funded by Australia/AusAID, completed in 2000) and theimprovement of National Highway No.1 (co-financed by the World Bank, the ADB, and Japan/JBIC),
with particular focus on the southern Ho Chi Minh City-Can Tho section (completed in 1999); and(3) Development of overall power supply capacity and regional electrification, including the constructionof the North-South 500kv transmission line (financed by the Vietnamese government, completed in1994).

In addition, three complementary analyses are conducted, in order to obtain diverse perspectives oflinkages among infrastructure, growth and poverty reduction, including:(4) Accessibility and road network, in light of "economic distance" and "connectivity" to markets(based on the UK/DFID experience of rural road projects in Hung Yen and Lai Chau provinces);(5) Accessibility and road network, in light of access to social service delivery (based on the experienceof Japan/JICA-supported reproductive health project in Nghe An province); and(6) Effective demand of highway construction (based on Japan/JBIC-funded National Highway No.18).
The main findings of the case analyses are as follows:(1) Hanoi-Hai Phong northern transport corridor—linking two centers, attracting investment anddiffusing growth to rural areas.
In the north, the improvement of National Highway No.5 (NH5) and the expansion of the Hai Phong
Port, together with other infrastructure, has strengthened the Hanoi-Hai Phong transport corridor.
Travel time between the two centers—Hanoi and Hai Phong—was cut by half (from 3.5-4 hours to 1.52 hours), and the traffic volume on NH5 doubled during 1999-2003. The volume of container cargohandled at the Hai Phong Port increased 50% during the period 2001-2002. The corridor has reinforced
the link between two growth centers and in particular, has enhanced the access of Hanoi (largest city inthe north) to global markets by improved land and sea transport. After 2000, FDI to major industrial
zones (i.e., Thang Long, Noi Bai, Sai Dong B, Nomura-Haiphong Industrial Zones) increased
significantly, and is now becoming a driving force of industrial output in the north. As of mid-2003, thefour IZs accounted for about 85% of the entire FDI to northern IZs, both in terms of the number ofprojects and registered capital. Two-thirds of these investments came in or after 2000. A recent firm
survey also suggests that nearly 90% of new FDI to the north would not have been realized without the
improvement of the two transport facilities.

7

Linking Economic Growth and Poverty Reduction

Moreover, this growth has spread to neighboring areas (particularly Hung Yen and Hai Duong), and therural economy has experienced major structural transformation. Domestic investment to these areas has
increased, and rural households have diversified their agricultural production. In this connection, it isimportant to recognize the link between feeder roads and trunk roads in enhancing the activation of therural economy. The transport corridor has spurred tourism in Ha Long Bay by pushing up demand for
tourism (e.g., day trips) and facilitating business. The number of tourists (both Vietnamese and foreign)
quadrupled from 1995 to 2002, with a sharp increase from 2000. During 1995-2001, tourism turnoverincreased by more than five times (with a 45% increase from 2000 to 2001 alone). The figure below
shows these effects schematically.

Figure 4-2: Highways and Port Link Two Centers, Attracting
Investment and Diffusing Growth to Rural Areas

Red River Delta Region
Northern Transport Corridor

Ha LongBay

Hwy 5
Hai Phong

Ha NoiHai Phong PortBy water

By land & air

National & Global Economy

All these effects contributed to the creation of new employment and income for workers at factories andhotels (direct jobs), and for the transport industry and services (indirect jobs). Industrial FDI has
created a large number of direct jobs. As of mid-2003, FDI firms at the four major IZs employed a totalof 14,000 workers. Workers receive higher salaries than before, an important income source for theirhouseholds. Increased cargo volume at Hai Phong Port has stimulated demand for transport industry
and services, and truck drivers in Hai Phong city receive higher incomes and heavier workloads. Rural
households now enjoy higher disposable income, and their purchasing power appears to have increased.
The existing data also indicate that from 1995 to 2000, most of the provinces along the Hanoi-Hai
Phong corridor achieved faster growth in per capita income and reduction in the number of poor
households, compared to the average for the Red River Delta or the whole country. Nevertheless, FDI
contribution to the total industrial labor force remains small relative to its contribution to industrial
output. This is partly because most FDI firms are in the early stages of operations, and greater impacts
can be expected in the future. (Also, the figure may partly reflect redundant labor at inefficient firms,
especially large SOEs.) At the same time, developing supporting industries is a major challenge forVietnam's industrialization.

8

Box 4-4: Hanoi-Hai Phong Corridor—Impact on Traffic
National Highway No.5 (NH5) is a 2-lane truck road of approximately 100km connecting the national capital
Hanoi and Hai Phong Port, the largest international port in northern Vietnam. The corridor is a crucial
element for the competitiveness of northern Vietnam, i.e., one of the most important arteries for traffic flowof export and import goods, as well as of domestically commercialized products. However, previously, thehighway was narrow and deteriorated. The road network in the region was not linked due to rivers without
bridges. Hai Phong Port did not have a container-specialized facility.
The implementation of the two infrastructure projects, with external funding, has reinforced thetransportation network—by improving connections with the other trunk roads (e.g., NH1, NH10 and NH18)
which have been also upgraded—and has enabled the further expansion of container cargo handling capacity
at the Hai Phong Port to cope with increased traffic demand. Moreover, there have been parallel
improvements in rural (feeder) roads in the surrounding areas, financed from various sources (local budget,
commune contributions, donors, etc.).

Cargo Throughput in Hai Phong Port (1993-2000)
12,00010,350Total Volume (*1000tons)
10,000

Container (*100TEUs)

8,575
7,645

8,000

6,510
6,000
4,000

4,515

3,350

1994

1995

1996

1,838

1,410

1,170

870

670

450
1993

4,588

3,250

2,706

2,000
0
Year

4,810

5,446

1997

1998

2,140

1,988

1999

2000

2,270

2001

2002

Source: Project Completion Report (Hai Phong Port Rehabilitation), April 2002, PMU and Brochure of Hai Phong
Port in 2003, Hai Phong Authority.

Traffic Volume of Highway No.5
Percentage Increase from 1999 to 2003
140%
119

120%

123

123

113

100%
80%

76

81

80

73

60%
40%
18

20%
0%
HW1-HW39

HW39-HW183
Total

4-wheel

HW183-Hai Phong
2-wheelNote: Highway No.5 intersection with
HW 1: Gia Lam
HW39: Connected to Yen My and Hung Yen towns
HW183: Hai DuongSource: Elaborated by the study team, based on JBIC/IDCJ [2003].

9

Linking Economic Growth and Poverty Reduction

Figure 4-3: Trend of FDI Inflow to the Four Provinces along the Highway No.5
mil. US$No. of FDI projects

3,500

120

3,000

100

2,500

80

2,000
60
1,500
40

1,000

20

500
0

0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Registered Capital

Number of FDI

Note: The figure includes non-industrial FDI.
Source: JBIC/IDCJ [2003].

Figure 4-4: Structure of Average Income of the Surveyed Households: 1997-2002
Unit: mil.VND

900
800

1997

700

2002

600
500
400
300
200
100
0

Fa
s

g

an

in

er

rm

th

itt

e

ce

at

10

em

y

st

ce

t

Source: JBIC/IDCJ [2003].

O

R
or

le

ct

ea

af

k

er

cr

m

di

om

an

Fa

R

C

H
y

oc

er

st

sh

ve

Fi

Li

Note: The sample covers 206 rural households in six communes in Hung Yen and Hai Duongprovinces. The rural household survey was conducted during February-March 2003.

Figure 4-5: Number of Tourists in Quang Ninh
Unit: thous. pers

2,500
2,000

Figure 4-6: Turnover of Tourism in Quang Ninh
Unit: VND. mil

350,000

International
touristDomestic tourist

300,000
250,000

1,500

200,000
150,000

1,000

100,000

500

50,000
0
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19

0
1995

Source: Statistical Yearbook of Quang Ninh.

1999

2000

2001

Source: Statistical Yearbook of Quang Ninh.

(2) My Thuan Bridge and National Highway No.1—linking two centers, opening up and activating
the Mekong Delta economy.
In the Mekong Delta, the construction of the My Thuan Bridge and the improvement of National
Highway No.1 (NH1) have greatly changed the nature and volume of the economic linkage between Ho
Chi Minh City (the largest city in Vietnam) and Can Tho (the commercial center of the entire Mekong
Delta). After the opening of the My Thuan Bridge in 2000, travel time between the two centers was
reduced from 4.5-5 hours to 3.5 hours (with the time for crossing the Tien River being cut from 32 to 56 minutes, and further time reduction thanks to road improvement). Freight and passenger movement
has significantly increased, almost threefold at the My Thuan Bridge between 1999-2002. Can Tho isthe fastest growing province in the Mekong Delta, and its industrial growth has accelerated, particularly
from 2000. Can Tho province currently has three industrial zones (Tra Noc I and II, and Hung Phu
Industrial Zones). Altogether they boast about 80 firms (including about 20 FDI firms), employing 13,000
workers. Easier transport has also promoted tourism development in Can Tho, particularly since 2000.

Figure 4-7: Bridges and Highway Link Two Centers andActivate the Mekong Delta Economy

Mekong River Region

Can Tho2

1: My Thuan Bridge
2: Can Tho Bridge(Planned)

1

Hwy 1

By water

Ho Chi Minh City

By land, water & air

National & Global Economy

11Linking Economic Growth and Poverty Reduction

Moreover, the available data suggest broader impacts brought about by the improved land transport,
namely, strengthened function of NH1 as the main artery linking HCMC and the Delta cities, andspreading of benefits to the provinces beyond NH1 (e.g., An Giang) and to the area where improvement
has not yet taken place (e.g., south to Can Tho). It is expected that the proposed Can Tho bridge willfurther stimulate economic dynamism in the Mekong Delta. As the Can Tho economy is activated, its
effect will be felt throughout the Mekong Delta region, in both the provinces through which NH1
passes and in those through which it does not. Figure 4-7 shows this effect schematically.

Box 4-5: My Thuan Bridge and National Highway No.1-Impact on Traffic
The Mekong Delta, which accounts for nearly 40% of agricultural production and about one-third ofagricultural GDP in Vietnam, is the most important agricultural product base. National Highway No.1 (NH1)
is the only road that links the Mekong Delta at the southern end of Vietnam to the remainder of the country.
However, the transportation was not smooth due to the degraded road condition and interruption by branchesof the Mekong River, which was crossed by ferry.
The upgrading of NH1 has been the top priority project in the infrastructure development strategy of Vietnam
and the access route to the Mekong Delta was one of the first corridors to benefit from this strategy. Twolarge-scale infrastructure projects—the improvement of NH1 (including HCMC to Can Tho section) and theconstruction of the My Thuan Bridge across the Tien River—were implemented by external funding. The
existing studies show major increase in traffic volume after the completion of the two projects.

Traffic at My Thuan Bridge, Forecast and Actual(average daily)
1999

2002

Forecast

Actual (ferry)

Forecast

Actual (bridge)

3,600

3,120 (-13%)

4,580

10,610 (+132%)

Other vehicles

5,370

3,410 (-36%)

6,770

9,480 (+40%)

Vehicle Occupants

46,36035,29064,73086,770 (+34%)

Motorcycles

Source: Elaborated by the study team, based on the AusAID [2003a], p.22, Table 3.4 and AusAID [2003b], p.35, Table 3.13.

Passenger and Freight Movement to/from HCMC 1999 and 2002
passengers/day

6,000

freight (tons/day)

4,500

5,000

1999

4,000

2002

3,500

4,000

1999
2002

3,000
2,500

3,000

2,000
1,500

2,000

1,000
500

1,000

0

0
Vinh Long

Can Tho

An Giang

Vinh Long

Can Tho

An Giang

Note: The two traffic surveys are not precisely comparable due to methodological differences.
Source: Database from VITRANSS [1999] and HOUTRANS [2002], established under JICA-supported Study on the National
Transport Development Strategy in the Socialist Republic of Vietnam and Study on the Urban Transport Master Plan andFeasibility Study in HCM Metropolitan Area.

12

The pattern and nature of investment attraction in Can Tho is distinct from that observed in the northerntransport corridor. In Can Tho, industrialization is natural resources-based, linked with the local
economy (e.g., agriculture and fishery production). There are many Vietnamese enterprises engaged infood processing manufacturing in industrial zones. In fact, provinces in the Mekong Delta appear to be
growing by taking advantage of their respective resource potentials. As the latest VHLSS 2002 shows,
the Mekong Delta has achieved major poverty reduction and growth in per capita income (particularly
agriculture and fishery income) during 1998-2002. Although this cannot be attributed solely to theBridge and NH1, it is fair to say that the two large-scale infrastructure projects, have at least accelerated
poverty-reducing growth in this region.

FIgure 4-8: Industrial Production in Mekong Delta(at constant 1994 prices)

Figure 4-9: GDP Structure of Can Tho Province
Rapid Industrial Growth
Can Tho100%

Unit: Bill dongs

6000

90%

Can Tho

5000

80%

4000

70%

Kien Giang

3000

60%

2000

50%

1000

40%
30%

0
.
el 2
Pr 0
20
01

20

00

20

99

19

98

19

97

19

96

19

95

19

20%
10%
0%

An Giang

Kien Giang

Can Tho

Soc Trang

Bac Lieu

Ca Mau1993

2002

Industry

Agriculture

Other

Source: Elaborated by the study team based on AusAID [2003b],p.9, Table 2-4.

Source: GSO [2003a].

Figure 4-10: Production of Agriculture and Fishery in Mekong Delta(at constant 1994 prices)
Agriculture

6,000.00

Unit: Bill dongs

4500

An Giang

4000

5,000.00

Fishery

Unit: Bill dongs
Ca Mau3500

Can Tho

Kien Giang

3000

4,000.00

2500

3,000.00

2000

2,000.00

1500

1,000.00

1000
500

0.00
20

20

19

19

19

19

19

0
20

20

19

19

19

19

19

01

00

99

98

97

96

95

01

00

99

98

97

96

95

An Giang

Can Tho

Kien Giang

An Giang

Can Tho

Kien Giang

Soc Trang

Bac Lieu

Ca MauSoc Trang

Bac Lieu

Ca MauSource: GSO [2003a].

13

Linking Economic Growth and Poverty Reduction

Figure 4-11: Tourism Development in Can Tho
Visitors(person-days)
350,000

Foreign

300,000

VietnameseTourist Spending(USD million)
Foreign ($40/day)

7

Vietnamese ($15/day)

6

250,000

5

200,000

4

150,000

3

100,000

2

50,000

1

0

0
20

20

20

19

19

19

19

19

02

01

00

99

98

97

96

95

94

02

01

00

99

98

97

96

95

94

19

20

20

20

19

19

19

19

19

19

Source: Statistical Yearbook of Can Tho.

Source: Elaborated by the study team, based on the information
provided by the Tourism Dept. of Can Tho Province.

(3) North-South 500kv Transmission Line—achieving system stability, sustaining high economic
growth and improving living standards in the latter half of the 1990s.
The North-South 500kv Transmission Line was completed in 1994. By transferring low-cost, surplus
electricity generated by the Hoa Binh hydropower plant, it has contributed to mitigating power
shortages in the central region and the fast-growing south (which often had to rely on costly diesel-fired
generation). After its operation began in 1994, the demand for electricity in the south and central region
jumped about 20%. For example, when the Vietnamese economy recorded dynamic growth in 1996-97
at 8.8% in real terms (particularly with the south growing at 9.2%), the electricity transferred from thenorth supported about 20% in the south and about three-forth of the electricity demand for the central
region (to satisfy the demand of industrial, residential, and service or other sectors). The transfer ofelectricity from the north to the south had continued until 1999-2000 when large-scale exploitation ofnatural gas potential began in the south, and when the capacity of thermal power plants such as Phu My
and Ba Ria expanded in the late 1990s, by utilizing offshore natural gas.
Particularly in the south, electricity transfer through the 500kv Transmission Line and the subsequent
increase in the power generation capacity of the region allowed rapid expansion of the electricity
network [see Map for electricity network improvement (p.29)]. Thanks to this network expansion,
power supply conditions have significantly improved, bringing substantial benefits to firm production
and rural electrification. In fact, firms in HCMC and its vicinity report major improvements in power
conditions, including the achievement of substantial elimination of blackouts (since 2000) and morestable and cheaper supply of electricity to firms. The latest VHLSS 2002 data also confirm important
progress in rural electrification in the south. During 1998-2002, among the lowest income group, theratio of households using electricity increased from 54% to 72%.
At present, the 500kv Transmission Line provides system stability and shifts electricity between
regions at peak times. Future investments should take account of cost factors (for transferring bulk
power between regions) and be made in the overall plan so that generation capacity in the north and thesouth could roughly balance and satisfy the projected demand in each region.

14

Box 4-6: North-South 500kv Transmission Line
Before the construction of the 500kv Transmission Line, the north and the south had autonomous powersystems, and both regions transferred a small portion of generated electricity to the central region. But, thesesystems could not afford the rising demand of electricity, which corresponded to Vietnam's rapid economic
growth starting in 1992. The development and supply of new power generation were urgently needed. The
government decided to expand the Hoa Binh hydropower plant in the north, with total capacity of 1,920MW(completed in April 1994) and constructed the North-South 500kv Transmission Line, which connects thenorth, central and southern regions.

Electricity Transfer between the North, the Central Region and the Southvia the 500kv Transmission Line
Before 500KV T/L

After 500KV T/L(1994~1998)

After 500KV T/L(1999-2000~)

North

North

North

Hydro

Hydro

Coal

Coal

Hydro
Coal

Central Region

Central Region

Central Region
500KV
T/L

500KV
T/L
South

South

Hydro

Hydro

DieselDiesel

South
Gas
Hydro
DieselSource: Prepared by the study team based on the information from Electricity of Vietnam (EVN).

Demand and Supply Balance of Electricity by Region(1990-98)
1998(Deficit)(Surplus)

1997
1996
1995
1993
1990
-3,000South
CentralNorth-2,000(GWh)-1,000

0

1,000

2,000

3,000

4,000

Source: Elaborated by the study team based on JBIC [2000], p.3-2, Table3.1.2.

15

Linking Economic Growth and Poverty Reduction

Box 4-7: Sustaining High Growth and Improving Livelihood
The Contribution of Transferred Electricity
Regional Electricity Demand and Source(average of 1996-97)

Annual Demand Growth of Electricity

(GWH)

(%)

1992

1993

1994

1995

1996

1997

North

5.4

6.8

12.1

16.0

14.0

12.8

Central

17.2

15.0

25.4

25.6

21.3

19.6

South

6.7

16.6

21.0

23.3

21.1

15.2

(GDP growth)

8.7

8.1

8.8

9.5

9.3

8.2

Northern
RegionSupply North
CentralSupply Central

RegionSupply SouthSouthern
Region

0

2,500

5,000

7,500

10,000Notes: 1) The North includes: Red River Delta, North East and North West; The Central includes: North Central Coast, South Central
Coast and Central Highlands; and The South includes: North East South and Mekong River Delta.
2) Demand is shown in terms of the total electricity demand required for region. Supply is shown in terms of electricity
generated in (and transferred to) the region.
3) The data include loss factors.
Source: Prepared by the study team based on World Bank [1998], Annex 1.19-1.23 and Volume II, Annex pp.20, 23-24.

Box 4-8: Increased Access to Electricity through Network Expansion
Source of Lightening among
Lowest Income GroupHouseholds Using Electricity as a Source ofLightening by Region

100%
90%
Others

80%

90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

70%
Gas, Oil,
Kerosene
lamps
Battery
lamp

60%
50%
40%
30%

Electricity

20%
10%

83.7
68.7
47.0

22.0

North

0%
19971998

2002

Source: Elaborated by the study team, based on GSO [2000],
p.372 and GSO[2003b], p.4.

82.1

80.0*

1993

South
1998

2002

Notes: * The decline from 1998 to 2000 in the North is attributed
to the change in regional classification. North Mountain
Mid Land [GSO 2000]is divided into Northeast andNorthwest [GSO 2003b]. The 1993 data are quoted fromthe World Bank [1998], p.112. The 1998 and 2002 data
are calculated from GSO [2000],p.372 and GSO[2003b], p.4 respectively.
Source: Elaborated by the study team, based on the World Bank
[1998], p.112, GSO[2000], p.372 and GSO[2003b], p.4.

16

In addition, the following analyses offer complementary perspectives on the linkage effects.
(4) Improving "connectivity" to markets—road network and accessibility in rural areas.
A comparative analysis of Hung Yen and Lai Chau provinces confirms the usefulness of different levelsof roads and their vital importance (as a road network) in connecting commune residents to markets,
information, education and health services, and improving local livelihoods. Generally, local people
attach high value to commune roads because they provide key links to opportunities—through theirconnection to national, provincial, and district roads. At the same time, the analysis reveals inter-and
intra-provincial variations in income and resource-mobilization ability. "Economic distance" and"connectivity" to markets and services are key determinants for such variations, along with theavailability of productive assets.
Road development has had critical impacts in Hung Yen, in terms of both social and economic benefits.
Situated close to Hanoi and NH5 to Hai Phong Port, the rural population of Hung Yen has benefited
substantially from the growth of the region. Lai Chau has also benefited from improved road network,
but the province is less able to take full advantage of the opportunities that improved road access canbring. This is partly because Lai Chau is located in the remote Northwest of Vietnam and still lacks
basic infrastructure services and access to markets. Furthermore, Hung Yen has greater ability tomobilize resources for infrastructure development (e.g., from commune budgets and the people's
contributions) than Lai Chau which primarily depends on the central government budget for ruraltransport investment. Benefits are not equitably distributed within communes either, with the better-off
households more likely to capture the opportunities to increase their income. All these remind that there
are certain disadvantaged groups (or the "chronic" poor) which are less likely to participate in the
recent broad-based growth.

Figure 4-12: Relative Income Levels Perceptions and Access to Basic Transport
Provincial Comparison
60.00%

300

50.00%

250
0.40

40.00%

200

30.00%

150

20.00%

100

10.00%

50
0.03

0.00%

0
Lai Chau Province

Hung Yen Province

Province
Households who have perceived a great improvement in living standard over last 5 yrs
Bicycle Ownership (Bicyles per Capita)
Income (Monthly per capita Income VnD 1,000)
Source: TDSI/DFID [2003].

17

Monthly Income (1000 VnD)

Perception of improved
living standard andbicycle ownership(From unpublished TDSI road netwotk impact study 2003)

Linking Economic Growth and Poverty Reduction

Figure 4-13: Relative Income Levels for Communes with Differing "Connectivity"
to Markets and Services
Intra and Inter Province Variations in Income
Monthly per capita income levels(1,000 VnD)

350
300
Hung Yen Province
250
200
150

Lai Chau Province

100
50
0

La i C hau Pro vince

H ung Ye n Pr ovinc e

Commune incomes for different "access" levels
Average commune income

Average province income data

Source: TDSI/DFID [2003].

(5) Improving user access to social services—through the strengthened function of road network.
Trunk roads constitute an indispensable part of the road network, together with rural roads improving
user access to social services. There are several factors that critically determine user access to social
services. These include ensuring physical access, improving the quality of social service delivery, andproviding education for users (changing people's awareness of social service needs), etc. In particular,
the latter two require the effective implementation of national and/or regional programs based oncommunity participation. The role of the road network—particularly the contribution of large-scale
infrastructure—in improving social service delivery should be understood within this broad context.
The experience of the Reproductive Health Project (ongoing) in Nghe An province5 suggests thecomplementary nature of different levels of roads to improve the provision of (or access to) informationand services, from the viewpoint of both service providers and users. Well-serving trunk roads andinter-commune roads (connecting district capitals and commune centers) facilitate communication andknowledge sharing among health workers, project staff and stakeholders, and thus are indispensable forservice providers and project staff engaging in regional (or even national) health care programs. Intercommune roads and inter-hamlet roads are essential to providing core services to commune residents,
services such as basic health care (e.g., contraceptive method, pre-natal check-ups, delivery attendanceat community health centers) and access to information, for example, through IEC (Information,
Education and Communication) seminars and consultation with health workers.

5

This JICA-supported project started in 1997 under collaboration with Japanese NGO, JOICFP. The project aims at
improving the RH services in Nghe An province—which is one of the poorest provinces and lacks well-trained midwives atthe commune level. In phase II (covering 2000-2005), the project has extended coverage to all 469 communes (in 19
districts) and gives greater attention to: (i) capacity building of community-based voluntary organizations and District HealthCenters (DHCs); (ii) strengthening of links with family planning-related activities such as training of health workers in postabortion counseling skills; and (iii) establishment of the Health Management Information System.

18

Figure 4-14 : Road Network and Project Activities
Follow-up Visit to CHC
In order to establish
Monitoring System

Inter-commune road
Impassable to 4-wheel vehicles.
2-wheel vehicles, boats, or travel
on foot necessary.

Inter-district road(i.e. No.1, 7, 48, 15)
4 wheel passable

CHC

S/C
W/U
Providing better
facilities andequipment

S/C
W/U

CHC

DHC
S/C
W/U
P/O
MCH/FPInterchange of Experience
i.e. RH Seminar
Traveling Seminarwith other provinces

Training and Seminar at
Vinh City
i.e. [commune level]
・CHC Staff
・W/U member[District level]
・DHC Staff

S/C. W/C

Note: P/O: Project Office, S/C: Steering Committee, W/U: Woman’s Union.
Sourse: Elaborated by the study team based on the field survey of June 2003.

Figure 4-15: Road Network and User Access to RH Service
Inter-hamlet road
(2 wheel, on foot, boat accessible)

HamletAccess to medical service

Inter-communal road
(2 wheel, on foot, boat accessible)

CHC

DHC

Contraceptive
MethodObstetric
Complications
AttendancePre-natal
Check-ups

Access to information

Consultation to
Health Worker

Delivery
AttendanceParticipation in IEC
Seminars

Source: Elaborated by the study team, based on the field survey of June 2003.

19

Linking Economic Growth and Poverty Reduction(6) Creating effective demand for highway construction—off-farm job and income opportunities.
In the construction of highways, a number of simple works can be carried out economically by locallyrecruited manual labor (e.g., route clearance, earth digging and piling, manual transporting of materials,
making road tallies, planting and maintaining grass). The employment of local farmers for such
unskilled works contributes to job and income generation in the surrounding rural areas, particularly
during off-farm seasons.
The ongoing improvement of NH 18 covers approximately 129km between the Noi Bai International
Airport (in Soc Son district, Hanoi city) and Cua Ong town (Quang Ninh province), including theconstruction of the Pha Lai Bridge. The construction works commenced in October 1999 and have been
largely completed, with exception of the Noi Bai-Bac Ninh section. According to estimates by the
Project Management Unit, the works have so far involved 3,650 unskilled works (31 days per
assignment), in addition to 2,934 skilled workers (normally, fixed-term assignment for the average
period of 667 days). Most of the unskilled workers have been engaged in the NH18 works for 24months or longer, implying that many work repeatedly. A recent interview survey with unskilledworkers at the construction site (Noi Bai-Bac Ninh section) also confirms that: (i) off-farm activities are
an important source of their family incomes (on average, accounting for 68% of annual cash incomes of
their households); (ii) income from the NH18 construction works occupies significant part of theirfamily incomes; and (iii) thanks to the beginning of NH 18 construction, off-farm job and income
opportunities have greatly increased. These rural households use the resulting additional income forroutine expenses, education, family savings, etc.

Box 4-9: Job and Income Generation by Highway Construction (unskilled workers)
Number of Months Working Off-Farm(2 years ago)

Number of Months Working on
NH18 Construction

10-12 months
18%(3 workers)

25-30
months 1-3 months
0%
6%(1 worker)

7-9 months
6%(1 worker)

19-24
months38%(6 workers)

4-6 months
12 %(2 workers)

13-18
months6%(1 worker)

1-3 months
64 %(11 workers)

Note: Response was obtained from 17 unskilled workers.

4-6 months
31%(5 workers)

10-12 months
13%(2 workers)

7-9 months
6%(1 worker)

Note: The construction of the Noi Bai-Bac Ninh section started
in January 2001. Response was obtained from 16
unskilled workers.

Contribution of NH18 Seasonal Income to Family Monthly Income
13%
6%(2 workers) (1 worker)
43%(7 workers)

38%(6 workers)

Note: Response was obtained from 16 unskilled workers.
Source: CONCETTI [2003b].

20

0-25%
26-50%
51-75%
76-100%Cross-cutting Issues
In most cases, the initial impacts of large-scale infrastructure are not necessarily on the poorest
segments of the population (except for social service delivery in (5) above). Many of those employed at
FDI factories and hotels are graduates of upper secondary schools or higher. But, given the fact that the
majority of the Vietnamese population is clustered around the poverty line, it is important to increase
wages and disposable income because this would reduce their vulnerability to risks and raise theirpurchasing power. This, in turn, would stimulate consumption demand for a variety of goods, including
those produced by the poor (through the multiplier effect), and create new markets for agricultural
products, industrial products, and services. In fact, the case analyses suggest that such a "virtuous
cycle" of broad-based growth is emerging in the provinces along the northern transport corridor and in
the Mekong Delta region.
The analyses of the regional economy activation effect also confirm a vital role of trunk infrastructure
in promoting income diversification and off-farm employment. Infrastructure network (both large andsmall, trunk and rural) is a key determinant for "economic distance" and "connectivity" to markets andserves as a pre-condition for realizing poverty-reducing growth in rural areas. This is so particularly inthe context of Vietnam, where the majority of the population belongs to the "transient" poor (people
below and just above the poverty line) and the creation of income "opportunities" through "trickledown" effects appears to be effective.
Moreover, it is important to connect remote areas with power grids, and trunk roads with feeder roads
to achieve poverty-reducing growth. Greater attention should be given to the synergy of networking
between large and small, trunk and rural infrastructure. To maximize the gains of each level ofinfrastructure requires a planned approach that adequately invests in both areas and ensures"connectivity." One way of seeking balanced investment decisions (between growth and poverty
reduction) might be to incorporate a "network" perspective into investment planning and prioritization.
But, the physical improvement of infrastructure alone is not enough. Case studies suggest theimportance of complementary policies and measures to realize and spread the benefits of large-scale
infrastructure, such as the enabling investment climate, agricultural policies to promote diversification
and research and extension, and deregulation of transport and distribution services.
Case studies have also found potentially negative externalities associated with large-scale
infrastructure. In particular, road safety is becoming an emerging social problem. Improved
infrastructure, rapid motorization, and increasing traffic densities (largely motorcycle user) are allcontributing to a high level of road-related fatalities. Regarding resettlement, experience shows that if
properly handled, affected families (e.g., by relocation) could sufficiently enjoy the benefits ofdevelopment of large-scale infrastructure. But, the implementation of resettlement and land acquisition
has turned out to be often time-consuming, affecting the progress of construction work. Since the poor
are more likely to be vulnerable to adverse consequences, it is important to strengthen capacity of
government agencies responsible for social and environmental monitoring so that proper safeguards canbe taken throughout the planning, construction, and operation of projects.

21

Linking Economic Growth and Poverty Reduction

5. Future Role of Large-Scale Infrastructure and Aid Partnership in Vietnam
Vietnam's Development Challenges and the Role of Infrastructure
As Vietnam continues to make progress in poverty-reducing growth, it must fine-tune its development
strategy to respond to new challenges. Infrastructure should be treated as an integral part of overall
development strategy and attention should be paid to its complementarity with other policies. The
government must play a leading role in articulating a development vision and clarifying the role oflarge-scale infrastructure in it.
The future role of large-scale infrastructure must be considered in light of the following development
challenges.
(1) Enhancing competitiveness in the globalized economy(2) Promoting rural development, particularly by creating off-farm employment(3) Strengthening the effectiveness of poverty-targeted measures.
To fully exploit its potential for labor-intensive export manufacturing, efforts must be geared to raisingproductivity and international competitiveness. This is so particularly as Vietnam's international
integration is proceeding very rapidly (with USBTA, AFTA and WTO accession). As the existing
surveys show, despite major improvements, investors perceive Vietnam's infrastructure conditions—both physical and qualitative—to be insufficient compared to those of its East Asian neighbors. Since
efficient infrastructure is a key element of trade logistics and facilitation, continued progress in this area
is indispensable. At the same time, there are other investment bottlenecks such as difficulty inprocuring local parts, problems with business practices and inconsistent FDI policies. Thus, it isnecessary to take an integral approach to improve the investment climate and treat infrastructure as partof a national strategy to strengthen industrial competitiveness.

Table 5-1: Assessment of Competitiveness in terms of Specific Factors Impacting FDISpecific characteristics
FDI Confidence index
Potential economic growth
Quality of infrastructure
Legal system (development,
transparency, instability)
Tax system (development,
transparency, instability)

Vietnam
2
3
1

China
4
4
2

Thailand3
2
4

Malaysia
32
4

Philippines
2

2

2

4

4

3

2

2

3

3

2

2

Political & Social stability
Foreign exchange rate control
and stability

4

3

3

3

2

2

3

2

2

2

Procurement of parts
Potential market access
Ease of doing business
Corruption perception

1
2
1
1

3
3
2
1

3
3
3
2

3
3
3
2

2
2
2
2

Note: Rankings are based on Price Water House Cooper's calculations (Rank: 4 = most competitive, 1 = least competitive).
The calculation is made on the review of existing studies.
Source: MPI/JICA [2003].

22

Moreover, to sustain gains in poverty reduction, Vietnam needs to make greater efforts in stimulating
off-farm employment and urban employment growth, creating "economic opportunities" for the
majority of the population. Here, rural infrastructure (e.g., roads, irrigation, electricity) can make directcontributions to improving the productivity of rural households, and large-scale infrastructure (such as
trunk roads) can complement this by helping provide linkage to markets. Nevertheless, this should notmask the fact that there exist certain groups (or the "chronic" poor) severely constrained fromparticipating in new economic opportunities. To ensure wider benefits and broad-based growth, it isimportant for the government and other agencies to design the effective poverty-targeting programs.
The three channels for pro-poor growth will be of differing importance to the "chronic" poor in the
remote areas and the "transient" poor in the better-off areas6. The "chronic" poor are unlikely to benefit
from economic growth directly. Consequently direct interventions aimed at improving local economic
opportunities (transfer of agricultural technology, rural roads, etc.) are the most appropriate to help
achieve equitable growth. In addition, social safety net or "policy" channel interventions should also be
adopted (e.g., subsidies, fiscal transfer, etc.) to redistribute the gains from growth in the wider economy
to poorer areas so that basic services are securely provided.
In the better-off areas (where there are large numbers of the "transient" poor), interventions that enable
poor households to improve their economic linkages with domestic and external markets and support
for non-farm diversification are most relevant. Put another way, to enable a "trickle down" to takeeffect, the formal economy needs to be made accessible to the poor. This is the most likely route forbringing the most benefit to the large segment of the population who have already benefited from
Vietnam's growth but now need to be assisted to make the next step from farm to non-farm, andinformal to formal employment.
Key Issues for Future Strategic Planning
As this paper shows, the links and channels through which large-scale infrastructure promotes
economic growth and poverty reduction have been clearly established. The perceived dichotomy
between growth and poverty should be avoided because infrastructure provides a platform for both. The
government needs to articulate a shared vision for the role of infrastructure, under an overall
development strategy.
In this sense, it is important to strengthen the link between large-scale infrastructure investments andfuture strategic planning, so that development toward shared and equitable growth, environmental
sustainability and macroeconomic stability will be realized. In doing so, it is necessary to ensure theprovision of efficient and effective infrastructure services—through investment planning, regulation,
financing, etc. On the basis of Vietnam's past experiences, three issues merit special attention.
(1) Complementarities between infrastructure, social investment and institutions: Human capital isessential to ensure the development effectiveness of infrastructure investment (affecting the
productivity of labor and firms). It is also necessary to address the potentially negativeenvironmental and social aspects of infrastructure projects by taking proper safeguard measuresthroughout planning, construction, and operation of projects. Moreover, there exist institutional
complementarities. There is a need to pay attention to not only physical, but also the service andmanagement aspects (such as pricing, competition, and accessibility by the poor) of infrastructuredevelopment—because the latter affects the efficiency of infrastructure services and the distributionof benefits of improved infrastructure to the society (including the poor). Institutional reforms must
be implemented in parallel.

6

The broad categorization of the chronic and transient poor is by no means definitive. There are varying levels of types andperiodicities of poverty defined by a number of factors, such as access to opportunities and vulnerability.

23

Linking Economic Growth and Poverty Reduction(2) Spatial dimension of infrastructure development: To ensure rapid but equitable economic growth,
there is a need for continued efforts in developing and deepening linkages between growth centers
and adjoining rural areas—so that benefits of growth are widely spread. Consequently, it is essential
to ensure that the areas in which there is a concentration of poor people located near the "growthcenters" are well connected to these markets and non-farm opportunities, if the "economic growth
and trickle down" channel is to be effective for the "transient" poor. This implies the importance ofincorporating the spatial dimension into development vision in a pro-active manner. It also requires
strategic planning and better coordination of infrastructure investments at the national, sub-national,
and regional levels.
At the same time, in view of inter- and intra-provincial variations in the poverty situation, there is aneed to: (i) address the poorer provinces funding shortfalls; and (ii) carefully design projects andprograms so that the interventions can benefit the "chronic" poor living in the poorest remote areas, in
an inclusive manner. Such variations also suggest a need for taking different approaches to rural roaddevelopment between the areas where the "transient" poor live and where the "chronic" poor areconcentrated.
(3) Policies and measures to maximize the effectiveness of infrastructure investments. In light of theirsignificant fiscal implications, it is important to give due attention to the issues specific to sector
policies and project management—particularly, selection criteria, financing, maintenance, and theregulatory framework for infrastructure investments and operations. This is essential to ensure thesustainability of investments in large-scale infrastructure. Continued capacity building efforts arenecessary to promote the following measures:
Measures to ensure appropriate resource allocation (e.g., selection and allocation procedures,
recurrent financing);
Measures to make inputs into large-scale infrastructure effective (e.g., mobilization of diverse
resources, sector policies, the network effect, operations and maintenance); andMeasures to mitigate its possible negative impacts (e.g., addressing environmental and social
impacts).
■■■

In particular, it is vital to establish proper project selection criteria, so that infrastructure investment canbe prioritized and planned consistently with the development vision. This point is crucial because
future investment decisions on infrastructure will become more difficult, as the marginal returns toinvestment tend to diminish with the progress in trunk infrastructure development. Such selection
criteria should take account of two aspects: (i) the infrastructure "network," i.e., how to maximize
synergy effects of different levels of infrastructure; and (ii) a proper balance of economic vs. social andpoverty concerns. Ideally, a system should be developed, where the proposed projects would be ranked
based on the most relevant criteria and priority be given to the best-ranked investments under thebudget constraints. This is far from easy task. Concerted efforts are needed to identify such criteria andestablish a practical mechanism for incorporating them in the PIP process.
It is also important to pay attention to measures to promote foreign investment and mobilize private
financing for infrastructure development. At the same time, in the areas where the private sector isunlikely to participate but which have significant implications for social and economic development,
public funds and ODA may be utilized.
Toward Enhanced Government-Donor Partnership
Vietnam is a country where government-donor partnership (including NGOs) is active. There are many
areas where the government-donor partnership can be fruitful to achieve effective and sustainable
investments in large-scale infrastructure. This is so especially because complementary measures areneeded to enhance the impacts of large-scale infrastructure—for example, by developing rural roads,
investing in human capitals, enhancing the investment climate, and building capacity in areas of project24

planning and selection, maintenance and operations, and institutional and sector policies. In addition,
there are certain groups which are severely constrained from participating in the growth process. For
those groups, targeted interventions are necessary, and it is important to support such poverty-targeted
programs.
In this regard, aid partnership will be useful in supporting the government's efforts, with each partner
playing a complementary role based on its strength(s). In doing so, it is essential that the diversity of
aid modalities be recognized according to the nature and the size of specific activities. For example, inthe case of investments in large-scale infrastructure, project-based management appears to be generally
appropriate because these projects involve large financial resources and require careful monitoring fromengineering, social, and environmental aspects, and so on. The situations can be different for targetedinterventions, which are relatively small in size and can be more effectively managed on the basis ofprograms. The "best mix" of aid modalities should be sought, consistent with the nature and the size ofinterventions, under a shared development vision and strategies for promoting growth and poverty
reduction.

Box 5-1: Shared Development Vision toward Equitable Growth
Strategies and Policies for Promoting Growth and Poverty Reduction
Measures

Role oflarge-scale
infrastructure

Objectives
GrowthcreationX

Growthdiffusion

X

Direct poverty
reduction

Complementary Measures
Rural
roads

Human
capitalTargetedinterventions

Policy andinstitutions

X

X

X

X

X

X

X

25

X

X

Appendices• Trunk Road Network as of June 2003
• Electricity Network Improvement as of June 2003

Linking Economic Growth and Poverty Reduction

Trunk Road Network as of June 2003*1

Notes: *1 This map excludes on-going projects.
*2 This map does not include provincial roads improved by the Provincial People’s Committee’s own budget.
Source: Prepared by the study team based on the data from Ministry of Transport

28

Electricity Network Improvement as of June 2003

Notes: Explantation of power plant is added only for completed, large scale and currently improved power plants.
Source: Prepared by the study team based on the map and data from the Vietnam Power Development Plan 2000-2010, Prospective
up to 2020, Main Body, pp.1.1-2.15. and figure 2.5 "Location Map of Existing 500-220 kv power system (Electricity of Vietnam)."29

Linking Economic Growth and Poverty Reduction

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33

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