Linking%20Economic%20Growth%20and%20Poverty%20Reduction%20--Large-Scale%20Infrastructure%20in%20the%20Context%20of%20Vietnam

1
Linking Economic Growth and Poverty
Reduction--Large-Scale Infrastructure in the
Context of Vietnams CPRGS--

• GRIPS Development Forum
• September 25, 2003

2
Objectives of the Study

• Analyze the role of large-scale infrastructure in
  economic growth and poverty reduction in the
  context of Vietnam.
• Focus on trunk infrastructure, benefiting many
  (or more than one) provinces, in the transport
  and power sectors.
• Core function as economic and industrial
  infrastructure.
• Largely corresponding to A category of PIP.

3
Background and Process

• Contribute to the current GoV effort on CPRGS
  expansion.
• Build on the government-donor partnership,
  including
• MPI, MoT, EVN, provincial authorities, etc.
• World Bank, ADB, Japan, UK/DFID, AusAID, etc.
• Consultation of draft Concept Paper with
  interested parties. Also, distributed at mid-term
  CG Meeting at Sapa (June 2003).

4
Topics for Discussion

1. Pro-poor growth?
2. Analytical framework for assessing the role of
   large-scale infrastructure
3. Specific features of Vietnam
4. Case analyses -- Linkages among infrastructure,
   growth and poverty reduction
5. Implications for future strategic planning and
   aid partnership in Vietnam

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(1) Pro-Poor Growth?

• Broad consensus on the importance of growth in
  reducing poverty--but, inconclusive on the range
  of policy measures to attain pro-poor growth.
• Recent discussions, narrowly focused on direct
  poverty-targeting measures.
• Channels and linkages--many ways to cut poverty,
  direct and indirect. Strategy should be geared to
  each country.

6
Three Channels of Pro-Poor Growth

• (1) Direct channel (impacting the poor directly)
• --Basic health, education, sanitation, rural
  roads, etc.
• (2) Market channel (growth helps poor via
  economic linkages, or trickle down)
• --Inter-sectoral and inter-regional labor
  migration (cf. Chinese TVEs)
• --Increasing demand (cf. proto-industrialization,
  multiplier effect)
• --Reinvestment (formal, informal and internal
  financing), etc.

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Three Channels (contd.)

• (3) Policy channel (supplementing the market
  channel and guiding the development process
  toward greater equality)
• --Taxes, subsidies
• --Fiscal transfer, public investment,
  infrastructure
• --Micro and SME credit and other financial
  measures
• --Proper design of trade and investment policies
• --Pro-poor legal framework, etc.

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Pro-Poor Infrastructure?

• Basic infrastructure direct contribution to
  poverty reduction through the direct channel.
• Large-scale infrastructure
• Contributing to growth and poverty reduction
  through the policy channel.
• Serving as a pre-condition for realizing the
  market channel.

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(2) Analytical FrameworkDistinct Features

• The impacts of large-scale infrastructure
• Broader and complex (beyond the project site) --
  compared to small-scale infrastructure -- through
  linkages effects
• Need time to emerge fully, also depend on
  supporting policies and the supply of other
  infrastructure.
• Large expenditure flows.
• Mode of utilization and management matters.

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Analytical Framework Linkage Effects

• First-round impacts
• Investment-inducement effect
• Regional economy activation effect
• Effective demand effect
• Social dimension
• Second-round impacts (broader and
• more general)
• Fiscal revenue and multiplier effect

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Linkages among Large-Scale Infrastructure,
Growth, and Poverty Reduction Hypothetical
Illustration
Poverty Reduction (Broader Impacts)
Poverty Reduction (1st Round Impacts)
Infrastructure Development
Social Dimension Improved access to
basic social/public services with availability
of transport power supply
Sustainability
Improved social indicators

• Improved infrastructureservices
• Availability
• Cost reduction
• Time saving
• Reliability

• Fiscal channel Increased revenues for
• Pro-poor programs
• Infrastructure
• Recurrent costs etc.

Foreign residents/ travelers demand
Economic Dimension

• Market creation/
• expansion
• Increased incentives to entry
• Opening up new economic opportunities
• Improved productivity of existing economic
  activities

• New investment
• FDI
• Local investment

Growth
Employment creation
Effective demand of infrastructure
construction( operations)

• Regional economy activation
• Rural
• Urban
• via agriculture,off-farm business,tourism,
  services,manufacturing etc.

• Private channel
• (Trickle down)
• Investment
• Consumption

Higher Income

• Procurement
• Materials
• Labor demand

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Richs Consumption Behavior and the Income
Multiplier
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(3) Specific Features of Vietnam

• Rapid growth has been effective in reducing
  poverty.
• Continued progress in poverty-reducing growth
  (VLSS 1993, 1998, 2002).
• Growth had raised fiscal revenue, resulting in
  higher public expenditure on infrastructure,
  education and health etc.
• Increased aid flow (from mid-1990s) also helped
  GoV effort.

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Government Revenue and Expenditure during
1986-2000
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Specific Features of Vietnam

• Existence of social safety net (despite its
  weaknesses) and re-distributive role of public
  expenditure. PER2000
• Relatively high social indicators by low-income
  country standards.
• A high proportion of the population is clustered
  around the poverty line. The poor and non-poor
  are not static groups. VDR2000
• Importance of creating economic opportunities
  and trickle-down effects through linkages.

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Opportunities vs. Vulnerability Histogram of per
capita expenditures, 1998
Source VDR 2000
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(4) Case Analyses of Linkages

• Large-scale infrastructure projects (selected
  from those recently completed and under
  operation)
• Improvement of National Highway No.5 and the
  expansion of Hai Phong Port (supported by JBIC
  and Taiwan, completed in 2000).
• Construction of My Thuan Bridge and the
  improvement of National Highway No.1 (supported
  by AusAID and World Bank, completed in 1999-2000).

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Case Analyses of Linkages

• (3) Power supply and regional electrification,
  particularly by the construction of North-South
  500 kv Transmission Line (by GoV, completed in
  1994).
• Complementary analyses
• (4) Reproductive health project in Nghe An
  province (supported by JICA, ongoing)
• (5) Connectivity study of rural roads, focusing
  on Lai Chau and Hung Yen provinces (DFID study
  underway) -- forthcoming.

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Case 1 National Highway No.5 (NH5) and Hai
Phong Port

• Strengthened the Hanoi-Hai Phong northern
  transport corridor, serving as arteries for
  traffic flow of export and import, and domestic
  products.
• NH5 travel time between Ha Noi and Hai Phong
  halved from 3.5-4 hours to 1.5-2 hours and
• Hai Phong port expanded and now equipped with
  container-specialized port.
• Sharp increase in traffic volume 1) NH5 --
  doubling during 1999-2003 2) Hai Phong port --
  container cargo rising 50 from 2001 to 2002
  alone.

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Highways and Port Link Two Centers,
Attracting Investment and Diffusing Growth to
Rural Areas
Red River Delta Region Northern Transport Corridor
Ha Long Bay
Hwy 5
Hai Phong
Ha Noi
Hai Phong Port
By water
By land air
National Global Economy
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NH 5 and Hai Phong PortLinkage Effects

1. Rapid industrial growth and FDI attraction
   (--investment-inducement effect)
2. Agricultural diversification and off-farm
   business expansion (--regional economy activation
   effect)
3. Booming tourism in Ha Long Bay (--regional
   economy activation effect)

22
FDI Inflow to the Four Provinces
along NH5 (1989-2002)
Source JBIC/IDCJ (2003)
23
FDI Impacts (Example)

• Four major IZs (Thang Long, Nomura-Hai Phong, Noi
  Bai, Sai Dong B) 98 FDI projects (as of June
  2003), two-thirds of which came in or after 2000.
• These industrial FDI firms
• Account for 85 of FDI in the northern IZs, both
  in number and registered capital.
• Employ about 14,000 workers (to be increased
  further).
• FDI firm perception
• Nearly 90 of firms would not have come without
  two transport facilities. JBIC/IDCJ firm survey
• Hung Yen Major increase in FDI (15 of 23
  projects came in 2002).

24
Growth and Diversification of Rural Income in
Hung Yen and Hai Duong (1997-2002)
Source Based on the survey on 206 rural
households (JBIC/IDCJ 2003).
25
Number of Tourists to Quang Ninh
(1995-2002)
Source Statistical Yearbook of Quang Ninh
26
Turnover of Tourism in Quang Ninh
(1995-2001)
Source Statistical Yearbook of Quang Ninh
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Case 2 My Thuan Bridge and National Highway
No.1 (NH1)

• Changed the nature and volume of economic linkage
  between two centers (HCMC and Can Tho), opening
  up the Mekong Delta.
• Critical reduction in travel time between HCMC
  and Mekong Delta cities.
• Time for crossing the Tien River cut from 32 to
  5-6 min.
• Together with road improvement, travel time
  between HCMC to Can Tho reduced from 4.5-5 to 3.5
  hours (by one-third).
• Sharp increase in traffic volume between HCMC
  and Delta cities -- even where NH1 does not pass.

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My Thuan Bridge and NH1Linkage Effects

1. Natural resources-based industrial growth
   (--investment-inducement effect, cum regional
   economy activation) Can To industrialization
   linked to domestic investment and local economy
2. Tourism development in Can Tho(--regional
   economy activation effect)

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Industrial Production in West Mekong Delta (at
constant 1994 prices)
Source GSO (2002)
31
Agriculture Production in West Mekong Delta (at
constant 1994 prices)
Kien Giang
Source GSO (2002)
32
Fishery Production in West Mekong Delta (at
constant 1994 prices)
Bac Lieu
Source GSO (2002)
33
Viet Foods Co. Ltd(a private firm specializing
in frozen shrimps, in Can Tho IZ)
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Natural Resources-based Industrialization
(Example)

• Can Tho Tra Noc I II, Hung Phu IZ have about
  80 firms (mostly domestic, 20 FDI). One-third of
  FDI firms came in or after 2000. Source
  CEPIZA
• Domestic and FDI firms in IZs employ about 13,000
  workers, at present.
• They benefit about 10,000 rural households for
  input procurement etc.
• Other Delta provinces participating in new
  economic opportunities, taking advantages of
  their resource potentials.

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Number of Tourists to Can Tho (person-days)
Source Statistical Yearbook of Can Tho
36
Turnover of Tourism in Can Tho (US million)
Source Statistical Yearbook of Can Tho
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Case 3 North-South 500 kv Transmission Line
(T/L)

• 1994 - 98 Transferred low-cost, surplus
  electricity from the north to the south and
  central region until
• Capacity expansion of thermal power plants,
  utilizing offshore natural gas (exploited in late
  1990s).
• 1999/2000 - present Provides system stability
  by shifting electricity between regions.

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Electricity Transfer between North, Central, and
South
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North-South 500 kv T/LImpacts (Examples)

• Overall impact on the economy sustaining high
  economic growth and improving livelihoods in the
  latter half of the 1990s.
• Mitigated power shortages in the central region
  and the fast-growing south (--real GDP growing at
  9.2, average of 1996-97).
• Supported about 75 of electricity demand in the
  central region, about 20 of the south (--equal
  to approx. 40 of industrial demand for
  electricity).
• Data based on WB 1998, average of 1996-97

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Annual Growth of Electricity Demand by Region ()
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
Real GDPGrowth 8.7 8.1 8.8 9.5 9.3 8.2
Source World Bank (1998)
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North-South 500 kv T/LImpacts (Examples)

• Improved power supply conditions since around
  2000, through network expansion (e.g.,
  substations, 220 kv line) -- Achieved together
  with subsequent increase in generation capacity
  (e.g., Phu My, Ba Ria), distribution and
  transmission.
• Firms (HCMC and its vicinity) cheaper and more
  reliable power supply, after connecting with the
  EVN network.
• Greater access to electricity in rural areas
• Supporting the rural electrification program
  (1997- ).

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Expansion of Electricity Network
Source EVN
43
Households Using Electricity as Source of
Lighting by Region
Source World Bank (1997), GSO (2000), GSO (2003)
based on VLSS2002
Note The 1998-2002 decrease in the north is
attributed to changes in regional division.
44
Source of Lighting among the Lowest-Income Group
Source GSO (2000), GSO (2003) based on VLSS2002
45
(4)-4. Road Network and User Access to Social
Services

• Experience of the JICA-supported Reproductive
  Health (RH) Project in Nghe An province (ongoing,
  1997- ) regional service delivery program based
  on community participation, covering all 469
  communes in the province.
• Findings of our field visit (June 2003)
• Importance of the strengthened function of road
  network (i.e., with improved trunk roads) in
  enhancing physical access, quality, and IEC of
  service delivery programs.

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Complementary Nature of Different Levels of
Roads.

• Trunk roads and inter-commune roads
• Important for the productivity of service
  providers (e.g., health workers at provincial
  MCH/FP, DHC, CHC, and project staff),
  facilitating communication and knowledge sharing
  and establishing a monitoring system, etc.
• Inter-commune roads and inter-hamlet roads
• Essential for both users and service providers to
  ensure physical access to core health services
  (at CHC) and information, and treat emergency
  cases (at DHC).

47
Road Network and Project Activities (Perspective
from RH Service Providers)
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(4)-5. Synthesis

• In Vietnam, trunk infrastructure in transport and
• power has helped
• Creation of sources of growth.
• Spreading of linkages between growth centers and
  their surrounding rural areas.
• Broad impacts both direct and indirect.
• Structural change in regional (and even national)
  economy.
• Initial impacts not necessarily on the poorest
  group (except for social service delivery)but,
  virtuous cycle emerging with increased
  purchasing power.

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Synthesis

• Importance of complementary policies and
  interventions.
• NH5 and port other trunk roads (NH1, 10, 18),
  feeder roads.
• NH1 and bridge proposed Can Tho bridge?
• Electrification central local governments,
  private sector, and communes (in generation,
  distribution, and transmission)
• RH social service delivery and infrastructure.
• FDI policy, education, agriculture extension, etc.

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Synthesis

• Potentially negative externalities
• Road safety.
• Resettlement and land acquisition Time-consuming
  and delaying construction work.-- but, the
  experiences also show that if properly handled,
  affected families could enjoy benefits of
  infrastructure development.
• Importance of capacity building for social and
  environmental monitoring.

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(5) Future Strategic Planning and Aid Partnership

• Large-scale infrastructure as an integral part of
  
• overall development strategy.
• Importance of a shared vision toward equitable
  growth, macroeconomic stability, and
  environmental stability.
• Need to pay attention to complementarities with
  policies, institutional aspects, and other
  investments, etc.
• Need to strengthen the link between large-scale
  infrastructure investments and strategic planning.

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Future Strategic Planning andAid Partnership

• Need for capacity building in investment
  planning, sector policy, selection criteria,
  financing, OM, regulatory framework etc.
• Aid partnership to support GoVs effort, with
  each partner playing a complementary role based
  on its strength(s).
• Best mix of policies, measures, aid programs
  and projectsunder a shared vision and
  strategies.

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Shared Development Vision Strategies and
Policies for Promoting Growth and Poverty
Reduction
Measures/ Objectives Large-scale Infrastructure Rural roads Human capital Targeted interven-tions Capacity building
Growth Creation X X X
Growth Diffusion X X X X
Direct poverty reduction X X X X