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

Linking Economic Growth and Poverty Reduction --Large-Scale Infrastructure in the Context of Vietnam’s CPRGS--. GRIPS Development Forum September 25, 2003. Objectives of the Study.

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

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  1. Linking Economic Growth and Poverty Reduction--Large-Scale Infrastructure in the Context of Vietnam’s 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 • Pro-poor growth? • Analytical framework for assessing the role of large-scale infrastructure • Specific features of Vietnam • Case analyses -- Linkages among infrastructure, growth and poverty reduction • Implications for future strategic planning and aid partnership in Vietnam

  5. (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.

  7. 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.

  8. 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.

  9. (2) Analytical Framework:Distinct 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.

  10. 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

  11. Linkages among Large-Scale Infrastructure, Growth, and Poverty Reduction: Hypothetical Illustration Poverty Reduction (Broader Impacts) Infrastructure Development Poverty Reduction (1st Round Impacts) 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

  12. Rich’s Consumption Behavior and the Income Multiplier

  13. (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.

  14. Government Revenue and Expenditure during 1986-2000

  15. 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.

  16. Opportunities vs. Vulnerability Histogram of per capita expenditures, 1998 Source: VDR 2000

  17. (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).

  18. 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.

  19. 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.

  20. 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

  21. NH 5 and Hai Phong Port:Linkage Effects • Rapid industrial growth and FDI attraction (--investment-inducement effect) • Agricultural diversification and off-farm business expansion (--regional economy activation effect) • 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

  27. 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.

  28. My Thuan Bridge and NH1:Linkage Effects • Natural resources-based industrial growth (--investment-inducement effect, cum regional economy activation) :Can To industrialization linked to domestic investment and local economy • Tourism development in Can Tho(--regional economy activation effect)

  29. Industrial Production in West Mekong Delta (at constant 1994 prices) Source: GSO (2002)

  30. Agriculture Production in West Mekong Delta (at constant 1994 prices) Kien Giang Source: GSO (2002)

  31. Fishery Production in West Mekong Delta (at constant 1994 prices) Bac Lieu Source: GSO (2002)

  32. Viet Foods Co. Ltd(a private firm specializing in frozen shrimps, in Can Tho IZ)

  33. 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.

  34. Number of Tourists to Can Tho (person-days) Source: Statistical Yearbook of Can Tho

  35. Turnover of Tourism in Can Tho (US$ million) Source: Statistical Yearbook of Can Tho

  36. 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.

  37. Before 500KV T/L After 500 KV T/L (1994~1998) After 500KV T/L (1999/2000~ ) North North North Hydro Hydro Hydro Coal Coal Coal Central Region Central Region Central Region 500KV T/L 500KV T/L South South South Gas Hydro Hydro Hydro Diesel Diesel Diesel Source: Prepared by the study team based on the information from Electricity of Vietnam (EVN). Electricity Transfer between North, Central, and South

  38. 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]

  39. Annual Growth of Electricity Demand by Region (%) Source: World Bank (1998)

  40. 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- ).

  41. Expansion of Electricity Network Source: EVN

  42. 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.

  43. Source of Lighting among the Lowest-Income Group Source: GSO (2000), GSO (2003) based on VLSS2002

  44. (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.

  45. 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).

  46. Road Network and Project Activities (Perspective from RH Service Providers)

  47. Road Network and User Access to RH Service Inter-hamlet roads (by 2 wheel, on foot, boat) Inter-commual roads (by 2 wheel, on foot, boat) Hamlet CHCCommune DHC District Access to medical service Contraceptive Method Obstetric Complications Attendance Pre-natal Check-ups Delivery Attendance Access to information Consultation to Health Worker Participation to IEC Seminar Source: Elaborated by the study team, based on the field survey in June 2003.

  48. (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.

  49. 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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