Study Objective

Infrastructure, Growth and Poverty Reduction

• Assessment of economic and social impacts of two JBIC assisted projects: Highway No.5 and Hai Phong Port • Examination of the role of large scale economic infrastructure in achieving economic growth and poverty reduction • Contribution to the recent effort to extend the scope of the CPRGS

Impact Assessment of Transport Infrastructure Projects in Northern Vietnam Hisaaki Mitsui International Development Center of Japan ([email protected])

January 24, 2004 GRIPS

2

Location of the JBIC transport projects

The Projects

Red River Delta

(1) National Highway No.5 Improvement Project 1994-2000: all phases completed (Jan. 1999: practically in use) JPY 20.961 billion (US$175 million), Phase 1 - 3

(2) Hai Phong Port Rehabilitation Project 1994-2000: Phase 1 completed JPY 3.975 billion (US$ 33 million), Phase 1

3

Study Area

Bridge construction projects are not included in this map.

4

Process for the Impact

Red River Delta Improvement of Highway No.5 Hai Phong Port

Promotion of FDI Economic Growth Development of rural economy Poverty Reduction

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6

1

Framework of the presentation

1 Economic Growth and Poverty Reduction in the Red River Delta

1 Economic Growth and Poverty Reduction in the Red River Delta

2 Impact from FDI 3 Impact from Rural Development

-Connected vs. unconnected -

7

Trend in Economic Growth

8

(2) Per capita GRP in 1995

(1) Growth rate of per capita GRP, annual average 1995-2000 Red River Delta

9 Trend in Economic Growth

10 Trend in Economic Growth

Comparison of Hung Yen and Thai Nguyen

(3) Per capita GRP in 2000

(1) Location of the two provinces

Hai Phong port

11 Trend in Economic Growth

12 Trend in Economic Growth

2

(2) Per capita GRP of the two provinces (constant 1994 prices)

(3) Sector composition of GRP in the two provinces (%) Hung Yen Agriculture Industry Service Total

2,500

2,300

Hung Yen

1995 53 15 33 100

1996 56 15 29 100

1997 46 22 32 100

1998

1999

45 24 30 100

2000

43 29 29 100

43 27 30 100

2,100

VND

Hung Yen

Thai Nguyen Agriculture 30 32 31 33 35 35 Industry 35 34 34 33 30 30 Service 36 34 35 35 35 35 Total 100 100 100 100 100 100 Source: Figures on Social Development in "Doi Moi" Period in Vietna

Thai Nguyen 1,900

Thai Nguyen 1,700

1,500 1995

1996

1997

1998

1999

2000

13

14

Trend in Economic Growth

Trend in Economic Growth

Trend in Poverty Reduction

(4) Invested Capital of FDI to the two provinces, 1993-2002

(1) Reduction in the number of poor HH, 1998-2000 90 Mil US$ 80

70

bil. US$

60 50 40 30 20 10 0 Hung Yen

Thai Nguyen

15

Trend in Poverty Reduction

Trend in Economic Growth

16

(3) Impact on poverty reduction in Hai Duong

(2) Impact on poverty reduction in Hung Yen Highway No.5

Highway No.18

Average HH income in 2002 Share of poor HH in 2002 Highway No.183

Highway No.5

Highway No.39

Hung Yen Town

17 Trend in Poverty Reduction

18 Trend in Poverty Reduction

3

Impact from FDI

2 Impact from FDI

Promotion of FDI

Industrial growth

Factory employment

Industrial linkage

Economic Growth

Poverty Reduction

Fiscal contribution 19

20

Impact from FDI

Impact from FDI

Where foreigners invested after the transport projects?

Frequent use of well-developed transport infrastructure

Total amount of foreign invested capital, 1999-2002 FDI Productioin Main Export Type Site Market channel 1 Ha Noi Hai Phong 2 Ha Noi Local Hai Phong 3 Ha Noi Local 4 Ha Noi Internet 5 Ha Noi Noi Bai 6 Hai Phong Hai Phong 7 Hai Phong Local 8 Hai Phong Local Hai Phong 9 Hai Phong Noi Bai 10 Vinh Phuc Local Note: X shows frequency of use.

Import channel Hai Phong Hai Phong Hai Phong Hai Hai Hai Hai Noi Hai

Phong Phong Phong Phong Bai Phong

Use of HP port XX XX XX

Use of HW5 XX XX X

X XX XX XXX

X X XX XX X

X

Business examples OA products sanitary ware glass ware software electronic parts clothes, bags glass container heavy metal structure jewely motorbike

Source: Interview survey by the study team.

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22

Impact from FDI

Impact from FDI

Share of FDI sector in the four provinces Quantitative assessment of the growth impact

(1) Gross Regional Products 100%

Assumption (1) GDP is estimated with the Cobb-Douglas production function (2) 90% of FDI would not be realized in the region without the projects

90% 80% 70% 60%

Contribution of FDI on GDP growth in 2001

Non state

50%

+1.9%

State FDI

40% 30%

Contribution of FDI on GRP growth in the Red River Delta in 2001

+9.6%

20% 10% 0%

15%

4% 1995

2000

23 Impact from FDI

24 Impact from FDI

4

Creation of Employment by FDI

(2) Industrial Gross Output 100%

Amount of employment at major industrial zones

90% 80% 70% 60%

Non state

50%

State FDI

40%

Thang Long Sai Dong B Noi Bai Nomura Hai Phong Total

Current 3,766 5,867 1,269 3,017 13,919

Expected 3,200 2,500

30% 20% 10%

Amount of employment at provincial industrial zones

37%

Current

14%

Hung Yen IZs

0% 1995

2000

5,800 (FDI) 7,000 (Domestic private)

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26

Impact from FDI

Impact from FDI

Share of FDI sector in the four provinces Linkage with local industry

(3) Industrial labor force

Mostly service business e.g. Transport, Real estate, catering, commerce

100% 90%

Linkage with local manufacturing industry - very limited, - parts or components are hardly procured from local producers.

80% 70% 60%

Non State State

50%

FDI

Types of FDI with significant linkage with local industry a) Natural resource based FDI e.g. cement, sanitary ware b) Food processing FDI e.g. snack noodle, confectionary

40% 30% 20% 10% 0%

6%

6%

1998

2000

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28

Impact from FDI

Impact from FDI

Satellite investment of FDIs “Canon effect” Plastic products (Thang Long)

Plastic products (Nomura HP)

Fiscal contribution by FDI

Power code (Thang Long)

Users’ manual (Thang Long)

Canon Printer Assembly (Thang Long)

Surface treatment (Thang Long)

FDI increase

Wiring system (Saidon B)

More tax payment Income tax Custom duty

Logistics (Thang Long) Plastic molds (Nomura HP)

Plastic molds (Noi Bai)

condition

Strong political commitment to reduce poverty

Increase in state revenue Japan HDQ

Thai Subsidiary

More pro poor investment at nation wide

Efficient and capable public administration in the field

Poverty Reduction of the country

(provincial, central)

29 Impact from FDI

condition

30 Impact from FDI

5

Structure of the total state revenue of the four provinces in 2000

Concurring interventions

FDI 6%

Promotion of FDI Expansion of vocational training

Others 29%

Development of Industrial Zones

State 40%

Economic Growth

Custom duty 22%

Administrative incentives

Non State 3%

Poverty Reduction

31

32 Impact from FDI

Impact from FDI

Impact from Rural Development

3 Impact from Rural Development

Development of rural economy

New economic activities Diversification of Household income

Better access to social services

Economic Growth

Poverty Reduction

33

34

Impact from Rural Development

Impact from Rural Development

Property ownership for the surveyed households

Main source of information:

Rural households survey • Randomly selected 200 households (HH) • Six communes in Hung Yen and Hai Duong Provinces • Questionnaire survey in March 2003

Motorbike: TV: Bicycle:

52% 86% 91%

Year of purchasing durable goods for the surveyed households

Highway No.18

40

Highway No.5

35 30 25 20 15 10 5

motorbike

TV

35 Impact from Rural Development

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

Hai Duong

-1989

0

Hung Yen

bicycle

36 Impact from Rural Development

6

New Economic Activities

Diversification of income sources

Change in land use pattern of the surveyed HHs; 1997-2002

15%

5%

10%

0%

5% 0%

300

-5% Paddy

Vegetable

Pond

Garden

Number of HH

0

ResidentialAll average

Average land size

37

Impact from Rural Development

Concurring interventions

Better Access to Social Service Main purpose to visit cities for the surveyed HHs*

160

38

*: Data of 206 HHs, More than one answers.

Impact from Rural Development

Changes in frequency to visit the cities for the surveyed HHs*

Development of rural economy

Doi Moi in Agriculture policy

Expansion of Agricultural Extension service

140

140

2002

10%

400 Annual 200 Income: Mil. 100 VND

1997

20%

500

Farming

15%

Others

25%

600

Factory

20%

700

Remittance

30%

800

Commerce

25%

Real estate

35%

900

Fishery

30%

Handicraft

35%

40%

Livestock

45%

Growth in average land size for particular purpose

Growth in Number of HH using the land for particular purpose

Structure of income for the averaged HHs*; surveyed data 1997-2002

120

120

Number of HHs

Number of HHs

100

100 80 60

80

Expansion of agricultural credit service

60

Economic Growth

40

40

20

20 0

Diversified marketing channels

0

Often

Sometimes 1997

Trade

Rarely

Other Education business

Health care

Leisure

Others

2002

Poverty Reduction

*: Data of 200 HHs of the survey

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40

Impact from Rural Development

Impact from Rural Development

Expansion of agricultural credit service

Sources of information about new business

Sources of initial capital to start new business for the surveyed HHs* Other farmers

100%

Portfolio composition of the Bank for Agriculture, Hai Duong Branch (March, 2003)

90% 80%

Traders

FDI 1%

70%

Cooperative 1%

60% 50%

Extention services

SOEs 1%

40%

Non State 16%

30%

Agricultural HHs 80%

20%

Media

10% 0%

0%

10%

20%

30%

40%

Own capital

50%

Bank loan

Relatives or

Traders

neighbors

*: Data of 77 HHs, which started new business

*: Data of 73 HHs, which started new business, More than one anwers

41 Impact from Rural Development

42 Impact from Rural Development

7

Expansion of marketing channels Concluding remarks Changes in distribution channels for the surveyed HHs*

(1) Impact of Highway No.5 and Hai Phong Port

180 160 140

Ha Noi - Hai Phong Transport Corridor

120 Number of HHs 100 80 60 40 20 0 Local Traders Own sales retailers Own sales from other in local in markets provinces markets of big cities

2002

•

Strategic part of the road network in the Red River Delta

•

New axis of economic growth

•

Significant reduction of poverty in the region

1997 Other forms

*: Data of 195 HHs replied to the questionnaire, More than one answers

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Impact from Rural Development

Concluding remarks Concluding remarks (2) Impact from FDI (3) Impact from Rural Development

Significant growth impact 9.6 % increase of the GRP in 2001 Over 1/3 of gross industrial output in the region

Significant structural transformation Diversified income sources Rapid expansion of new business Local economy itself is the driving force.

Significant but still limited impact on poverty reduction Increasing but small employment impact Weak linkage with local economy Small fiscal contribution Larger and wider impact is expected within a foreseeable future

Well prepared rural households Doi Moi restructuring policy Extension service, Credit service, etc.

Frequent use of Highway No.5 and Hai Phong Port Distribution, export, import, business meeting, etc.

Highway No.5 and Hai Phong Port were triggers.

Highway No.5 and Hai Phong Port were preconditions.

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