Development of Large-Scale Infrastructure for Growth and Poverty Reduction
September 25, 2003 (at Sofitel Plaza, Hanoi)

Main Points Discussed

GRIPS Development Forum

  • This workshop aimed at widely exchanging ideas and experiences on large-scale infrastructure and its contribution to growth and poverty reduction. It was co-sponsored by the Ministry of Planning and Investment (MPI), the World Bank, and the Government of Japan, with participation of the central and provincial governments, donors, researchers. 
  • The workshop consisted of three parts: (i) presentation of aggregate perspectives based on the two ongoing studies by GRIPS/Japan (i.e., analytical framework for assessing the role of large-scale infrastructure in growth and poverty reduction) and World Bank (i.e., empirical assessment of public investment plan); (ii) presentation of specific studies by donors (i.e., JBIC/IDCJ, DFID, AusAID), especially impact assessment of infrastructure projects; and (iii) presentation of the first draft of a new chapter of CPRGS by the working team within GoV.

Click here for the workshop agenda.

< Opening Remarks >

Dr. Cao Viet Sinh (Director General, Dept. of National Economic Issues, MPI) 

  • Introduction of the background for drafting a new chapter of CPRGS--dedicated to large-scale infrastructure--and the future process of finalization (i.e., the draft chapter to be finalized by end-October/early November, to be reviewed by the Prime Minister in early-mid November, and the final version to be presented at the December 2-3 2003 CG Meeting.)

Mr. Martin Rama (Lead Economist, World Bank/Vietnam)

  • It is important to open discussions on the Public Investment Plan (PIP), which amounts to 18% of GDP. Introduction to the WB (ongoing) study on the assessment of previous PIP (1996-2000), which takes account of both direct and indirect effects of expenditures (category gAh projects). The study intends to draw implications for the future PIP process.
  • Four main issues to be addressed in this study: 
    • Analysis of counterfactual: gWhat would have happened without investing in large-scale infrastructure?h 
    • Appropriate financial tool, such as public-private partnership in infrastructure financing. 
    • Trade off: spending on large-scale infrastructure vs. poverty reduction? 
    • Need to consider how to integrate investment (capital) and maintenance expenditures.

Mr. Mitsuru Kitano (Minister, Embassy of Japan)

  • Expected outputs from this workshop, particularly: 
    • Shared understanding of the role of large-scale infrastructure in growth and poverty reduction, by deepening discussions on an analytical framework for channels and linkages. 
    • Better understanding of various dimensions and functions of large-scale infrastructure in endeavor of development (e.g., its relationship with rural infrastructure, social investment). 
    • Collaboration between the Vietnamese government and donors (also among donors) toward drafting a new chapter of CPRGS. 
    • Importance of ensuring a participatory process of CPRGS. This workshop is based on wide-range of participation and should provide a good opportunity for exchanging ideas.

< Presentation on Analytical Framework >

Ms. Izumi Ohno (GRIPS Development Forum, Japan): gLinking Economic Growth and Poverty Reduction--Large Scale Infrastructure in the Context of Vietnamfs CPRGSh (see Attachment 1 for PPT, 448KB)

  • Pro-poor growth? 
  • Analytical framework for assessing the role of large scale infrastructure 
  • Specific feature of Vietnam Case Analysis: linkages among infrastructure, growth and poverty reduction 
    • National Highway No.5 and Hai Phong Port 
    • My Thuan Bridge and National Highway No.1 
    • North-South 500 kv Transmission Line 
    • Road network and user access to social service (e.g., reproductive health project) 
  • Implications for future strategic planning and aid partnership in Vietnam

Mr. Martin Rama (World Bank): gAn Empirical Assessment of Vietnamfs Public Investment Program 1996-2000h (see Attachment 2 for PPT, 373KB)

  • Shortcomings of traditional approach (gproject approachh vs. gstatistical approachh). There is a need to develop an empirical strategy, by combining the two approaches. 
  • More specifically, it is proposed that empirical assessment of large-scale infrastructure projects be conducted by matching actual spending of PIP (categorized by sector, province, year and funding pattern) with provincial growth and poverty indicators. 
  • The study faces difficulties in data collection. (Database still needs to be adjusted. In the meanwhile, findings are not reliable.) Nevertheless, a possibility exists for assessing growth and poverty impacts of the PIP.

 < Comments and Questions >

Dr. Cao Viet Sinh (MPI) 

  • It is important to carefully analyze funding sources of infrastructure investment (such as ODA, public finance to SOEs, and private finance).

Mr. Martin Rama (WB)

  • The two presentations (Ohno & Rama) are complementary. Both stress the indirect impact of large-scale infrastructure on the poor.

Commentator: Mr. Vo Tri Thanh (CIEM)

  • Questions on appropriate timeframe for analyzing the past impacts of public investment on growth and poverty reduction. 
    • 1993-1998: Remarkable progress in growth and poverty reduction. (Could this trend be continued?) 
    • 1998-2002: Lower rate of return to public investment, although its total volume has increased (including ODA). It is especially difficult to reduce poverty in remote and poor areas. 
  • It is useful to analyze the 1st and 2nd round of impacts. At the same time, it is necessary to consider optimal sectoral composition of investment, taking account of budgetary constraints. (IFPRI research on rural investment in other countries shows that agricultural extension and rural road are the most effective investment.) 
  • There is a need to consider additional aspects, such as: 
    • Capacity building and institutional development. 
    • Allocation of O&M budget. 
    • Judgment of appropriate timing of the projects (e.g. under-utilization of the Than Long bridge, constructed 10 years ago). 
    • Mitigation measures for potentially negative, social and environmental impacts. 
    • Need to reduce transaction costs. (According to the recent JICA study, transaction costs for ODA-financed activities are quite high.)

Commentator: Mr. Dang Duc Dam (Prime Ministerfs Research Group) 

  • Importance of gnetworkh concept, e.g., large-scale infrastructure and connecting feeder roads. 
  • There have been dramatic changes in the socio-economic situations of Vietnam (during the past 10 years), with clear impact of improvement in access to road and electricity. Furthermore, large indirect impact has been observed, such as agricultural diversification. 
  • Importance of urban infrastructure to promote social development (including university). 
  • Need to pay attention to negative aspects of large-scale public investment, particularly resettlement and land acquisition.

Ms. Yumiko Niiya (GRIPS Development Forum, Japan)

  • Question on policy implications for empirical assessment of PIP, particularly regarding appropriate stage(s) of the policy-making process in which goutputh of the WB study is to be used. 
  • It is suggested a possibility to improve the gproject approachh by capturing network effect, indirect effect, and benefit distribution

Other Comments and Questions 

  • Agree that large-scale infrastructure contributes to growth. At the same time, the quality of growth matters, and it is important to know whether and how total factor productivity (TFP) has improved. 
  • Need to pay attention to potentially negative aspects of infrastructure investment. 
  • Overemphasis on gtrickle down effecth? 
  • Attribution problem on poverty reduction impact: The changes have been brought not only by the development of large -scale infrastructure, but also by overall social change in the concerned areas. 
  • Need to pay attention to the costs of delayed project implementation.

 < Response >

Ms. Izumi Ohno (GRIPS) 

  • Dichotomy of two objectives (growth vs. poverty reduction) is not relevant. 
  • Infrastructure services should be considered from a gnetworkh perspective. Emphasis should be placed on gtotality.h 
  • Agree on the importance of careful planning, because of huge expenditure involved in large-scale infrastructure. While investment in different sectors (e.g., infrastructure vs. social sector) could have trade-off in financial terms, they are complementary in achieving development impact. 
  • Importance of partnership, especially in mobilizing various financial resources. A good example is the expansion of Phu My Thermal Power Plant II (privately financed, following ODA-funded phase I) and power network improvement in the Mekong Delta (financed by local government and communities).

Mr. Martin Rama (WB)

  • It is important to give serious consideration to both negative and positive impacts of large-scale infrastructure projects during project appraisal. 
  • Although the gproject approachh has its own merits, it may be difficult to capture the indirect impacts of infrastructure.

 < Presentation on the Impact from Individual Projects >

Mr. Hisaaki Mitsui (IDCJ, Japan): gImpact Assessment of Transport Infrastructure Projects in Northern Vietnamh (see Attachment 3 for handouts, pdf 1.9MB)

  • Projects profile: Improvement of National Highway No.5 and Hai Phong Port in the Red River Delta (so called gnorthern transport corridorh). 
  • Recent trend of gross regional product (GRP) and poverty ratio in the surveyed area: The area influenced by the project (= four provinces along NH5) has transformed into a new axis of economic growth, achieving significant reduction of poverty. 
  • FDI attraction as an engine for regional economic growth. 
  • Rural economy activation as a channel for sustainable poverty reduction

Mr. Simon Lucas (DFID/Vietnam) and Mr. Khai (consultant): gStudy on Road Network Impacts on the Poorh (see Attachment 4 for PPT, 2.2MB) 

  • Infrastructure is a necessary, but not sufficient condition for growth and poverty reduction. There are other important issues, such as: (i) efficiency of infrastructure services; and (ii) extent of its contribution to poverty reduction. 
  • DFIDfs participatory perception study on road network: implemented in 9 communes (4 plain communes in Hung Yen province and 5 mountainous communes in Lai Chau province). In each commune, 5 different social groups have been interviewed. 
    • Plain communes ranked district roads as the 1st importance, while mountainous communes ranked commune roads as the 1st . 
    • Different perception is attributed to peoplefs sphere of economic activities. 
  • High expectation on the improvement of road network, in expanding economic activities and increasing access to socio-cultural service and technology and information. 
  • Need for a good prioritization system (--ginvest efficiently, wisely, and practicallyh). There remains a difficulty which level of roads should be prioritized in PIP.

Mr. Paul Kelly (AusAID) and Mr. Tran Vo Hung Son (University of Economics-HCMC) gMy Thuan Bridge Impact Monitoring Studyh(see Attachment 5 for PPT, 1.2MB )

  • Profile of the project: the construction of My Thuan Bridge. 
  • This study intends to contribute to a process of developing appropriate methods for impact monitoring (including setting up the baseline data). 
  • The study analyzes the following impacts of bridge construction: (i) traffic volume (including origin and destination survey on the My Thuan Bridge); (ii) economic development (i.e., development of Industrial Zone in the surrounding area); and (iii) social and environmental aspects.

 < Comments and Questions >

Commentator: Mr. Simon Ellis (World Bank)

  • Strong evidence of linkages among infrastructure, growth and poverty reduction. Infrastructure provides a platform for poverty reduction and growth. 
  • Nevertheless, three issues merit special attention: 
    • Planning: There is a need for: (i) complementary policies and concurrent interventions (e.g., vocational training for FDI promotion) to ensure that the rest of the economy benefit from improved infrastructure services; (ii) a mix of various financial sources such as ODA, state budget and private finance; and (iii) integrated network to address gmissing middleh (= the importance of looking at gtotalityh). In this sense, gMaster Planh is a very important tool to assess short-term and long-term priorities under budget constraints. 
    • Asset management: Maintenance costs should be considered in the planning process. Return to road maintenance is quite high.
    • Transport services: Importance of analyzing the efficiency of transport services and the distribution of benefits (realized by improved transport infrastructure). Who benefited from reduction in travel time and vehicle operation costs? Transport charges (prices) greatly affect rural communities and the peoplefs access to social services.

Commentator: Dr. Nguyen Thang (Institute of Economics)

  • A sudden increase in traffic volume at the My Thuan Bridge indicates that its construction did remove transport bottlenecks in the Mekong Delta. However, there is a need for: (i) complementary policies; (ii) rules for PIP prioritization based on identified bottlenecks (particularly at the provincial level); and (iii) establishment of reliable database for impact monitoring. 
  • Economic growth and poverty reduction should not be viewed as trade-off. But, it is also true that growth is not enough for poverty reduction. In the Central Highland Region where the depth of poverty is severe, soft infrastructure (such as education and health) is very important. 
  • Importance of public-private partnership in resource mobilization. Especially, certain type of investment (e.g., social sector) is unlikely to attract private finance.

Mr. Simon Lucas (DFID) 

  • Although large-scale infrastructure is expensive, small-scale infrastructure can be even more costly. 
  • It is important to start debates, regarding whether infrastructure investment should continuously concentrate in Hanoi and HCMC or be more widely spread.

Ms. Izumi Ohno (GRIPS) 

  • It is important to recognize the role of large-scale infrastructure in diffusing the fruits of economic growth to the surrounding areas. So, spatial dimension of infrastructure investment affects balanced regional development. (Can Tho is a good example of creating a new growth center in the Mekong Delta--in addition to Hanoi and HCMC.) 
  • DFIDfs perception survey suggests: (i) a need for poverty-targeted programs in remote, mountainous areas, e.g., through spending public money in commune roads (as highly ranked by communities) where new economic opportunities are severely constrained and commune roads are the only mean of their connection to the outside world; and (ii) a possibility for broader options for financing commune roads in plain areas, e.g., by mobilizing resources of local government and communes, because these areas have greater potential for participating in growth.

Dr. Nguyen Quang Thai (Senior Economic Expert, MPI/ Adviser) CPRGS Inter-Ministerial Working Group (See attachment 6 for handouts, Word 107KB)

  • Usefulness of cost-benefit analysis in Vietnam. 
  • The gMaster Planh has a very important role in considering how to link: (i) large-scale and small-infrastructures; and (ii) urban and rural areas. 
  • Need to examine diverse financial sources for investment (including public-private partnership). 
  • Participatory process involving various sectors is important to ensure the sustainability of investment (e.g., O&M).

Mr. Hisaaki Mitsui (IDCJ)

  • Replicability of Vietnamfs experience: To what extent is the Vietnamese experience relevant to other countries? What are the lessons for the poorer and land-locked countries?

Other Comments and Questions

  • Vietnamfs case is an example to show the role of large-scale infrastructure in a particular stage of development. Its replicability depends on country-specific factors, e.g., natural resource endowment, development needs and strategy.
  • Although a BOT option was examined at the appraisal of the My Thuan bridge, F/S concluded its feasibility low because of lack of regulatory framework. This suggests a need for public administration reform. 
  • From a viewpoint of poverty reduction, how to balance investment in large-, medium-, and small-scale infrastructure remains a difficult question (e.g., investment in growth engine areas vs. more difficult areas). 
  • State budget should be directed to the poorer areas. At the same time, it should be also recognized that poverty continues to prevail despite substantial investment in rural infrastructure and that Program 135 has a difficulty in O&M. There is a need for proper budget allocation for investment and maintenance.

 < Presentation on the Draft Chapter of CPRGS >

Professor Nguyen Quang Thai (Adviser, CPRGS Inter-Ministerial Working Group)

  • Explanation of main points of the draft, new chapter of CPRGS. 
  • Specific issues to be considered for large-scale infrastructure investment. 
    • Greater priority should be placed on how to link large-, medium-, and small-scale infrastructure. This implies a need to connect remote areas with power grids (now that the government has developed national grids) and trunk roads with feeder roads, etc. 
    • Importance of gMaster Planh so that infrastructure investment can link growth and poverty reduction. 
    • Importance of policies for ensuring equity. 
    • Need to mobilize resources from various sources, including the people, public and private sectors. 
    • Importance of decentralization. 
    • Issues of state monopoly. 
  • The new chapter can be closely linked to the other chapters.

Dr. Cao Viet Sinh (MPI) 

  • The new chapter should be shortened and provide a policy framework for investment in large-scale infrastructure. It is not necessary to refer to specific projects, because the policy framework should serve as a guide for sector policy and project selection. 
  • It should also address opportunities and risks associated with large-scale infrastructure development.

< Comments and Questions >

Mr. Hiroshi Suzuki (Chief Representative, JBIC)

  • General comments: Welcome the governmentfs initiative of CPRGS expansion. By including a chapter of large-scale infrastructure, CPRGS will become more comprehensive. 
    • Co-existence of growth and poverty reduction. 
    • Renewed attention to the role of infrastructure (among donors). Vietnam is a frontrunner of such discussions (e.g., commencement of a JBIC-WB-ADB joint study on the role of infrastructure in East Asia). 
    • Specific comments: The new chapter should have more focus on large-s scale infrastructure, incorporating the following elements. 
    • Specific features of large-scale infrastructure, by describing various linkages to growth and poverty reduction. 
    • Agree with Dr. Sinh that the new chapter should not refer to specific projects. Rather, it should provide future orientation for the elaboration of sector priority, project selection criteria, and the proper sequencing of investment. 
    • It is important to align large-scale infrastructure development to long-term visions with consistency, paying attention to coherence with other policies, budget, and investment planning etc. In particular, there is a need to consider its budgetary implications for the efficient use of ODA finance. 
    • Importance of measures to ensure the effectiveness of infrastructure investment, e.g., by connecting budges for investment and maintenance, strengthening project management throughout the project cycle, promoting local participation, and utilizing feedback from the lessons learned. 
    • Need to refine targets. Reference should be made not only to quantitative, but also qualitative (e.g., electricity pricing) and monitoring indicators. 
    • Due attention should be paid to the negative aspects, such as resettlement issue. 
  • It is also suggested that duplication with other chapters be avoided (particularly, sections related to rural roads, water, and education).

Mr. Alessandro Pio (ADB) "Comments for Draft Chapter on Large-Scale Infrastructure (See attachment 8 for written comments, See attachment 9 for handouts, Word 25KB)

  • Firm link between growth and poverty reduction, both direct and indirect channels. 
  • CPRGS should address policy issues, and stay away from specific projects. 
  • Five missing ingredients in the draft chapter: 
    • Link between infrastructure investment and services. It is important to pay attention not only to physical aspects, but also service and management aspects (i.e., pricing, competition, accessibility by the poor). 
    • Need to identify project selection criteria, in order to prioritize infrastructure investment. Preliminary ideas could include: (i) economic criteria (e.g., rate of return to investment, O&M costs, cost reduction potential) and (ii) social and poverty criteria (e.g., direct impact on poverty reduction, likely distributional impact, network/linkage effects, social and environmental impact). 
    • Financing options and modalities, e.g., government, ODA, domestic private sector, foreign private sector. 
    • Macroeconomic and fiscal implications for large-scale infrastructure investment. 
    • Process of project selection, e.g., the formulation of Master Plan. 
  • Provocative (?) suggestion for integrating the elements of the new chapter into the existing chapter (instead of drafting a separate chapter for large-scale infrastructure).

Dr. Pham Lan Huong (CIEM)

  • Need to include criteria for prioritization (e.g., sector-specific, region, project selection). 
  • Need to analyze sources of financing and budgetary implications.

< Closing Remarks and Wrap-up >

Mr. Martin Rama (WB) (See attachment 10 for written comments)

  • Importance of gMaster Planh to ensure the consistency of investment (both sectoral and regional). 
  • Importance of funding aspects, particularly the mobilization of various financial sources based on public-private partnership (including the state budget, credit, bond issuing). 
  • Need to strengthen mechanisms for prioritization and project appraisal to ensure balanced growth and poverty reduction. 
  • Importance of implementation, including decentralization of project management. 
  • Need to pay attention to environmental and resettlement issues. 
  • Need to pay attention to operation and maintenance. 
  • Importance of infrastructure services. 
  • Need to establish information database for projects, which should also serve for monitoring and evaluation.

Mr. Mitsuru Kitano (Embassy of Japan) 

  • Significant achievements at the workshop, particularly from the following three perspectives: 
  • Understanding of linkages among large-scale infrastructure, growth and poverty reduction. In this regard, it is important to avoid dichotomy between growth and poverty. 
  • Rich discussions on various dimensions of infrastructure development, including: 
    • Measures to make large-scale infrastructure more effective, such as complementary policies and concurrent interventions. 
    • Measures to mitigate possible negative impacts of infrastructure development. 
    • Importance of a proper mechanism for resource allocation, especially addressing project appraisal, dual budget, recurrent and capital spending. These issues should be incorporated into the process of project selection and appraisal. 
  • Importance of the government-donor partnership in drafting a new chapter, and specific suggestions for further improvement of the 1st draft. 
    • Need to strengthen a theoretical framework, such as linkages and channels. 
    • Need to include policy issues. 
    • Need to pay attention to inter-relationship and harmony between the new chapter and the existing other chapters (or the new chapter to be integrated into the existing ones?).

Dr. Cao Viet Sinh (MPI)

  • Appreciation to the collaboration by partners. The workshop has confirmed wide consensus on direct and indirect channels of poverty-reducing impacts of large-scale infrastructure. It also reminds both positive and negative aspects of infrastructure development, and the need to identify appropriate mitigation measures. 
  • Large-scale infrastructure should be viewed from a broader perspective, which requires thinking of proper location, size, comprehensive and balanced approach. Therefore, the new proposed chapter should incorporate the following issues: 
    • Importance of formulating Master Plan. 
    • Consideration to the country-specific context of Vietnam, i.e., development needs of a low-income country under transition to the market-oriented economy. 
    • Need to consider opportunity costs, including the impact on regional economy and the assessment of socio-economic and environmental aspects. 
    • Need to establish project selection criteria, based on economic efficiency, social and poverty reduction impact. This also includes the importance of participatory approach. 
    • Proper attention to budgets for operation and maintenance (particularly, roads). 
    • Need to consider various financial sources, including the participation from enterprises and communities. 
    • Importance of better monitoring systems. 
  • Further comments on the draft would be appreciated.


[Agenda] [Summary in Japanese]