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Urban Development StrategyMeeting the challenges of rapid urbanizationand the transition to a market oriented economy
Alan Coulthart, Nguyen Quang and Henry Sharpe
As Vietnam becomes richer it faces challenges in adapting its infrastructurepolicies and institutions. While the old challenges of providing basicservices to all remain, new challenges are emerging, such as accessing newsources of finance, refining planning processes, preparing for rapidurbanization, improving the efficiency of infrastructure service providers,developing stronger institutions to encourage private finance ofinfrastructure or direct private provision of infrastructure, and developingmore targeted approaches to poverty alleviation.
This report on Urban Development Strategy - Meeting the Challenges ofRapid Urbanization and the Transition to a Market Oriented Economy is oneof six volumes dealing with Vietnam's Infrastructure Challenge. Other volumesdeal with Infrastructure Cross Sectoral Issues, Water and Sanitation,Transport, Telecommunications, and Electricity.
The work for these reports was carried out between 2004 and 2006 byWorld Bank staff and consultants. The reports have been revised to takeaccount of comments made by the Government in workshops during May 15-17, 2006. The comments of numerous colleagues from the World Bank, theUnited Kingdom's Department for International Development Bank, theAsian Development Bank, and the Japan Bank for International Cooperationare gratefully acknowledged.
Vietnam’s infrastructure challenge
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v
Chapter I: Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Political Context of Urbanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2GDP Growth and Economic Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Classification of Cities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Urban Population Growth and Migration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Comprative Urbanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Incidence of Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Chapter II: Guiding Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Urban Policy Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Decentralisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Chapter III: Infrastructure Access, Needs, and Goals . . . . . . . . . . . . .15General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Water Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16Drainage, Wastewater Collection and Wastewater Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Solid Waste Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Urban Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Estimated Future Financing Requirements for Urban Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Urban Water Supply, Wastewater Collection & Treatment, and Drainage . . . . . . . . . . . . . . . . . . . . . . .23Urban Transport: Estimated Future Financing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24Housing for Low-Income Residents: Estimated Future Financing Requirements . . . . . . . . . . . . . . . . .24
Chapter IV: Urban Planning and Urban Management . . . . . . . . . . . .27Overview of the Vietnamese Planning System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Socio-economic Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28Spatial Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30Sector Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32The Challenge of Peri-Urban Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Contents
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Land Law 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34Construction Law (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Urban Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Infrastructure Development and Investment Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Chapter V: Municipal Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39Strategic Change in the Infrastructure Financing Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39Financing Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40Requirements for Success in Diversifying Municipal Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Chapter VI: Recommendations for Improving Urban Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
Guiding Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49Needs, Access and Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50Urban Management and Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52Municipal Finance - Resources and Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
Chapter VII: Annexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55ANNEX 1A: City Classification and Decentralized Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56ANNEX 1B: Current City Classification (2006) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58ANNEX 2: Official MOC Urban Population Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59ANNEX 3: Central Governmental Responsibilities for Urban Issues . . . . . . . . . . . . . . . . . . . . . . . . . . .60
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hapter I of this report presents anassessment of the current status of urbandevelopment in Vietnam. The main
policies impacting urban areas are reviewed inChapter II. Chapter III covers the extent towhich urban residents have access to basicinfrastructure services and provides an estimateof what it will cost to provide full coverage by2010 and 2020 for all current and futureresidents. The challenges of urban planning andmanagement are described in Chapter IV andChapter V identifies the various sources offinance that cities can mobilize for theinfrastructure investments identified in ChapterIII. Finally Chapter VI makes recommendationson how the various challenges identified in thepreceding chapters can be addressed. Thereport is summarized below.
Background
Two major transitions are taking place inVietnam's economy - one is the movement froma rural to an urban base and the other theevolution from central planning to a marketoriented economy. Vietnam's future economicgrowth will depend on its ability to developcompetitive, market driven industrial andservice sectors. These are primarily urban-basedactivities. Already Vietnam's cities and townsaccount for about 70% of total economic output.Most FDI is directed toward cities. Economicopportunities in urban areas are propelling rapidgrowth in the urban population with significant
rural to urban migration. Urbanisation is in turnfueling further economic growth.
Vietnam is still relatively un-urbanised byAsian standards. In 2001, the urban populationwas only 25%, compared to 37% in China and42% in Indonesia. In 2003 the urban population,including unregistered migrants who are notincluded in official census data, was around 23million. Annual growth projections vary butGovernment accepts that the urbanisation ratewill be high. Around one million people per yearare being added, which would lead to a doublingof the urban population by 2020.
The percentage of people in poverty is lower inurban areas in Vietnam than in rural areas.However, the poverty density is greater in urbanareas i.e. there are more poor per square kilometer.This applies equally to the rapidly urbanizingareas in the hinterlands of the large cities and theintensively cultivated Red River and Mekongdeltas. The economies of scale and agglomerationthat underpin the existence and growth of citiesmean that poor people can be raised out of povertymore cost effectively in urban areas than in ruralareas. The extent to which urban areas are going tobe home to an increasing percentage of thepopulation of Vietnam calls for more investmentin their infrastructure.
Guiding Policies
Over the past decade, the central governmenthas introduced many reforms that have affectedurban development. Government's broad urban
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Urban Development in VietnamAn Assessment and Recommendations for
Improvement
Executive Summary
C
policy is set down in the Orientation Master Planfor Urban Development to 2020, which wasadopted in 1998. Unfortunately it falls short inproviding meaningful strategies to achieveefficient urban development, or for urbanmanagement. Its principal policy initiativeexplicitly addresses urbanisation throughdemographics by designating a hierarchy ofurban settlements. It envisages managinggrowth in the largest cities by developingsatellite cities and managing rural migration bypromoting economic development in secondarycities. Three major economic growth trianglesare identified: the Red River Delta bounded byHanoi, Hai Phong and Ha Long in the North; theMekong Delta anchored by Ho Chi Minh City inthe South; and a Central triangle based on DaNang. Numerous provincial export processingzones/industrial estates are seen as key driversof economic growth. The strategies describedare dominated by outmoded top-down centralplanning targets dependent on state-runconstruction, specific land use controls throughallocation of land, and centrally planned uses.This urban orientation sets out objectives butgives no concrete steps of how they will befinanced. With the many changes that haveoccurred since 1998, it has become outdated andGovernment is in the process of revising it.
Additional orientations were issued for theWater Supply, Sewerage and Drainage and SolidWaste Management sub-sectors in the late 1990s.These too are in the process of being updated. Adraft decree on "Clean Water Production, Supplyand Consumption" was finalized early in 2006and is expected to be approved by mid-year.Preparation has started on a similar decree forsewerage and drainage.
On a broader level, central government'spolicy of increasing decentralization to the threelower levels of government - the provinces,districts and communes, or wards in urban areas- is having a profound effect on urbandevelopment. Vietnam is divided into 64
provinces, ranging in population fromapproximately 6 million to 0.3 million. Includedin these 64 are the five largest cities which haveprovincial status: Hanoi, Ho Chi Minh City, HaiPhong, Danang and Can Tho. The provinces aresubdivided into 643 districts, which, in turn, aresubdivided into 10,602 communes/wards.Smaller cities and towns have "district" status.
A cornerstone of the decentralisation programwas approval of the 1996 State Budget Law, whichwas further amended in 2002. The result has beena substantial and growing level of fiscaldecentralization, with the share of localgovernments in total expenditures increasingfrom 26 percent in 1992 to 48 percent in 2002. TheBudget Law distinguishes three types of revenue:taxes assigned 100 percent at the central level;taxes assigned 100 percent at the provincial level;and shared taxes. The revenue sharing rate isdetermined by a formula, based on estimates ofthe gap between expenditure needs and revenuecapacity. In Vietnam, all tax collections arecentralized. The General Taxation Departmentcollects all domestic taxes and the CustomsDepartment collects all import taxes. Only minorfees and charges are collected by financialagencies and service providers, mainly at theprovincial level. Tax administrators report to bothlevels of government. In terms of State Budgetrevenues (central and provincial governmentscombined), the provincial governments' share isestimated to have grown to 30% in 2004 from afairly steady 25%for the 1997-2002 period. Onelimitation of current revenue assignments is thelack of any material revenue autonomy by localgovernments. Like many other countries Vietnamsuffers from fiscal imbalances. These areaddressed through equalization, or balancingtransfers, which are unconditional grants,determined using a formula. This remains fixed innominal terms for periods of three-to-five years.The formula is based on the difference betweenestimated expenditure needs and revenuecapacity, or potential.
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Significant reforms were also introducedthrough three new laws in 2004: the Land Law,the Construction Law, and the Law on People'sCommittees and People's Councils. Keyfeatures of the new Land Law include: formalrecognition of real estate markets (Governmenthas previously attempted to control the supplyand cost of land); devolution of responsibility tolocal governments for land administration andregistry and promulgation of local single pointsof contact for land registration; the adoption ofland values that are close to market valuesinstead of being set administratively bygovernment - this allows fairer compensationfor land that is compulsorily acquired; and somelimited public participation in planning,including public notification of approved plans.
The most important changes introduced bythe new Construction Law (2004) areincorporated within the new Decrees onPlanning and on Construction InvestmentProject Management, both of which wereenacted in early 2005. The main new features ofthe Planning Decree are: decentralization of theresponsibility for preparing spatial plans formost cities and provinces to Peoples Committees(however, they are still subject to approval bycentral government); review of plans by electedPeoples Councils; the addition of regionalplanning requirements; coverage of theredevelopment of existing urban areas (insteadof just new construction); and the introductionof public consultation (though the extent is stillrather limited) in the planning process. Whilstthe new Planning Decree introduces severalworthwhile improvements, and the spatialplanning process remains largely top-down. TheConstruction Law and Investment ProjectManagement Decree cover technical standards,project management, and procurement. Theceilings for infrastructure projects that can beapproved at the local level have been increasedand the Investment Decree requires moredetailed preparation of proposals infrastructure
projects at the feasibility stage. Unfortunatelythe opportunity was not taken to streamline themultiple and often redundant reviews that causesignificant delays in the approval of mostinfrastructure projects.
The Law on People's Councils and People'sCommittees outlines the functions,responsibilities and authority of these organs forall three local government levels. The Law wasrevised in 2004 to strengthen the supervisionpowers of People's Councils and to increase theauthority and more precisely define thefunctions and responsibilities of People'sCommittees.
The changes described above are verypositive, but much more needs to be done,particularly in terms of giving localgovernments more power to raise revenues, tocontrol spatial planning, and to approveprojects. The main challenges are in building thenecessary capacities in local governments and inchanging the attitude of local governmentofficials from their current largely passive role,to a more proactive one.
Infrastructure Needs Access, andFinancing Requirements
While looking to the future, Vietnam faces amajor challenge in dealing with a past legacy ofurban neglect. The poor are particularlydisadvantaged. Access to basic services needs tobe extended to all urban residents.● Statistics vary on water supply coverage,
but a benchmarking survey carried out in2002 of all of Vietnam's Water SupplyCompanies revealed that only 50% of urbanresidents had access to piped water thatmeets national standards. Coverage ratesvary from an average 67% in the larger citiesto only 11% in small towns.
● None of Vietnam's cities or towns treatswastewater, though this is a statedGovernment priority. In 2005 plants were
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under construction in Danang, Halong, HoChi Minh City (Binh Chanh), Hanoi (WestLake), Da Lat, Hue, and Buon Ma Thuot andproject preparation was under way inseveral other cities including Can Tho, SocTrang and Bac Ninh. Serious environmentaldegradation and health concerns are causedby water pollution from untreated humanwaste and unregulated discharge ofindustrial wastewater.
● Solid waste collection is generally fairly wellmanaged in Vietnam. However, safedisposal is becoming a major issue in thelargest cities. Government has classifiedfifty urban dump sites as environmentalhazards.
● Vietnam has reportedly the highest percapita motorbike ownership in the world.Rapid motorization with resultantcongestion is choking city streets andincreasing air pollution. Public transport isunderdeveloped in the largest cities andneeds to be given higher priority. Roadsafety also needs to be given increasedpriority to deal with the very high trafficaccident rates (Vietnam has on of the highestrates in the world).
● Vietnam has largely emerged from its legacyof dilapidated state housing from the centralplanning era. Many housing units were soldto tenants. Prior to the new Land Law of2004, around eighty percent of housing wasowner constructed. Most was built on aninformal basis outside planning andbuilding regulations and without adequatesupporting infrastructure. Housing iscramped with 30% of the population havingless than 3m2 per capita. Around 25% ofhousing is classified by Government as sub-standard, or temporary. The Land Law of2004 coupled with Vietnam's rapideconomic growth has provided incentivesfor property developers, the majority of
which are still state owned, to build planneddevelopments. However, makingaffordable housing available for low incomepeople, including students and thoserequiring resettlement arising fromdevelopment projects, remains a majorchallenge for Government.
● In 2004, the in-situ incremental improvementof existing slums (urban upgrading) wasrecognized by Government as anappropriate policy for improving low-income areas. The World Bank supportedUrban Upgrading Project is funding suchimprovements in Can Tho, Haiphong, HoChi Minh City and Nam Dinh andpreparation of a National Urban UpgradingProgram to scale this up, was started in 2005.
Government has set some very ambitious(and sometimes inconsistent) targets in variouspolicy documents such as the ComprehensivePoverty Reduction and Growth Stratetgy, theVietnam Development Goals, and the various"Orientation Master Plans" for urbandevelopment; water supply; drainage andwastewater; and solid waste management.None of the documents attempts to cost, orprioritise, the objectives. Estimates (see ChapterIII) of the financing needs to meet the urbaninfrastructure coverage targets set byGovernment for 2010 suggest that around $26billion would have to be mobilized. This wouldrequire an annual rate of investment severalorders of magnitude higher than that achievedin the late 1990s. Such levels are clearly beyondwhat can be financed from the State budget.Other sources of finance that can be mobilizedare described below and in Chapter V.
Urban Planning and Management
The responsibilities for urban planning inVietnam are much more fragmented than inwestern countries. The fragmentation occurs
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between ministries and also between thedifferent levels of government. Three types ofplans, each the responsibility of differentministries, are prepared for cities and provinces:socio-economic development, for which theMinistry of Planning and Investment isresponsible; spatial (also called construction ormaster plans) for which the Ministry ofConstruction is responsible; and sectordevelopment, for which respective line ministriesare responsible. The intended sequence ofplanning with spatial plans following socio-economic plans and sector plans does notalways occur.
Most plans are prepared by a few centralGovernment planning institutes. They tend topromulgate official political ideals andGovernment mandated production targets,rather than responding to measured demandand market signals. There is very limited publicparticipation, or even consultation, in theprocess.
Most entities with planning responsibilityhave a dual reporting relationship, a verticalrelationship to the central ministry and ahorizontal relationship to the appropriatePeoples Committee, the executive level of cityand provincial governments. Government andthe Party also have parallel policy guidance andreporting requirements. Most importantplanning decisions are taken at the centralgovernment level, but without effective cross-sector coordination. It is a very top downprocess. The widely dispersed responsibilitieswithout clear procedures and decision makingauthority to bring the various different viewstogether to form a broad consensus makeseffective urban planning, as understood inwestern countries, a challenge in Vietnam.
Spatial planning in Vietnam was designedfor the era when all construction was carriedout by the state. Spatial plans are prepared infour levels of detail: orientation plans (nationalpolicy), regional plans (introduced in 2005),
master plans (province or city), and detailed areaplans (ward, industrial zone, or project). Mostare prescriptive for specified land uses inspecific locations, rather than permissive as inWestern land use planning. It is master plansthat have the greatest impact on urbandevelopment. It is widely acknowledged thatthe current master plans prepared for Vietnam'scities are not effective. There is a largedisconnect between the beautifully draftedidealized plans that hang in the offices ofPeoples Committees and the reality of urbandevelopment on the ground. They tend to berepresentations of what the planning expertsand city administrators would like their city tobecome if there were unlimited resources.Unfortunately that is never the case. To becomemore effective, firstly, spatial plans need to bebetter coordinated with socio-economic plansand sector plans; secondly they should be morestrategic and less prescriptive; thirdly allstakeholders, including residents and privateinvestors, should be allowed to participate intheir preparation; and fourthly they need to bebased on levels of resources that are likely to beavailable for the time period they cover.
The master plans are unfortunately drivenby rigid technical standards, which result inunrealistic and unaffordable "ideals" thatcannot be implemented and are consequentlylargely ignored. It would be better to replacethese with performance standards e.g. roadwidths should relate to estimated trafficprojections rather than pre-defined dimensionsfor a particular classification of city. Theperformance standards can be increased step-by-step over time in line with economic growth.Current master plans lack the phasing and theincremental development mechanismsnecessary to translate them to the reality of amarket economy where development is likely tooccur on a more piecemeal and unpredictablebasis governed by the availability of land andcapital to the developer.
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Detailed area plans predetermine thespecific uses of urban space and include thequality, quantity and position of eachdevelopment type and building footprint.Unfortunately they are often prepared beforethe necessary funding for their implementationhas been secured. As a result development iseither constrained, or proceeds in a manner thatis inconsistent with the approved plans. Manyof the residential areas in Vietnam's cities havedeveloped on an ad-hoc basis as tightly packedwarrens of narrow, twisting lanes, withoutproperly functioning drainage or seweragesystems, or open spaces for recreation.Installing properly designed infrastructure afterunplanned development has taken place issignificantly more expensive, because of landacquisition and resettlement costs and thedifficulties of working in confined space, thanwould have been the case if it had been built atan earlier stage.
Local governments need to be given moreauthority to adjust spatial plans quickly to meetchanging needs. In most industrializedcountries, central Governments delegateconsiderable responsibility for spatial planningto local Governments. The central Governmenttypically retains control over planning relatedto defense and national security; nationaltransport links; and national parks. LocalGovernments prepare and implementconsistent land use plans (equivalent to detailedarea plans in Vietnam) and ensure adequateinfrastructure provision. The land use plansspecify permissible uses and standardsestablish the impacts those uses are allowed tohave (e.g., traffic impact, surface water runoff,height, health standards, etc.). Generally, localplans do not have to be approved by higherlevels of government. Individual projects aresubject to rigorous permitting and inspection.The legal system is used to ensure that localplans meet the guidelines, standards andpolicies of higher levels of government i.e. if
someone feels a plan doesn't meet theseguidelines they can challenge it in court.
Development in the peri-urban fringes oflarge cities and in the highly populated ruralareas of the Red River and Mekong deltaswhere population densities in towns andvillages are approaching those of cities, presentsspecial challenges. Over 100 km2 of rural landis reportedly being urbanized every year.Informal urbanisation takes place in an ad hoc,unregulated manner, where local authorities arenot well prepared, or inclined, to manage theurban expansion. Rapid, unplanned growth isin many instances leading to seriousenvironmental degradation. Fortunately therehave in the past five years been some goodexamples of well planned peri-urban areas,such as the Tu Lien and Ciputra developmentsin Hanoi and Phu My Hung, in Ho Chi MinhCity. These examples need to be replicated inall new development areas.
As already noted above several policyreforms relating to spatial planning wereintroduced in 2004 under the Construction Law,its related Planning Decree and the Land Law.Under the Land Law, all land continues to beowned by the State, but land regulation andmanagement have become more marketoriented. The streamlined land registrationprocedures introduced will facilitate thesequencing of land allocation, which did notnecessarily follow the development proposed inspatial plans, the provision of infrastructure,and the timing of the financial allocations forstate sector activity. The move towards pricingland based on market values, should reducespeculative development that was notsynchronized with infrastructure provision. Theprevious price distortion promoted corruptionand also created significant delays toinvestment projects arising from protractednegotiations of compensation for landacquisition. The Planning Decree introducessome public consultation in planning but there
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are still no specific requirements or mechanismsto promote active public participation in theprocess.
The new requirement for regional planningis a useful step. It will promote more rationalutilization of scarce resources. One consequenceof the lack of regional planning has been theproliferation of industrial zones throughout thecountry, many of which are under-utilised. In2005 a start was made on preparing regionalplans from the greater metropolitan areas ofHanoi, Ho Chi Minh City and Danang. So farthis is being limited to spatial planning. It needsto be better integrated with socio-economic andsector planning. Also, the establishment of aneffective institutional framework to implementthe plans will be essential.
The weakness of urban management inVietnam will need to be overcome to enablemore effective planning to contribute to betterurban development. The best plans are uselessif they are not, or cannot be, followed. While theMinistry of Construction and its Departments ofConstruction at the city/provincial level arenominally responsible for urban management,many other ministries and their departmentshave overlapping responsibilities. In westerncountries at the city/province level the varioussector departments report to a mayor orgovernor, whose office is responsible forcoordinating the various inputs and takingdecisions. The previously referred to dualreporting requirements of sector departments incities and provinces means that PeoplesCommittees do not have sufficient power toefficiently fulfill this coordination andmanagement role. Thus, to promote moreeffective urban development, it will benecessary to delegate more authority to localgovernments for urban management, as well asurban planning, and to give PeoplesCommittees clearer responsibility for urbanmanagement. The first step must be to changespatial planning along the lines described
above. In parallel it will be essential tosignificantly strengthen the capacity of localgovernments to enable them to deal with theincreased responsibilities that will be delegatedto them. Improved governance arrangements,with appropriate checks and balances to makelocal government officials accountable for theirdecisions, will also have to be introduced. Animportant step will be to allow much greaterpublic participation.
Municipal Finance
As Vietnam prepares to meet the demand forincreased investment, it needs to reduce itsreliance on the state budget and to startpreparing for the transition away fromconcessional donor financing for urbaninfrastructure services. The necessary transitionstrategy must involve diversification of financingsources for infrastructure development, focusingon increasing the role of the private sector as asource of finance for infrastructure and as adeveloper of infrastructure. The strategy mustalso recognize the increasing role of localgovernments in promoting infrastructureinvestments in accordance with government'sdecentralization policy. The increasedparticipation of the private sector in financinginfrastructure in coordination with localgovernments will support decentralization andimprove the efficiency of infrastructureinvestments. However, the success of this newtrend rests very critically upon continuedimprovements in the corporate governanceenvironment at the local government level.Budget resources, which currently are for themost part passed on as grants, will have to beused more strategically in the future and usedonly for investments with a high social rate ofreturn for which full cost recovery is not feasiblee.g. wastewater treatment, or for social equity.Even in these cases budget resources should tothe extent possible be used to leverage othersources of finance.
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With the rising affluence of people in citiesthere is scope to significantly increase thefinance raised by local governments byincreasing user charges for infrastructureservices e.g. water supply, car parking etc. Thiswill open up the possibility for alternativefinancing sources that rely on future revenuestreams. Local taxes could also be introducedsuch as a single property tax to replace themany overlapping fees on different real estateassets and transactions and perhaps also a localincome tax that could be efficiently collectedtogether with national income tax. It is likelythat the revenues collected through the sale ofland use rights to property developers, the socalled "land for infrastructure" deals, could alsobe increased if more transparent andcompetitive procedures were adopted.
Further sources of finance are brieflydescribed below. All, perhaps with theexception of equitizing state-owned enterprises,will require local governments to demonstratethat they are credit worthy by making theirbudgets and accounts open to public scrutiny,including independent auditing. Localgovernments will also have to improve theirefficiency by adopting more transparentprocurement of public works and bydeveloping a track record for the timelyprocessing and implementation ofinfrastructure projects. A major step towardsachieving this would be for cities and provincesto obtain independent credit ratings.
Potential additional sources of financeinclude:● Government investment funds -
Development Bank and Local DevelopmentInfrastructure Funds
● Private investment● Bond Issues● Commercial Banks● Equitisation of State-Owned-Enterprises
The Development Bank (DB), formerly theDevelopment Assistance Fund, at the national
level and Local Development Infrastructure Funds(LDIFs) at the provincial level (thirteenprovinces have established LDIFs so far), canprovide loans for infrastructure investmentsthat generate sufficient revenues to repay theloans. This should include for example mostwater supply investments, strategic roads andbridges that can be tolled. The LDIFs offer thegreatest potential for local governments. In2004 the total operating capital of LDIFs wasapproximately $300 million and the top sevenfunds invested almost $100 million, whichrepresented an increase of 118% from 2002. Adistinctive feature of the LDIFs is that they candevelop joint ventures with private investorsand make equity contributions to projects.Some weaknesses in the governance andtransparency of LDIFs are being addressedunder a new decree being prepared by theMinistry of Finance.
There is great potential for increased privateinvestment in infrastructure. Private investment,including foreign private investment, offers avirtually limitless source of financing, andcould go far towards meeting the infrastructureinvestment agenda. So far however, privatesector investment in Vietnam's urbaninfrastructure has been weak. Investors need toearn a return on the capital investedcommensurate with the risks undertaken, butthis needs to be balanced with the protection ofconsumers from the market power of privatizedinfrastructure. This balancing act must beimplemented in transaction documents (legalcontracts, licenses, and laws established toinduce the initial investments) and in anappropriate regulatory environment. To get allof this right is a highly complex affair, requiringskilled economists, accountants, and lawyers, aswell as careful political guidance. The best wayof establishing these skills would be throughexperience, which suggests that Vietnamshould seek to establish pilot projects at thelocal government level with private sector
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participation in a range of urban infrastructuresectors. The Song Da Build Own Operate(BOO) Water Treatment Plant project in Hanoibeing promoted by Vinaconex, a SOE owned bythe Ministry of Construction, will provide someuseful lessons. However, projects involvingprivate companies, rather than SOEs andprivate sources of finance, rather than stateowned banks, would be even more useful interms of providing potential access to muchgreater sources of finance.
Government has been working to developthe government bond market, in part to directlyfinance investment, including infrastructure,and more broadly to serve as a benchmark forbroader capital market development. At theprovincial level, the first municipal bonds wereissued by Ho Chi Minh City in 2003, in the formof a general obligation bond, raising US$ 127million. In 2004, the Ho Chi Minh CityInfrastructure Fund (HIFU), which is whollyowned by HCMC Peoples Committee, managedthe issue of another US$ 127 million ofmunicipal bonds. Disclosure rules for the publicofferings either do not exist, or are very weak.Overall the market for bonds is poised forsignificant development but importantinstitutional reforms, addressing governanceand transparency in particular, are required topermit this potential to be realized. The stock oflocal government debt in Vietnam is notcurrently a threat to fiscal stability, but care willneed to be exercised through national oversightto ensure borrowing, with the contingentliability it imposes on the national government,is kept within prudent limits.
The mismatch between the long-termfinancing needs of infrastructure investmentand the short-term deposits held by state-ownedcommercial banks (SOCBs) means that banks arenot the ideal financing institutions forinfrastructure. Nevertheless, by pooling theircontributions in investment consortia the bankscould play an important role in infrastructure
financing if their financing was directedtowards projects with the highest returns.Vietnam's financial sector is currentlydominated by four major SOCBs, accounting forabout 80% of the capital, lending and assets ofthe banking system. Over the past decade theSOCBs have evolved from specialized policy-lending vehicles to more commercially orientedfinancial intermediaries. However, much moreneeds to be done to reform the banking sectorbefore it can be appropriately utilized to financeurban infrastructure development.
Internationally, many governments haveused the sale of shares of state-ownedenterprises as a means of raising substantialrevenue. To date, Vietnam's equitization of state-owned enterprises appears to have been directedat expected efficiency benefits, rather than as amajor revenue-raising device. But as Vietnamconfronts the financing challenges of its majorinvestment program, equitization couldprovide an additional source of finance. For theequitization program to raise significantrevenues improvements will need to be made:on the disclosure of information about theaccounting and business position of companies;to corporate governance, particularly theprotection of minority shareholder rights; andthe listing of companies shares on a stockexchange to facilitate trading.
In order to successfully diversify thesources of municipal finance, localgovernments will have to develop the technicalcapacity and the appropriate policy andoperational frameworks to work with theprivate sector via direct (public-private-partnerships, management contracts, etc.) andindirect (municipal bonds, revenue bonds,bank loans, etc.) financing structures. Thecentral government will also have to play anactive role in a) providing the appropriateincentives to the local governments and theprivate sector to focus on urban infrastructuredevelopment, and b) establishing clear and
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consistent regulatory frameworks for urbaninfrastructure finance involving direct andindirect private sector participation. Thesuccess of the emerging municipal financemodel will in particular depend upon thequality of the corporate governanceenvironment at the local government level.
Recommendations for ImprovingUrban Development
In terms of policy, the Orientation Master Plan forUrban Development to 2020 needs to be updatedbecause it has become out of date since it wasapproved in 1998. It should be revised to reflectthe country's move towards a market orientedeconomy and to recognize the changes thathave arisen from the increased decentralizationthat is taking place. The draft Urban WaterSupply Decree that is expected to be approved bymid 2006 sets a good example of a policydocument that provides a solid framework toguide sub-sector growth. Similar initiatives arerequired for wastewater and drainage, solid wastemanagement and urban transport. Particularissues that need to be addressed in these sub-sectors include guidance on carrying out theeconomic and financial appraisal of high costurban mass transit systems and mechanizedrecycling and composting processes for solidwaste; and transparent procedures to safeguardthe social and environmental interests of peopleaffected by the construction of new wastewatertreatment and solid waste disposal facilities.Other broader policy areas such asDecentralisation and Financial Sector Reform arehaving a profound impact on urbandevelopment. Decentralisation requires a hugecapacity building effort to strengthen themanagerial and technical skills of staff at thelocal government level. Furtherdecentralization of authority for revenuegeneration, urban planning and the review andapproval of projects would be beneficial. In
particular the often redundant multiple reviewscurrently required for investment projects needto be streamlined.
Given the enormous demand for basicinfrastructure and the limited financialresources available, it will be vitally importantto prioritise investments more effectivelythrough more systematic economic and socialcost benefit analysis. The design horizons andtechnical standards adopted for newinvestments should be changed. In most casesit would be best to adopt a more incrementalapproach with a relatively short initial designhorizon of 10 to 15 years. This reduces initialinvestment needs thereby enabling more peopleto benefit. Technical standards should beperformance based, as described above.Adopting demand driven approaches withbeneficiary participation throughout all stagesof the investment cycle would makeprioritization easier.
In terms of relative priority across sub-sectors, it is probably most important to ensurethat all urban residents have access to pipedwater that meets national standards.Fortunately cost recovery levels for watersupply are already fairly high and it should berelatively easy to mobilize finance from thecapital markets and the private sector. Thedemand for wastewater collection andtreatment, improved drainage and the safedisposal of solid waste is increasing as peoplebecome better-off and more informed about thehealth effects of environmental pollution. Withthis increased awareness people will be willingto pay higher charges for wastewater and solidwaste collection and disposal. Government'spolicy of prioritizing the largest cities willdeliver the highest level of cost/benefit. Forthese sub-sectors most of the funding, at least inthe next 5 to 10 years, will have to come fromthe State budget (including ODA). To enable asmany urban residents as possible to be covered,it will be necessary to progressively increase
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wastewater and solid waste charges, so thatthey can begin to contribute towardsinvestments costs. Also the current policy ofproviding full grant financing from the Statebudget should be changed. Wealthier citiesshould be required to mobilize part of thefunding on a matching basis. The need toaddress traffic congestion is becomingincreasingly important in the largest cities. Cityplanners will need to balance the need for moreroad and parking space against conflictingdemands to preserve the historic character andattractive human scale of Vietnam's cities.Introducing improved public transport systemsshould be given high priority to offset thedemand for more roads. This should focusinitially on the introduction of bus-basedsystems, which are much more cost-effectivethan rail systems. It is likely that pubic transportwill have to be subsidized, but this can be keptto a minimum by competitively contracting outthe right to operate routes. Taxes associatedwith car ownership and parking fees should beused to manage demand.
Making affordable housing available, giventhe very high cost of land in Vietnam's maincities, is a major challenge. The solution lies inproviding the necessary incentives to privatesector developers and to encourage landlords toinvest in rental property. In parallel it will beimportant to develop the housing financemarket as part of the broad financial sectorreform. ADB is providing support for this. Avery cost effective and socially benign way toimprove living conditions and housing for poorpeople is through the in-situ incrementalimprovement, or urban upgrading, of existinglow-income areas. Research from othercountries shows that residents will invest up to7 times in their houses what the city invests ininfrastructure.
Urban planning needs to be improved. Thereshould be much closer coordination amongstMinistries and local government departments
responsible for socio-economic plans, sectorplans, and spatial (master or construction)plans. All of the plans and spatial plans inparticular should be based on the level ofinvestment that is realistically likely to becomeavailable in the time period they cover. Spatialplans need to become more strategic and lessprescriptive. They also need to be able torespond much more rapidly to market signals.There should be much higher levels ofconsultation with all stakeholders. To achievethis, planning should be increasinglydecentralized. At the same time, localGovernments should be made moreaccountable. In particular there must be muchstricter enforcement of planning controls.Performance standards for infrastructuretailored to local situations should replaceprescribed national standards. Thedevelopment of peri-urban areas presentsspecial challenges. Ideally the infrastructureshould be constructed ahead of industrial,commercial and residential development. Theestablishment of effective institutionalarrangements by cities to manage thedevelopment of peri-urban areas will be of keyimportance.
In 2005 Government recognised theimportance of regional planning and a highlevel steering committee chaired by a DeputyPrime Minister was established to oversee thepreparation of plans for the greater Hanoi andgreater HCMC regions. So far this has focusedprimarily on spatial planning. It needs to bebroadened to ensure coordination socio-economic and sector planning. One of the mostimportant matters that will have to beaddressed is the establishment of an effectiveinstitutional framework to ensure that the planscan be implemented.
Mobilising additional sources of finance forurban development is the most pressingrequirement that Government should address.The financing needs of urban infrastructure are
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well in excess of State budget resources.Government should empower cities/provincesto mobilize more funds from sources such as:national development funds, or banks, such asthe Development Assistance Fund; LocalDevelopment Infrastructure Funds (LDIFs),such as HIFU; municipal bond issues; andcommercial banks. Cities should also beempowered to increase their self-generatedrevenues. Government should prioritise use ofthe limited State budget resources that areavailable for urban development: to leverageother sources of finance; for pilot investments todemonstrate new ideas and policies; to supportthe most disadvantaged urban areas; and toaddress problems that directly affect the healthof large numbers of people, such as high levelsof environmental pollution.
Cities/provinces should give priority todeveloping an appropriate enablingenvironment to attract investment ininfrastructure from the capital markets and theprivate sector. To do so cities will need to makethemselves more credit-worthy - ideally byobtaining a credit rating from an independentagency. City finances and also theirprocurement practices will need to becomemore transparent and subject to independentaudit in order for this to happen. Cities shouldincrease their self generated revenues by raisinguser charges for infrastructure services so thatthey eventually cover the cost of investment aswell as operation and maintenance. Surveys
indicate that people are generally willing to paymore than authorities have been prepared tocharge. Measures will however need to be takento protect the poor and disadvantaged. In thecase of wastewater charges, Decree 67 onEnvironmental Protection needs to be amendedto remove the limitation it places on wastewatertariffs not exceeding 10% of the water tariff, withhalf of the revenue raised being transferred toCentral Government. The very high value ofland and property in Vietnam's main cities is apotential source of additional revenue that isutilized in many other countries throughout theworld. Consideration should be given tointroducing taxes related to property values.
The rules for issuing municipal bonds needto be strengthened by developing disclosurerules and giving greater emphasis to repaymentplanning. LDIFs should focus on lending on fullcommercial terms, either entirely, or in parallelwith a grant provided from a separate fundingsource. In cases where parallel loans and grantsare adopted the eligibility criteria and processshould by fully transparent.
Vietnam has made great strides in urbandevelopment since the "doi moi" reforminitiatives were introduced in 1987. Howevermuch remains to be done to enable its cities andtowns, which are the nation's main engines ofgrowth, to compete more effectively in theglobal market place. Adoption of therecommendations outlined above would make asignificant contribution towards achieving this.
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IntroductionTwo major transitions are taking place inVietnam's economy - one is the movement froma rural to an urban base and the other fromcentral planning to a market oriented economy.Both trends are mutually reinforcing. Vietnam'sfuture economic growth will depend on itsability to develop competitive, market drivenindustrial and service sectors. These areprimarily urban-based activities. AlreadyVietnam's cities and towns account for about70% of total economic output. Most FDI isdirected toward cities. Economic opportunitiesin urban areas are propelling rapid growth inthe urban population with significant rural tourban migration. Urban growth is in turncreating economic growth prospects.
Vietnam is at a crucial point whereits continued development anddramatic progress on povertyalleviation is dependant on long termstable development. Adequateinfrastructure is essential to alleviatepoverty, improve the quality of life andexpedite sustainable economicdevelopment. Sound development isdependant on managing urbanizationeffectively, greater decentralization,and provision of the levels of access tobasic infrastructure necessary tosupport economic growth and improvethe quality of life of urban residents.
"Urbanisation has a well known positiveassociation with long-term economic growth.Nations with higher levels of urbanisationinvariably have higher levels of per capitaincome."1 Urban areas are the engines for GDPgrowth. In Vietnam they generateapproximately 70% of GDP. Urban areassupport an inherently more diverse economyincluding increased domestic consumption andare more resilient and resistant to externaldislocation as change or contraction ripplethrough the global economy. A sound andpragmatic urban policy is necessary to balancegrowth and its potential consequences. InVietnam's case, particular challenges arise froma legacy of urban neglect.
Vietnam's situation can be summarized asfollows:
Chapter I
Background
1. UNCHS Fukuoka (2001), The Urban Transition in Vietnam, Second Report, First Draft of Text, 15 October 2001,Fukuoka, Department of Urban and Regional Planning, University of Hawaii.
1
Rapid urbanisation of Ho Chi Minh City
● In 2005 about a quarter of the urbanpopulation lives in substandard housing;
● Basic infrastructure is deficient: accordingto benchmarking studies of all provincialwater companies carried out in 2004 onlyaround 61% of urban residents had access totreated piped water; no cities treatwastewater; few have safe solid wastedisposal facilities and transportationservices are limited;
● Serious environmental degradation andhealth problems are caused by untreatedhuman waste and unregulated discharge ofindustrial wastes;
● Growing motorization and the resultantcongestion is threatening urban transportand increasing air pollution;
● Planned and unplanned growth is rapidlyoccurring at the peri-urban fringes of cities,often without adequate infrastructure.Retro-fitting infrastructure into unplanneddevelopments is much more expensive thanconstructing it as an integral part of thedevelopments.Vietnam requires a more coherent and
integrated urban strategy to more effectivelypromote economic growth and povertyalleviation through better management of theurbanization process. The case for a strongurban strategy is particularly acute in Vietnambecause Government has established veryambitious urbanisation objectives, but has notyet developed a practical time-bound plan toachieve them.
Political Context of Urbanization
Government places strong emphasis on datacollection, quantification of production targets,and statistical comparisons. This tends toobscure more analytical views of reality andoften overshadows the need for more coherentstrategies and programs to achieve change.Data is often inaccurate, or manipulated in
various ways by for example frequentlychanging classifications and assumptions.Statistics and data need to be more objectivelyand candidly analyzed.
Some of the factors that complicate anobjective comparison of urban performanceinclude:● The primary urban policy document - the
Orientation Master Plan for UrbanDevelopment to the Year 2020 - prescribespopulation targets with a strong emphasison managed demographic distribution thatis already out of date.
● Targets for basic infrastructure coverage areunrealistic. The orientations for watersupply, drainage and wastewater as well asthe Comprehensive Poverty Reduction andGrowth Strategy (CPRGS) all set impossibletargets e.g. by 2010 all urban areas to have100% piped water, 100% of all wastewatertreated, 100% of all solid waste collected anddisposed of safely and all slums andtemporary houses eradicated.
● Official population data does not includeunregistered migrants, who account for atleast 15% of residents in the larger cities.
● The definition of "urban" is changedperiodically and geographical boundariesare frequently modified for administrativepurposes
● There are strong incentives for localgovernments to exaggerate or distortstatistical data to try and increase theirallocation of the state budget from centralgovernmentHistorical Legacy: Under the socialist
system adopted in the 1950s in northernVietnam, cities were seen as centers ofproduction and were planned and managed asproduction resources without regard forsecondary impacts. The urban developmentstrategy was essentially a list of public worksprojects approved by Government. Publicbenefit was measured in terms of production.
2
There was little evaluation of the cumulativeeffect of decisions and no strategic view for acity, or cities, in general. Cities in Vietnamhave entered the 21st century without theurban policy, management, governance, orinfrastructure to fulfill the role cities typicallyplay in a market economy.
Urban planning in the Democratic Republicof Vietnam (DRV) was intended to eliminate thecontradictions of capitalism through integrationof urban and rural areas and agricultural andindustrial sectors and to relocate up to one fifthof the population. In practice this meant that amixture of industrial facilities, housing blocksfor workers and other state employees, parksand recreational areas, long-establishedvillages, and rice fields and gardens wereretained within designated urban areas.Infrastructure improvements gave priority todefense, or the various forms of agricultural andindustrial production. Urban management andplanning were guided by a need to resolveimmediate problems regarding food andnational security.
Rural urbanisation was promoted byattempting to create 500 urban industrialcenters at the district level and by establishinga new rural town for every 5,000 people thatwere resettled. By 1984, 2.4 million people hadbeen resettled. Political hegemony also droveurbanisation. A boundary expansion of Hanoiin 1979 that added one million people to thecity's census was appears to have beenmotivated by the desire to bring Hanoi'sofficial population closer to that of Ho ChiMinh City.
"If the process of urbanisation in the northcould be characterized as deliberate planning,the south could be characterized by itsabsence"2. City authorities in the former
Republic of Vietnam were faced with the needto accommodate large numbers of refugeesfrom rural areas. Providing basic infrastructurein these circumstances was not given highpriority and cities such as Ho Chi Minh City arestill having to deal with the legacy of thisproblem. For example many of the city's canalsare still lined with ramshackle slums whichhave no basic services.
Doi Moi - The renovation process of Doi Moiadopted by Government in 1987 followed onthe heels of a decade of policy emphasis oncollective agriculture and integration of thesouth into the social, economic and politicalphilosophy of the country. Doi Moi effectivelyended a period of urban neglect. The policychanges that accompanied Doi Moi made citiesmore acceptable and attractive as centers offormal and informal economic activity andopportunity. Controls on official migrationcontinued but were less strictly enforced overtime. It became politically and sociallyacceptable to move to a town or city, althoughties to the place of origin remained strong. Theincome difference between urban and rural areaincreased, further stimulating migration andurbanization. Government policies continue totry to balance development and investmentbetween urban and rural provinces.
GDP Growth and Economic Change
Vietnam's progress in terms of economicgrowth and poverty alleviation has beendramatic. The average annual GDP growth rateover the decade from 1994 to 2003 was about7.4%. Vietnam has the eighth fastest growingeconomy in the world.3 About 70% of GDP isgenerated in urban areas. Due in large measureto the economic growth, Vietnam has managed
3
2. UNCHS Fukuoka, (2001), The Urban Transition in Vietnam, Second Report, First Draft of Text, 15 October 2001,Fukuoka, Department of Urban and Regional Planning, University of Hawaii.
3. Viet Nam News, April 17, 2004.
to lift 20 million people out of poverty since1993. The official percentage of urban poordeclined from 25% in 1993 to 3.6% in 2004.4However, if unregistered migrants had beenincluded, the percentage of urban poor in 2002would likely have been closer to 15%.5 Thehousing of about 25% of the urban populationin 2002 was classified by government as slumsor temporary housing.6
The economically dynamic cities of Ho ChiMinh City, Hanoi, Da Nang, Can Tho, HaiPhong, Ha Long, Vung Tau and Nha Trang haveseen the most dramatic urban populationgrowth. City economies are gradually shiftingfrom manufacturing toward services.7 Theincrease in the service sector has acceleratedsince 2000. National macroeconomic policy isjust beginning to consider service-based andknowledge-based sectors of the economy. Thesesectors are urban based. The shift has been
driven by a mix of non-state investment, foreigninvestment, state promotion of the service sector,and demand for services and consumer goodsthat have accompanied the rise in non-stateinvestment and personal disposable income.
Economic productivity of the major cities inVietnam exceeds their proportionate share of thepopulation. As the table below indicates it is in asimilar range to other major cities in thedeveloping countries of East Asia.
Classification of Cities
Urban areas in Vietnam are categorized inaccordance with two classification systems:urban hierarchies, and administrative level. Theurban classification of cities is a cornerstone ofurban policy and management in Vietnam.Urban places are officially designated andclassified by MOC. There are six classes ofurban center (see table below and Annexes 1Aand 1B). The classification is based on physicalcriteria, population, population density, leveland nature of economic activity, GDP, andinfrastructure provision. Class V marks thedemarcation between urban and rural. Class Vtowns are required to have a population ofmore than 4,000 with over 65% employed innon-agricultural sectors. Striving for higherclassification standards is a majorpreoccupation of local government authoritiesas the higher classifications receive a largershare of state resources. The classificationsystem provides incentives for cities to try tomove to a higher class. Cities often make
4
4. Vietnam: Growth and Reduction of Poverty - Annual Report of 2003-2004.5. The World Bank, Project Appraisal Document for the Urban Upgrading Project, 20 February 2004.6. The percentage of slum population targeted by the WB Urban Upgrading Project in Can Tho City is 16%. The
corresponding percentage in Hai Phong is 31%, and for Nam Dinh is 10%.7. The state-owned sector in Hanoi's economy declined from 72.9 percent of GDP in 1990 to 63.1 percent in 2000.
The foreign direct investment increased from zero in 1987 to 13.3 percent of the city's GDP in 2000. Between 1990 and1997, total investment in Hanoi was about US $4.76 billion with 14.6 percent from non-state sources and 56.3 percentfrom foreign sources. The state sources represented only 29.1 percent of the new investment. (HSO [1995 and 2001])
Comparison of City GDP in Asia
City City GDP as % of
National GDP
% of total pop
(2000)
Shanghai 11 1
Beijing 6 1
Guangzhou 4 1
Bangkok 40 12
Jakarta 7 5
NCR * (Philippines) 30.8 13
Ho Chi Minh City 19.3 6
Hanoi 8 3
investments in infrastructure to enable them tomeet the requirements of the next classificationlevel, rather than in direct response to theimmediate needs of the population. Forexample a city or town may invest in roadexpansion when there is only limited trafficdemand, instead of expanding piped watersupply, where clear need exists.
The role and responsibilities of localauthorities are designated by administrativelevel.8 The five Special and Class I cities haveprovincial status. Class II, III, and some ClassIV cities have the same status as districts andcome under the authority of provincialauthorities. The remainder of Class IV andClass V urban areas have commune status andalso come under the authority of provincialauthorities. The classifications are dynamic asGovernment adds provinces and reclassifiescities. For example Can Tho became a Class 2city in 2004. Chapter IV provides more detail.
Based on the Orientation Master Plan to2020, MOC expects the population anddistribution of cities by class to remain basically
unchanged. In fact, the projections made whenthe Plan was approved are already out of datebecause of continuing reclassifications,migration to larger urban areas, and under-counting of envelopment and increased densityof existing cities towns and villages.9 Theaverage population of each urban classificationis expected to triple over the 20 years coveredby the plan (see Annex 2).
Historically, Government has promotedurbanization of district towns and theurbanization of some rural areas as a means oftrying to reduce migration to the large cities.However future urbanization projections show adecreasing proportion of the urban population isexpected to live in district centers and townsdespite the fact that the number of centers andtowns is expected to increase by a factor of three.This is probably realistic as experience fromother developing countries indicates that it isvirtually impossible to control migration to largecities, which offer the best opportunities foremployment and at least perceivedimprovements in the quality of life. From the
5
8. According to the 1992 Constitution, there are four level of State Administration, namely, (i) CentralGovernment; (ii) Province (including cities under direct Central Government); (iii) District (including provincial citiesand towns); and (iv) Sub-district (urban wards, townlets and rural communes)
9. DiGregario and Vogler (2003), “The Invisible Urban Transition: Rural Urbanization in the Red River Delta, 7thInternational Congress of Asian Planning Schools Association, Hanoi, September 2003.
Number and Percentage Population of Cities 1998 to 2020 1998 2010 2020
Urban Class % Urban % Urban % Urban(as of January 2005) Cities Population Cities Population Cities Population
Hanoi & HCMC - Special Cities 2 37% 2 39% 2 40%National Cities - Class I 3 9% 3 10% 3 11%Regional Cities - Class II 12 15% 12 16% 12 17%Provincial Cities - Class III 16 7% 18 8% 20 9%District Towns - Class IV 58 14% 62 13% 66 12%Townlets - Class V 612 18% 1172 14% 1831 11%Total Urban Centres 703 1269 1934
perspective of the city authorities, migrantsshould be seen as a valuable resource to theireconomies, rather than a problem. It wouldseem advisable to place more focus on meetingthe basic infrastructure needs of poor residents,including migrants, in the large cities wherethere is likely to be high growth, than on districttowns where the rate of growth could well bemuch lower than expected. It is clearlyimportant that the patterns of urban growthshould be carefully monitored to ensureoptimal use of limited investment resources.Account also needs to be taken of urbanizationthat occurs through the densification andenvelopment of villages located within the zoneof influence of large cities and in regions withhigh average population densities such as theRed River and Mekong Deltas.10
Urban Population Growth andMigration
In 2003 it was estimated that the urbanpopulation, including an allowance forunregistered migrants, accounted for about 25percent of the total population of Vietnam.The percentage of urban residents is lowerthan most other countries in Southeast Asiadue to the legacy of the war, subsequentrelocation programs, and the limited economicgrowth between 1975 and the beginning ofDoi Moi in 1987.
Although there are different forecasts,Vietnam's urban population (official andunofficial) is set to increase rapidly over the next15 to 30 years - more than doubling by 2020.Most analysts agree that at least 1 million peoplewill be added annually to Vietnam's urban areas
to the year 202011 changing the urbanpopulation from 20 million in 2000 to at least 40million by 2020. The Ministry of Construction'sofficial population targets acknowledgedramatic growth in Ho Chi Minh City andHanoi even though the official policy initiativesof Government are directed toward controllinggrowth and preventing "mega cities". TheOrientation Master Plan for Urban Developmentto the year 2020, which was approved in 1998,lays out the geographic parameters for theHanoi and Ho Chi Minh City metropolitan areasas having a radius of 30 to 50 km.
The Ministry of Construction predicts theurban population will account for 45% of thetotal by 2020. The General Statistics Office hasprepared three different forecasts, with themedian set projected an urban population of 33%by 2020. The variation is largely explained by theinclusion or exclusion of unregistered migrants.Migration statistics in Vietnam are obscure, inpart because unregistered migrants are notcounted in the national census. The actualpopulation, including unregistered migrants, is10 - 15 percent higher than the official populationin the larger cities. A census carried out in 2004,which for the first time included unregisteredresidents, found that the population of Ho ChiMinh City was 6.2 million. This compares withthe General Statistical Office's estimate, based onthe 1990 census, of 5.8 million. Hanoi's officialpopulation was 2.84 million in 2001. Hanoi andHo Chi Minh City attracted 40% of inter-provincial migration during the period 1994-1999. Authorities in Ha Long, one of the fastestgrowing cities in the nation, estimate that 20-25%of the city's population are recent migrants, whoare not registered.
6
10. DiGregorio and Vogler (2003), “The Invisible Urban Transition: Rural Urbanization in the Red River Delta, 7thInternational Congress of Asian Planning Schools Association, Hanoi, September 2003
11. Cour, (2001) assuming a slightly “high side”, but quite plausible, future urbanization rate of 3.8% forecasts again in the urban population of 21.5 million over a 22 year period (1998-2020). See Cour, J., Migrations, Urbanisationand Changes in the Rural World of Vietnam, May 2001. (Report prepared for French Ministry of Foreign Affairs.)
There are different opinions about the impactthat migrants have on the economy of cities. Somesee them as a vital resource necessary to maintaina high rate of economic growth, while others seethem as problem. To quote Guest "Many of theproblems that planners believe migrants bring tothe city - increased poverty, participation inmarginal and/or illegal occupation, increases inthe stock of sub-standard housing, greater crime -could be reduced by removing institutionalconstraints against their full participation in thesocial and economic life of the cities."12 As a self-selected and highly motivated group, researchindicates that the probability of migrantsimproving their economic status is high. Only12% of recent migrants are reported as living inpoverty; a percentage comparable with theunderlying poverty rates. Again to quote Guest:"Migrants to Ho Chi Minh City and Hanoi havehigher labour force participation rates than non-migrants living in those cities, they are also muchbetter off than they were in rural areas. Migrantsuse family and social networks to obtainemployment and spend little time looking forwork. Because migration is selective of young
adults who are attempting to maximize saving,migrants consume relatively few urban resourcesand have high levels of savings."13
Comparative Urbanization
The table below illustrates that Vietnam is lessurbanised than most of its neighbours inSoutheast Asia
Incidence of Poverty
The percentage of people in poverty, using anyof the standard poverty classifications(international, national, or nutritional poverty), islower in urban areas in Vietnam than in ruraland remote districts. However, while thepercentage of population classified as poor inpredominantly rural provinces is higher, theabsolute number of poor is greater in cities andurbanized provinces, as illustrated in the povertydensity map below. The number of poor in citieswill increase, at least in the medium term, asmore of the rural poor migrate. The economies ofscale and agglomeration that underpin the
7
12 . Guest, Philip (1998) The Dynamics of Internal Migration in Vietnam, UNDP Discussion Paper, United NationsDevelopment Programme (Vietnam Office), Hanoi.
13. Guest, Philip (1998) The Dynamics of Internal Migration in Vietnam, UNDP Discussion Paper 1, UnitedNations Development Programme (Vietnam Office), Hanoi.
14. Webster, Douglas (2002), "Urban Dynamics and Public Policies in Developing East Asia: Implications forEASUR Programming", Asia Pacific Research Center, Stanford University.
Comparative Urbanisation14
Country Urban Population Urban Ratio Urban Pop. Urban Pop. Forecast Urban2001 2001 Growth Growth Ratio 2030
(in millions) (% of total pop.) 1995-00 (%) 2001-30 (% of total pop.)
Cambodia 2.4 17.5 6.4 3.5 36.1China 471.9 36.7 3.5 2.2 59.5Indonesia 90.4 42.1 4.2 2.4 63.7Mongolia 1.5 56.6 0.9 1.4 66.5Philippines 45.8 59.4 3.6 2.3 75.1Vietnam 19.4 24.5 3.1 3.0 41.3
8
existence and growth of cities meanthat poor people can be raised out ofpoverty more cost effectively inurban areas than in rural areas.Urban areas also offer greatereconomic growth potential to movefamilies out of poverty. The extent towhich urban areas are going to behome to an increasing percentage ofthe population of Vietnam calls for agreater focus on urban areas andmore investment in theirinfrastructure.
Slum areas near new high rise housing
9
Poverty Density15
15. Poverty and Inequality in Vietnam, The Inter-Ministerial Poverty Mapping Task Force.
Urban Policy Priorities
There are a wide range of laws, decrees andorientations with related guidance notes thatrelate to policy in urban areas. Those with thegreatest impact on the infrastructure aspects ofurban development include: the Budget Law(2002); the Law on People's Councils and People'sCommittees (2004), the Land Law (2004), and theConstruction Law (2004). The national Five YearSocio-Economic Development Plans (SEDP) andthe Comprehensive Poverty Reduction andGrowth Strategy (CPRGS) also influence urbanpolicy as do sector plans and/or orientations,such as the Orientation Master Plan for UrbanDevelopment to 2020 referred to above. Whilethese cover the whole country, cities andprovinces also develop specific sectoral masterplans e.g. for urban transport, drainage andsewerage etc, all of which have a policy element.
The official urban policy is the OrientationMaster Plan for Urban Development to 2020prepared by the Ministry of Construction. Themain elements of the Master Plan are:● Establish population targets for cities and
district towns in an urban growth hierarchy● Limit growth of Hanoi and Ho Chi Minh City
and reduce population densities in the centerof the primary cities
● Create satellite cities for Hanoi and Ho ChiMinh City
● Encourage growth at the urban fringe
● Promote the development of medium andsmall cities and district towns
● Create new urban areas in the more remoteprovinces and in proximity to major cities as ameans of controlling growth of the larger cities
● Preserve agricultural land and plan ruraldevelopmentIn addition, other broad Government policies,
priorities of other sector ministries, and the recordof Government investment contribute thefollowing to the urban agenda:● Achieve industrialization by 2020● Increase GDP ● Balance investment and development
between regions● Maintain social stability in the major cities● Develop three major growth triangles with
urban focal points - northern triangle based onthe Hanoi/Haiphong axis; central trianglebased around Danang; and the southerntriangle centred on greater HCMC
● Move "polluting" industries away fromexisting residential areas
● Encourage cities to become engines of growthby promoting financial self-sufficiency
● Utilise urban areas as sources of increasedstate revenues16
The Ministry of Construction is responsible forurban policy and development. Its principalpolicy initiative of record explicitly addressesurbanisation through demographics bydesignating the hierarchy of urban places
11
Chapter II
Guiding Policies
16. CPRGS states this is a purpose for vigorously pursuing land registration.
described in Chapter 1. However, it falls short inproviding meaningful strategies to achieve urbanobjectives, or for managing urban places. Thestrategies are dominated by outmoded top-downcentral planning targets dependent on state-runconstruction, specific land use controls throughallocation of land, and centrally planned uses.Very little guidance is given on how to achieve thetargets.
The urban hierarchy and plans are not welllinked to other urban activities in themacroeconomic strategy and are a remnant of anera with a more static economy and less mobility.There is no apparent linkage between theOrientation Master Plan and the financing neededto implement it.
Decentralization
Vietnam has four levels of government. Thecountry is divided into 64 provinces, ranging inpopulation between approximately 6 million and0.3 million. Included in these 64 are the five largestcities which are granted provincial status: Hanoi,Ho Chi Minh City, Hai Phong, Danang and CanTho. The provinces are subdivided into 643districts, which, in turn, are subdivided into10,602 communes. Class II, III and some Class IVcities/towns have "district" status.
At the central level, legislative power resideswith the National Assembly which, according toArticle 84 of the Constitution, approves the StateBudget (which comprises the central governmentbudget plus the consolidated provincial-district-commune budgets). On the executive side, thePrime Minister is the head of the government andhe and the rest of the government are appointedby the National Assembly. The Communist Partyoperates in parallel to the government structure atall levels of government. At each lower level ofgovernment there is an elected assembly, thePeople's Council, and an executive authority, thePeople's Committee, which is appointed by thePeople's Council.
The management of decentralization to localgovernment is a challenge in many countriesaround the world. Decentralization of fiscalauthority to local government presents somemajor opportunities: local management of thebudget can result in better mobilization andallocation of resources, and in the delivery ofservices which are more appropriate andresponsive to the needs and wishes of localpeople. Equally, there are significant threats: ofduplication, weakened coordination, and evengrowing inequity and the deterioration of servicedelivery in critical sectors.
Over the past decade, Vietnam has embarkedon an extensive decentralization program. Acornerstone of this program was the approval ofthe 1996 State Budget Law. In 2002 a new StateBudget Law consolidated the reforms and wentfurther by giving provincial governments muchgreater discretion over the budgets of districts andcommunes under their authority. This providesthe opportunity for more efficient and equitableresource mobilization and allocation. The resulthas been a substantial and growing level ofdecentralization, with the share of localgovernments in total expenditures increasingfrom 26 percent in 1992 to 48 percent in 2002. Thispositions Vietnam amongst some of the mosthighly decentralized countries.
The Budget Law distinguishes three types ofrevenue: taxes assigned 100 percent at thecentral level, taxes assigned 100 percent at theprovincial level, and shared taxes. The taxrevenues assigned 100 percent to the centralgovernment include export and import taxes,VAT and excises on imports; taxes and otherrevenues from the petroleum industry; andcorporate income tax on enterprises withuniform accounting. Those assigned 100 percentto the local level include land and housing taxes,natural resource taxes excluding those onpetroleum activities, license tax, tax on transfer ofland use rights, fees on land use, land rent,revenues from the leasing and sale of publicly
12
owned dwellings, and registration fees and otherfees and charges. Shared taxes include all VATreceipts with the exception of VAT on importedgoods; corporate income tax with the exception ofreceipts from enterprises under the whole-unitaccounting system; personal income tax; tax onprofits remitted abroad excluding tax on overseasremittances of the petroleum industry; excisetaxes on domestic goods and services; andgasoline and oil fees.
The State Budget Law does not specify thesharing rates between the center and theprovinces. They can differ by province and arecalculated as part of the budget process over"stability periods" of 3 to 5 years. The revenuesharing rate is determined by a formula, whichestimates the gap between expenditure needs(estimated on the basis of norms) and revenuecapacity (estimated on the basis of pastrevenues). In the stability period ending in 2003,the sharing rate for the 56 poorest provinces was100 percent. For the other 5 provinces, thesharing rate in 2004 ranged from 24 percent to 53percent.
In Vietnam, all tax collections are centralized.The General Taxation Department collects alldomestic taxes with offices that extend throughthe provinces and the districts, and the CustomsDepartment collects all taxes falling on imports.Only minor fees and charges are collected byfinancial agencies and service providers. This hasmany advantages: it simplifies cash management,facilitates coherent implementation of tax policythroughout the country and limits undesirablelocal interference. One problem with centralizedtax collections is the potential lack of incentivesthat central government bureaucrats may have tomobilize and collect local revenues. But inVietnam, there is de facto dual subordination of taxadministrators to the central administration andthe local authorities, meaning that provincial anddistrict officials can have a recognizable influenceon the decisions and activities of tax
administrators. The important role played bylocal incentives for tax collection is captured bythe practice of letting local authorities retain ashare of the collections above the targeted amountfor taxes. Currently, the retention rate is 100percent for Hanoi and HCM City and 30 percentfor all other provinces.
In terms of (consolidated) State Budgetrevenues (central and provincial governmentscombined), the provincial government's share forthe 1997-2002 period was a fairly steady 25%. Theexpectation is that provincial revenues will growfaster than central revenues and that by the end of2004, about 30 percent of state budget revenueswill be derived from provincial governments.
One limitation of current revenue assignmentsin Vietnam is the lack of any material revenueautonomy by local governments. The only form ofrevenue autonomy for district and communegovernments that currently exists is the ability tointroduce certain fees; for example, wastecollection fees. The full benefits of fiscaldecentralization in terms of greater expenditureefficiency are only likely to arise if localgovernments are able to become moreaccountable and responsive to the needs andpreferences of taxpayers by granting them a moremeaningful degree of tax autonomy.
Like many other countries Vietnam suffersfrom fiscal imbalances. Imbalances are generallyaddressed through a system of transfers. Vietnamhas a system of equalization transfers (the"balancing transfer"), which plays an importantrole in reducing otherwise significantly largerdisparities. Large disparities in public fundsarising from the assignments of shared taxes (adifference between maximum and minimum percapita revenue values of 47-fold) and from taxesassigned 100% to local governments (a differencebetween maximum and minimum per capitavalues of 20-fold) are significantly reduced aftertransfers. Total revenues per capita, which includerevenues from transfers, show a difference
13
between maximum and minimum per capitavalues of less than 5. Thus, significant equalizationtakes place.
The "balancing transfers" (equalizationtransfers) from the central government areunconditional grants, determined using aformula, and which remain fixed in nominalterms for "stability periods" of three-to-five years.The current system of equalization transfersrepresent a significant improvement over the "gapfilling" ad hoc negotiated transfers used prior tothe 1996 law. The formula uses the differencebetween estimated expenditure needs andrevenue capacity or potential. The minimumexpenditure needs of the provincial governmentsare derived on the basis of expenditure norms,and are intended to cover all current and capitalexpenditures.
There are also conditional transfers. These areprincipally transfers for the implementation of"National Target Programs," such as those forrural water supply and sanitation. These NationalTarget Programs are a key tool by which centralgovernment can ensure the delivery of keynational initiatives at the local level in a fiscallydecentralized system.
Vietnam does not have an explicit separatesystem of capital transfers. The bulk of the fundsthat can be used by local governments forinvestment in capital infrastructure is included inthe balancing, or equalization transfer, althoughsome of the conditional grant funds are also forinvestment in infrastructure. From 1997 to 2004,capital expenditures at the local level haverepresented between 75 percent and 100 percentof recurrent expenditures.
The new Land Law introduced in 2004 (seeChapter IV for more information), also delegatesincreased responsibilities to local governments.These additional responsibilities include: landallocation, titling, land administration, landregistry, and the creation of formal real estate
markets. The new Construction Law delegatesapproval of higher levels of capital investment tothe local governments. The promulgation ofstandards for construction and urban planningare retained at the central level, while approval ofplans and projects is being progressivelydecentralized to Peoples Committees.
The most significant changes introduced bythe new Construction Law (2004) are incorporatedwithin the new Decrees on Planning and onConstruction Investment Project Management,both of which were enacted in early 2005. Themain new features of the Planning Decree are:decentralization of the responsibility forpreparing spatial plans to Peoples Committees formost cities and provinces (except inter-provincialcities, high tech and special economic zones);decentralization of the approval of plans for ClassIII and IV cities to Provincial and District PeoplesCommittees; review of plans by elected PeoplesCouncils; addition of broader brush "OrientationPlans" covering 20 year periods for Special, Class Iand Class II cities; the addition of regionalplanning requirements; coverage of theredevelopment of existing urban areas (instead ofjust new construction); and the introduction ofgreater, though still rather limited, consultation inthe planning process. Generally the new PlanningDecree introduces some worthwhileimprovements. However, the process ofdeveloping spatial plans for cities and provincesremains largely top-down. The Construction Lawand Investment Project Management Decreecombine aspects of project management,procurement and technical standards. TheConstruction Law increases the ceiling that can beapproved at the local level for most infrastructureprojects to VND 400 million (around $25 million)and VND 600 billion (around $40 million) forhousing. The most significant change arising fromthe Decree relate to a requirement for moredetailed preparation of investment proposals.
14
General
While looking to the future, Vietnam still faces amajor challenge in dealing with the past legacy ofurban neglect. The poor are particularlydisadvantaged. Access to basic services needs tobe extended to all urban residents.● Only 61% of urban residents in 2004 had access
to treated piped water that meets nationalstandards17.
● None of Vietnam's cities or towns treatswastewater. Serious environmentaldegradation and health concerns are caused bywater pollution from untreated human wasteand unregulated discharge of industrialwastewater.
● More than 50% of Vietnam's solid wastedisposal dumps have been officially declaredenvironmental hazards that must be closed assoon as possible.
● Rapid motorization with resultant congestionis choking city streets and increasing airpollution.
● Housing is cramped and around 25% isclassified by Government as sub-standard ortemporary. Roughly 300,000 people live inslums in Ho Chi Minh City;
● Eighty percent of housing is ownerconstructed, most on an informal basis outsideplanning regulations and without adequatesupporting infrastructure;
● No provision is being made to make housingavailable for low-income earnersThe adequacy and condition of infrastructure
facilitates economic development and is capable ofshifting comparative advantage from one region toanother. Economic growth, in turn, facilitatesmoving people out of poverty. The directprovision of infrastructure, particularly basicinfrastructure such as water supply, drainage,sewerage, paved access, solid waste management,schools and health facilities, also plays a major rolein lifting disadvantaged sections of communitiesout of poverty.
The Orientation Master Plan for UrbanDevelopment to 2020 identifies urbaninfrastructure goals. It also incorporatesconstruction master (spatial) plans for Hanoi andHo Chi Minh City through the year 2020. Theseplans delineate expansion areas for the cities andare replete with lists of projects across all sectors.Industrial zones and major infrastructureinvestments in the three regional economicgrowth triangles are also included. The Plan,however, does not define priorities for investmentnor does it indicate the costs, or sources offunding. Where implementation strategies arementioned, the plan seldom goes beyonddirection to "construct" a list of specific state sectorfacilities.
In addition to the urban targets in theOrientation Master Plan, infrastructure goals,
15
Chapter III
Infrastructure Access, Needs, and Goal
17. Bechmarking survey by VWSA in 2004. The Vietnam Household Living Standards Survey indicates urbanaccess to the lower definition of "improved" water sources is 82%
16
targets, and priorities are set forth in several otherGovernment policy documents, including theComprehensive Poverty Reduction and GrowthStrategy (CPRGS), and Vietnam's MillenniumDevelopment Goals (VDG), which are similar to theinternational Millennium Development Goals.There are also sector-specific goals and targets,including the Ministry of Planning andInvestment's Ten Year Infrastructure Plan, andGovernment's Environmental Strategy to 2010. Notall the documents are consistent.
Access to basic services, even in Vietnam'slargest cities, is far from being comprehensive. Thisplaces constraints on local economic growth and thepoor face a disproportionate burden arising fromincomplete coverage. Data on coverage is oftencontradictory and incomplete. For example abenchmarking survey of all water supplycompanies carried out by the Vietnam WaterSupply Association with World Bank funding in2002 indicated that piped water coverage in urbanareas is only around 50%, while official datapublished by the Ministry of Construction claims76% coverage. Some of the variations are explainedby different definitions e.g. MOC referto "clean" water sources, which aren'tnecessarily piped to users. It is clearlyimportant to develop more reliabledata collection to enable investmentsto be more effectively targeted andprioritized.
Water Supply
As noted above, in 2002 only abouthalf the population had regular accessto piped water that meets nationalstandards.18,19 The proportion of thepopulation with access has increased
at around 2.5% per year. The data show that therehas been a slight decline in the availability of waterto the urban population (on a percentage basis),indicating that the level of investment in newfacilities has not been adequate to keep pace withthe rate of urbanisation. As noted above, thebenchmarking survey and other research revealsignificant differences in the levels of access. Onaverage, in 2002 large cities had 67.3% coverage,while small towns had only 10.6%. Even amongstthe larger cities there are significant differences.Haiphong has close to 100% coverage, while inDanang, coverage is less than 50%.
The goals and targets for water supply in theCPRGS are: ● Complete water supply networks for major
and heavily-populated cities● Double supply capacity for urban and
industrial centers to 5 to 5.5 million cubicmetres per day by 2010
● Reach 90% of urban dwellers with clean waterby 201020
● Reduce unaccounted-for-water from 39.4% to30% by 2010
18. Joint Donor Report (Vietnam Development Report 2004 - Poverty) (2003)19. Clean water is defined as all "bought water" and excludes all water from "hand-dug wells".20. 95% according to Government's Environmental Strategy and 80% by 2005 according to VDG.
Many city residents still don’t have piped water
● Train water supply staff in management, andmaintenance
● Provide soft credit for water supply systemsThe cost and availability of water in major
cities is an issue for the poor. In terms ofpercentage of household income, the poor spendmore than twice that of the better off (see tablebelow). When unable to secure water connections,the poor must buy water from those withconnections, or from water sellers, usually atmany times the rate charged by the public watercompany.21
Water supply and drainage are expresspriorities of Government for major urban areas:
"projects in major cities andindustrial areas such as Hanoi andHCMC will receive higher priorityin order to meet the demand fordrinking water and step by stepsolve flood issues in these cities".23
This statement is one of the very fewdirect indicators in theComprehensive Poverty Reductionand Growth Strategy (CPRGS)
giving specific priority to urban areas.
Drainage, Wastewater Collection andWastewater Treatment
The "Orientation for the Development of UrbanSewerage and Drainage to the Year 2020", approvedby the Prime Minister in March 1999, sets outGovernment's policy. Generally it is very soundand aims to: (a) put sector financing on a newfooting by gradually eliminating the need forsubsidies for operation and maintenance throughthe introduction of wastewater charges; (b) reduceflooding by allocating more resources to increasing
the capacity, and expanding thecoverage, of drainage; (c) graduallyintroduce wastewater collection andtreatment; and (d) strengtheninstitutional and human resourcecapacity. The largest cities, where theproblems are most acute, are to be givenhighest priority.
"Environmental quality and urbansanitation are major problems facingVietnam's cities, especially the largerones, exacerbated by the highdensities" in the city cores.24 Onlyaround 68% of the urban population
17
Purchased Water22
Income Category Monthly Expenditure % of Household per Capita (VND) Income
Poorest Quintile 17,900 2.8Near Poor Quintile 14,300 2.7Middle Quintile 27,900 2.2Near Rich Quintile 51,700 1.8Richest Quintile 68,900 1.3
21. Charges of seven or eight times the official rate are cited in Participatory Poverty Assessment.22. Joint Donor Report (Vietnam Development Report 2004 - Poverty) (2003).23. CPRSG.24. Webster (2002), Douglas (2002), "Urban Dynamics and Public Policies in Developing East Asia: Implications
for EASUR Programming", Asia Pacific Research Center, Stanford University unpublished
Frequent flooding with polluted wastewate occurs in Vietnam’scities
was reported to have access to hygienic latrinesin 2002. In 2004 none of Vietnam's citiescollected or treated municipal wastewater.However wastewater treatment plants wereunder construction in Danang, Halong, Hanoi(West Lake), Ho Chi Minh City (Binh Chanh),Da Lat, Hue, and Buon Ma Thuot and projectpreparation was under way in several othercities including Can Tho, Soc Trang and BacNinh. Residential and commercial premises arerequired to have on-site septic tanks.Unfortunately they are rarely properlydesigned, constructed or maintained. Effluentfrom septic tanks either soaks into thesurrounding soil thereby pollutinggroundwater, or finds it's way to drains, whichare only designed to cope with rainwater runoff,causing pollution in canals and rivers. In smallertowns, where population densities are low andsoil and water table conditions are suitable,septic tanks can be an acceptable treatmentsolution. However, as urban areas expand and
become denser, septic tanks can not adequatelyhandle the quantity and pollution load ofwastewater discharged. Instead, wastewaterneeds to be collected and transferred to a centrallocation where it can be safely treated in anenvironmentally acceptable way.
Some industrial zones have wastewatertreatment facilities, but few operate effectivelyand there is very little enforcement by cityauthorities of the quality of effluents that factoriesdischarge to public drains or sewers. In thecompetition to attract investment, cities seem togive greater priority to providing favorablefinancial conditions for investors and therequirement for pre-treatment facilities fortreating effluents before they are discharged topublic sewers is often neglected. "In Hanoi, 300factories discharge untreated waste includingchemicals and some heavy metals directly intowater bodies but the city has no wastewatertreatment facilities" 25
Drainage systems also need greater attention.All of Vietnam's largest cities are subjectto flooding during the rainy season.They are built on flat land only a fewmetres above the level of the large riverson which they are sited, or the sea. Priorto development the land was swampswith many natural water channels andlakes. As the cities have grown andwater courses and lakes have been filledin, the natural drainage systems weredisrupted and have been replaced withconcrete or brick drains and culverts.The natural topography of the cities andthe fact that rainfall in Vietnam comes inrelatively short duration, high intensitystorms, means that drains have to belarger than would be the case if therewere natural slopes and less intense
18
25. Webster (2002), Douglas (2002), "Urban Dynamics and Public Policies in Developing East Asia: Implicationsfor EASUR Programming", Asia Pacific Research Center, Stanford University unpublished.
Heavily polluted canal in Ho Chi Minh City
rainfall. Alternatively large pumps need tobe installed to drain the networks.Pumped systems are however veryexpensive to operate and need goodmanagement to ensure the pumpsfunction when required. Drainage systemshave not kept pace with expansion of thecities and those that are built are often notplanned as part of an integrated citynetwork. Construction quality also needsto be improved to ensure systems operateeffectively.
Government gives high priority toconstructing drainage and wastewatersystems in urban areas. The target ofachieving 100% coverage in urban areas by 2010must however be regarded as impossible toachieve, given the very low starting point.
Towns and villages generally lack organizedwastewater collection and treatment systems. Insmaller towns and villages, with low populationdensities and which remain predominantlyagricultural in character, this does not createserious problems. However, as the towns growand densities increase properly designed systemsbecome necessary.
Solid Waste Management
Vietnam has put in place sound policies for solidwaste management that specifically addressguidelines for the management and disposal ofall waste streams. The main policy document isthe "Strategy for the Management of Solid Wastein Vietnam Cities and Industrial Parks" that wasapproved by the Prime Minister in 1999. A"National Strategy for Environmental Protection"approved in 2003 also includes coverage of solidwaste management. The solid waste strategypromotes a comprehensive approach to solidwaste management. Key features include: legalreform, increased awareness and training,increased cost recovery from users,
encouragement of private sector participation,and the adoption of appropriate moderntechnologies.
MOC report that 65% of domestic waste wascollected in 2004. The 2010 Environmental Strategysets targets of 90% solid waste collection in urbanareas and the safe disposal of 60% of "dangerouswaste" from industry, hospitals, etc. The VietnamDevelopment Goals target of 100% collection iseven more ambitious. In this case finance in notreally a serious constraint in terms of purchasingthe necessary equipment and constructing safedisposal facilities. However, generating thenecessary revenues to operate and maintainequipment and properly manage sanitary landfillsis a problem because People's Committees andPeople's Councils are reluctant to raise usercharges to the necessary levels.
Safe disposal of solid waste is becoming amajor issue in Vietnam, particularly in the largercities. Resident's living in the vicinity of wastedumps in Hanoi, Ho Chi Minh City andHaiphong have blocked access out of concernabout the environmental pollution that wastaking place. Only 17 out of a 91 disposalfacilities in the country are reported to beproperly designed sanitary landfills withleachate collection and treatment facilities.
19
Waste dump polluting the envionment
Government has designated 50 waste dumps asenvironmental hazards that should be closed assoon as possible. Constructing environmentallysafe disposal facilities is one of Government'spriorities. Ministry of Construction recommendsthe adoption of sanitary landfills as the mostappropriate disposal solution. A number ofcomposting facilities have been constructed e.g. inNam Dinh and Hue, but they have not proven tobe financially viable because there is no demandfor the compost when it is priced at the cost ofproduction.
Smaller towns also face increasing problems ofsolid waste management. In recent years, asgreater proportions of their population haveturned to non-agricultural work and asconsumption standards have changed, traditionalwaste recycling programs - systems that recycledorganic wastes back into the agriculturalenvironment - are becoming overloaded withwastes that pose risks both to the land and tohuman health.
Urban Transport
Vietnam has the highest motorbike ownershipper capita in the world and is experiencingexponential growth in motorbike ownership.More than 1.5 million motorbikes areregistered in Hanoi and 2.5 million inHCMC. Hanoi has recently prohibitedmotorbike registration in three innerurban districts, but the regulations areeasily evaded. Over the past decadepeople have rapidly switched frombicycles to motorbikes. Now peoplein the large cities are beginning tomove to automobile ownership. Theprice of the cheapest car is only abouttwice the cost of the more expensivemotorbikes. Fortunately themotorbikes are overwhelmingly four-stroke models with attendant low
emissions. They are also relatively quietcompared to two-stroke models. Motorbike andautomobile parking has significantly infringed onpedestrian space.
Road safety is a major issue in Vietnam. It hasone of the highest traffic accident rates in theworld. In recent years efforts have been made toimprove road safety as evidenced by crackdownson vehicle registration, unlicensed drivers, andpoorly maintained vehicles. Helmets arerequired on national highways and the incidenceof use has improved to some extent in the lastthree years. More rigorous helmet useenforcement was announced in July 2004.However, helmet wearers are still a significantminority in urban areas.
Although congestion in Hanoi and HCMCdoes not reach the levels experienced in Bangkok,Manila, or Jakarta, it is beginning to have animpact on economic efficiency. Both cities areactively pursuing public transport as a solution.Ho Chi Minh City is in the final stages ofpreparing a feasibility study for urban rail transit.In Hanoi, bus ridership dramatically increasedfrom 2002 to 2004 with new buses and routesbeing introduced. The World Bank is workingwith the city authorities on a project to develop aBus Rapid Transit system, which will have road
20
Encroachment for Commercial Purposes on Hai Ba TrungStreet in Hanoi
21
lanes dedicated to buses. The French Governmentis also supporting the development of a tramsystem.
In Hanoi, 11% of the city land area is reportedto be devoted to transport facilities. Newlyproposed standards project increasing this to25%. In reality, space allocated to transport isused for other purposes. Many of the urban,suburban, village and inter-city roads suffer fromdiminished capacity as a result of encroachmentinto the rights-of-way. Encroachment is typicallyfor commercial activity, but also for dwellings.
Housing
It was reported that about 25% of the urbanpopulation was living in substandard, ortemporary, houses in 2002. Housing conditionsdiffer significantly between northern andsouthern Vietnam. This is largely due to availablebuilding materials and climate. The quality ofhousing also varies with income level. Theincidence of slums is higher in the south. Ho ChiMinh City Land and Housing Departmentestimates that 300,000 people live in slums. Hanoiofficials estimate that 30% of their populationlives in very crowded conditions (as little as 3 m2
per person). By comparison, Ministry ofConstruction standards have set a target of 14 m2
per person.The CPRGS priorities for housing are: the
provision of safe housing in flood prone areas,calamity-affected areas in the North, the highlandsin the South, the coastal areas in the Central Regionand the Mekong Delta; and housing in new urbanareas and industrial zones
Prior to the Land Law of 2004 between 75 and85% of new residential construction was builtinformally without legal construction approval andfrequently without land use certificates.26 The new
Land Law coupled with Vietnam's rapid economicgrowth has provided incentives for propertydevelopers, the majority of which are still stateowned, to build planned developments.
Where planned housing developments occur,they have shifted from state-driven to a moremarket-driven paradigm. This has created ahousing boom in the major cities. State ownedcompanies are now taking on the role ofcommercial developers and building significantnumbers of houses, particularly high-riseapartment blocks e.g Tu Lien in Hanoi. Thecurrent boom is geared largely to middle andupper income earners e.g. Ciputra developmentin Tay Ho, Hanoi and Phu My Hung in SouthSaigon. It is fueled by increased disposableincome, increased savings, changes in lifestylesuch as a decline in the role of the extendedfamily, and rapid inflation of housing and landprices. However, the provision of appropriatehousing for low-income people, includingstudents and those requiring resettlement arisingfrom development projects, remains a majorchallenge for Government. While incomes of thelower quartile of urban dwellers are too low forthem to be able to afford housing, theGovernment is reluctant to re-embark onsubsidized state housing because it has onlyrecently extracted itself from many of the problemsassociated with poorly managed state housingprovision e.g. poor housing management,insufficient cost recovery for adequate maintenanceetc. However, the reality is that increasing numbersof poor people are moving to cities, where they arean important part of the country's rapid economicgrowth. Meeting their housing needs is an issuethat needs serious consideration. In 2003 there wereroughly 300,000 people live in slums in Ho ChiMinh City. In 2004, the in-situ incrementalimprovement of existing slums, or urban
26. MOC Seminar, April 28, 2004.
22
upgrading, was recognized by Government as anappropriate policy for improving low-cost housing.The World Bank supported Urban UpgradingProject is funding such improvements in Can Tho,Haiphong, Ho Chi Minh City and Nam Dinh andpreparation of a National Urban UpgradingProgram to scale this up, was started in 2005.
The provision of affordable housing for lowand middle income groups is unfortunatelyconstrained by land speculation. Large amountsof money are made in the conversion of land
from rural to urban use. Unfortunately thebeneficiaries tend to be neither the original usersof the land, nor the purchasers of the newhousing built on it (the purchase cost of the landis up to ten times higher than the compensationpaid to previous occupiers). This has in factresulted in a "freeze" in the real estate marketsince mid 2004 causing serious financialproblems to housing developers. Housing that isbuilt is too expensive for low income earners andno provision is being made for simple housingthat could be incrementally extended over timee.g. a core house built on a serviced site.
Traditionally housing has been financed on acash basis, often through borrowing from theextended family. Loans and mortgage financing
for housing are still new, but the demand forhousing finance is rapidly increasing. The ADB issupporting the Government through a HousingFinance Project to promote a more active housingmortgage finance market. The World Banksupported Urban Upgrading Project includes acomponent to support low-income residentsimprove their houses. This comprises micro-finance schemes, which make available loans ofaround VND10 million, or USD 620, forincremental improvements to houses.
Estimated Future FinancingRequirements for UrbanInfrastructure
It has not been possible within the limited scopeof this study to make a detailed assessment of thefuture finance requirements for urbaninfrastructure. However, some indicativeestimates for different sub-sectors are providedbelow. All estimates are based on per capita unitrates derived from recent investment projects. Itis clear that in order to achieve the ratherambitious targets for access to infrastructure setby Government that annual finance levels ofseveral orders of magnitude higher than whatwas mobilised in the 1990s will be required.
Before AfterLow cost in-situ Urban Upgrading of low-income areas
Urban Water Supply, WastewaterCollection & Treatment, and Drainage
The estimates below to achieve 100%coverage are based on MOC's populationprojections, and the average cost/capita fromseveral donor financed projects carried out inthe late 1990s, early 2000s. MOC report muchlower per capita costs on Government fundedprojects, but it has not been possible to obtain
full cost information on these projects, or tocheck if they are based on the full economiccost of inputs. Water coverage levels wereobtained from a benchmarking survey carriedout in 2002 of all provincial water companies.For wastewater collection and treatment anddrainage, account has been taken of existingcoverage in the cost estimates.
The estimated annual financing requirementto achieve the 2010 to 2020 is $377.5 million.
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Urban Water Supply: Estimated Future Financing Requirements 2000 2010 2020
Total Urban Population 19,000,000 32,000,000 46,000,000Urban population with piped water in 2000 (48%) 9,120,000 9,120,000 9,120,000Population requiring piped water 9,880,000 22,880,000 36,880,000Estimated cost/capita in 2000 prices ($) US$165 US$165 US$165Funds required for 100% coverage ($ million) US$1,630 US$3,775 US$6,085
Wastewater Collection and Treatment: Estimated Future Financing Requirements 2000 2010 2020
Population of all urban areas 19,000,000 32,000,000 46,000,000Average cost/capita in 2004 prices for wastewater
collection ($) 30 30 30Average cost/capita in 2004 prices for wastewater
treatment (based on oxidation ditches) ($) 57.5 57.5 57.5Average total cost/capita ($) 87.5 87.5 87.5Cost of providing wastewater collection & treatmentto entire urban population ($ million) 1,663 2,800 4,025
Drainage: Estimated Future Financing Requirements 2000 2010 2020
Population of all urban areas 19,000,000 32,000,000 46,000,000Average cost/capita in 2004 prices for primary,
secondary and tertiary drains ($) 53.3 53.3 53.3Average cost/capita in 2004 prices for canal
rehabilitation (Special & Class 1 cities only - say 40% of population) ($) 53.4 53.4 53.4
Cost for primary, secondary & tertiary drains ($ million) 1,015 1,709 2,456Cost for canal rehabilitation for 40% of the population
($ million) 406 684 983Total Cost ($) 1,420,440,000.00 2,392,320,000.00 3,438,960,000.00
24
This compares to average annual expenditure inthe 1990s of only around $100 million. Of this,around 80% came from ODA contributions andaround 40% of the investments were made in thefour largest cities.
Urban Transport: Estimated FutureFinancing Requirements
It is more difficult to derive per capita investmentrequirements for urban transport. The needs arelarge and growing as a result of the combinedimpact of rapid urbanization and rapidmotorization. Within the next decade Ho ChiMinh City and Hanoi will need to developeffective mass transit systems and significantlyexpand their highway networks. This will becostly. The recently prepared transport masterplans for Ho Chi Minh City and Hanoi estimatethe financing requirements to 2020 at $13.5 billionand $5 billion respectively. The Class I cities,Haiphong, Danang and Can Tho and the largestClass II cities will also need to start makingsignificant investments over the same time frame.
Housing for Low-Income Residents:Estimated Future FinancingRequirements
As previously noted, housing is predominantlyprivately financed. However, it is clear that low-income households, say 25% of urban residents,can not afford housing. Of these 60% (15% ofurban population) may need social housing. Theother 40% could be assisted through theprovision of microfinance to enable them toincrementally improve their existing houses.There are obviously several variables affectingthe cost of social housing: the size of town/city,it's location within the country, the location ofhousing within the city and the size and type ofhouse/apartment. The following table calculatesthe weighted average cost/capita of socialhousing throughout the country and the nexttable the estimated cost of providing socialhousing.
While the above estimates are only indicativeof the level of financing necessary to meetGovernment's stated targets, the projections to
Weighted Average Cost/Capita Of Social HousingPercent of Cost of
National Urban Walk-Up Apartment Cost per WeightedCity/Town Population ($) capita ($) cost/capita ($)HCMC/Hanoi 13.7 10,000 2000 1087Class 1 5 8,000 1600 317Class II 3.3 7,000 1400 183Class III & IV 3.2 6,000 1200 152Average cost/capita 1740
Low-Income Housing: Future Financing Requirements 2000 2010 2020
Total Urban Population 19,000,000 32,000,000 46,000,000Estimated weighted cost/capita in 2000 prices ($) 1,740 1,740 1,740Funds required assuming 15% of population need
social housing ($ million) 4,960 8,354 12,009
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2010 of around $17.3 billion for water supply,wastewater collection and treatment, drainageand social housing alone, plus a further $8-9billion for urban transport, are daunting. This
reinforces the critical importance of mobilizingadditional financial resources beyond the statebudget and ODA, which have financed mostinfrastructure in the past.
t is widely acknowledged that the currentspatial, or master, plans of Vietnam's citiesare not effective. There is a large disconnect
between the beautifully drafted idealized masterplans (often referred to locally as "Quy hoachtreo"), that hang in the offices of PeoplesCommittees and the reality of urbandevelopment on the ground. Firstly, spatial plansneed to be more effectively coordinated withsocio-economic and sector plans; secondly theyshould be more strategic and less prescriptive;thirdly all stakeholders, including residents andprivate investors, should be allowed toparticipate in their preparation; and fourthlythey need to be based on levels of resources thatare likely to be available for theirimplementation. Finally, once effective plans areput in place, they need to be implemented andenforced through a more effective system ofurban management. This will require clearerdesignation of decision making authority,greater delegation of authority to localgovernments, and the adoption of a governancestructure for local government with appropriatechecks and balances to prevent the abuse ofpower. The most effective way of doing this is tohave extensive public participation and to makeall decisions public.
Overview of the VietnamesePlanning System
Planning in Vietnam is in the process of slowlyevolving from a highly prescriptive model based
on central control to a more flexible andadaptable system with considerable authoritydelegated to local governments. The mainchallenges are in building the necessarycapacities in local governments and in changingthe attitude of local government officials fromtheir current largely passive role, to one that ismuch more active.
In Vietnam the responsibilities for urbanplanning are much more fragmented than inwestern countries. Three types of plans, each theresponsibility of different ministries, apply tourban areas: socio-economic development; spatial(also called construction or master plans), andsector development.● Socio-economic development plans - are
development strategies, but they also setprecise development and investment targetsand combine (often without prioritizing)proposals contained in sector plans (e.g.,transport, industry, education, health). Theyare prepared at all levels of governmentincluding wards and communes andconsolidated at higher levels.
● Spatial plans - commonly referred to as "master"or "construction" plans, or as "detailed areaplans" for sub-divisions of urban areas, orspecific projects. They present the proposedspatial arrangement of land uses, buildingfootprints and infrastructure for a province,city, district, or development site inprogressively greater detail.
● Sector development plans - are productiontargets and strategies for output of
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Chapter IV
Urban Planning and Urban Management
I
individual sectors e.g. water supply, urbantransport, main industries and agriculture.In the Vietnamese language, two terms with
distinct meanings, are used for "plan" or"planning". "Quy hoach" means long-termplanning, either socio-economic, spatial, orsector. "Ke hoach" means short or medium termplanning. It covers plans that have real standingand/or a high probability of implementation.The term "quy hoach treo", which translates as"hanging plan", is used for those plans that lookbeautiful hanging on the wall of the office of ahigh level official, but which are rarelyimplemented.
Planning of all types is carried out bothhorizontally and vertically within government.Most entities with planning responsibility havea dual reporting relationship, a verticalrelationship to the central ministry and ahorizontal relationship to the appropriateexecutive level of government. Governmentand the Party also have parallel policyguidance and reporting requirements. Mostimportant planning decisions are taken at the
central government level, but without effectivecross-sector consultation and discussion. It is avery top down process. The widely dispersedresponsibilities without clear procedures anddecision making authority to bring the variousdifferent views together to form a broadconsensus makes effective urban planning, asunderstood in western countries, a challenge inVietnam.
Socio-economic Planning
The five-year Socio-economic Development Plan(SEDP) has been the main pillar of Vietnam'sstrategic planning architecture for many years.The last five year planning period (2001-2005)involved the production of both a SEDP and aComprehensive Poverty Reduction and GrowthStrategy (CRPGS), the latter described as an"action plan" for the SEDP by the Ministry ofPlanning and Investment (MPI) and accepted asa poverty reduction strategy by the internationaldonor community. These two planninginstruments will be merged for the 2006-2010
planning period.SEDPs are prepared after formal
consultation within Government andParty structures. MPI has the primary rolein coordinating and ultimately producingthe SEDP. At the provincial level, theDepartments of Planning and Investment(DPI) take the lead role. Each level oflocal government (communes, districts,provinces) submits proposals to the nextlevel where they are screened,consolidated and passed on upeventually to MPI. Past practice has beenfor the SEDPs to set out goals anddetailed production targets for allgeographical regions and productivesectors of the economy. Economic, socialand poverty data underpinningthe SEDP and used as a basic for
28
Master (spatial) Plan for Danang
projections are drawn from government sources.Once an SEDP is approved, it becomes the basisfor the annual budget proposals from ministriesand local governments.
The CPRGS, approved by the Prime Ministerin 2002, has not had the same central role indirecting the activities of government but it haspioneered some new approaches to socio-economic planning, both in terms of process andsubstance. Consultations were broader,involving actors outside government includinglocal organizations and some poor communities.The CPRGS presents a stronger analyticalframework for growth and poverty reductionthan was included in the SEDP and made use ofa wider range of credible data from both insideand outside government. Achievement ofstrategic outcomes - rather than productiontargets - motivates the policy measures andpublic actions identified in the CPRGS. TheCPRGS also outlines mechanisms to monitorprogress, framed around the VietnamDevelopment Goals (VDGs, localized versions ofthe Millennium Development Goals).
As noted above, Government decided tomerge the CPRGS and SEDP for the 2006-2010planning period. Guidance for preparationrequired that some of the participatoryapproaches to planning that characterized thepreparation of the CPRGS be adopted. Theguidelines specifically require that the five yearplan should address the VDGs, which shouldresult in a more outcome-focused plan. They alsorequire that the analysis used to underpin theplan should make use of international methodsand standards, which will allow a broader rangeof robust data to inform the development of theplan. This is important, since one strength of theCPRGS lay in its openness in bringing somesensitive issues to the debates on povertyreduction, issues such as migration that have notbeen covered by SEDPs in the past.
SEDPs don't appear to be subjected torigorous economic and financial analysis, nor dothey take much account of the resources likely tobe available. There is a general tendency tooptimistically approve plans and related lists ofprojects in the hope that funding will becomeavailable. They are essentially driven byproduction targets. There is also a tendency notto take adequate account of potential socialand/or environmental impacts. For exampleimplementation of aspects relating to urbandevelopment may be undertaken without takingdue account of integrated infrastructurenetworks, or proper budget support, resulting indelays, low efficiency, and environmentalimpacts and costs.
One of the most significant manifestations ofeconomic expansion and socio-economicplanning in Vietnam has been the proliferation ofspecial purpose planned industrial zones toattract FDI and locate domestic investment.While some industrial zones have been anunquestionable success, many others,particularly in more remote provinces, areseriously under-utilised. "If the experience of
29
other Asian countries is relevant to Vietnam, thegeneral tendency of these overtures is for alimited number of sites, especially around majormetropolitan areas, to be successful, while othersexperience substantial difficulty in attractingbranch plants and other footloose investments.Research on this question shows FDI to be muchmore spatially concentrated than domesticinvestment in the same sectors."27 The spatialdimension of the investment and production mixis a critical factor. The synergy andcomplementarities of cluster locations and thecorresponding competitiveness are diminishedby forced location to inappropriate industrialzones.
Spatial Planning
It is spatial plans, master plans in particular, thathave the greatest impact on urban development.Spatial planning in Vietnam was designed forthe era when all construction was carried out bythe state. With the move towards a marketeconomy, the spatial planning system isundergoing revision. In 2004 a new Land Lawand a new Construction Law, which incorporatesa Planning Decree, were issued. Thisdemonstrates Government's commitment toimproving the planning and urban managementsystems, but much remains to be done to enableVietnam's cities to compete effectively in theglobal economy and to improve the lives of theirresidents.
In terms of administrative responsibility, theMinistry of Construction (MOC), orsubordinated departments of construction at theprovince and city level undertake spatialplanning i.e. master, or detailed area plans. Mostplans are prepared by the National Institute ofUrban and Rural Planning Institute (NIURP) orit's sister organization in the south, NAGECO.
Both are subsidiaries of MOC. Only the four tenlargest provinces/cities have their own planninginstitutes.
Spatial plans are prepared in four levels ofdetail: orientation plans (national policy), regionalplans (introduced in 2005), master plans (provinceor city), and detailed area plans (ward, industrialzone, or project). Most are prescriptive forspecific land uses in specific locations, ratherthan permissive as in Western land use planning.The intended sequence of planning with spatialplans following socio-economic plans and sectorplans does not always occur. In fact, spatialplans are required to have a longer time horizonthan the socio-economic plans, or sector plans,for which they provide the physical and spatialcomponent.
The lack of coordination in sequencing isprobably exacerbated by the fact that theplanning institutes tend to overlook economicand social dimensions, while the socio-economicplanners (equivalent institutes affiliated withMPI) seem to overlook the spatial andenvironmental implications of investmentprograms. The result is that spatial plans are tooabstract with insufficient attention given to the"real world". The poor nexus between socio-economic and spatial planning is reflected inother problems related to the overlappingresponsibilities of central and local agencies.These include: complicated procedures forproject assessment and approval (investmentsrequire up to fourteen separate officialapprovals, which can take upwards of one yearto obtain); difficulties in sharing informationwithin and amongst agencies; and weak humanresource capacity - staff have not been trained tocarry out rigorous project appraisal e.g financialand economic analyses.
Until the Planning Decree was issued inearly 2005, no consideration was given to
30
27. UNCHS Fukuoka, (2001), The Urban Transition in Vietnam, Second Report, First Draft of Text, 15 October 2001,Fukuoka, Department of Urban and Regional Planning, University of Hawaii.
regional planning i.e. there was no coordinationamongst neighboring provinces. As notedabove, one consequence of this is theproliferation of industrial zones throughout thecountry. A start has been made on preparingregional plans from the greater metropolitanareas of Hanoi, Ho Chi Minh City and Danang.Unfortunately, so far this is being limited tospatial planning. It is however a step in the rightdirection towards more rational utilization ofresources. The establishment of an effectiveinstitutional framework to implement the planswill be essential.
Master plans are required to include longand medium term direction for physicaldevelopment and the arrangement of urbanspace and infrastructure networks and facilities.They also cover the characteristics of urbanareas, population size, land use, resettlement,redevelopment, conservation, and zoning. ThePrime Minister approves the master plans forSpecial, Class I and Class II cities. A map is theprincipal element of the plan. They must assurethat prescribed technical standards are met. Thetechnical master planning specifications(Ministry of Construction, Circular 322BXD/DT)28 that drive plan design, cityinvestment priorities, and city classificationreduce local flexibility. They stifle creative orstrategic thinking and often lead to theinefficient use of capital. The technicalstandards should have only a limited andguiding role in a reformed planning system thatwill allow greater flexibility and adaptability tolocal situations and demand. In the currentsystem a formal and arduous process must befollowed to obtain approval to modify technicalstandards to officially allow infill development,urbanisation of villages, or the upgrading ofexisting urban areas, without requiring forexample maximum (standard) street widths,
specified floor area ratios, or standardized floorarea per occupant.
Master plans in Vietnam tend to be idealizedtop-down representations of what the planningexperts and city administrators would like theircity to become if there were unlimited resources.Unfortunately that is never the case. The plansalso have a serious limitation in that they onlytake account of the views of a fairly narrowrange of stakeholders, primarily governmentand party officials. The opinions of ordinaryresidents and private investors are rarelysought. They lack the phasing and theincremental development mechanisms essentialto translate them to reality in a mixed economywhere development is more likely to occur on anincremental basis directed by decisions made byinvestors rather than government planners. Inmost industrialized countries, centralgovernments delegate considerableresponsibility for spatial planning to localgovernments. Box 1 outlines how theresponsibility for planning is typically delegatedin North America.
These idealized master plans can result in thewholesale clearance of communities andhousing to permit redevelopment to a highertechnically mandated standard. This oftenresults in the destruction of tightly knitcommunities with their own carefullydeveloped economic and social support systemsthat have evolved over many years. Experiencefrom other countries, including many inWestern Europe and the United States, indicatesthat demolishing such neighborhoods, oftenwith the best intentions, results in irreparabledamage to the social fabric and well being of theresidents. Housing prices in the newly createddevelopment will often be well beyond theaffordability of those displaced. Experience inmany other countries such as Indonesia and
31
28. Revision of the circular to coincide with the new Construction Law and Planning Decree is under considerationin May 2004.
Brazil demonstrates that it is usually better oncost effectiveness and social grounds to adopt anincremental approach developed with the activeparticipation of the beneficiaries. An investmentin basic infrastructure by the city can leverageinvestments up to seven times higher inproperty improvements from the residentsthemselves. This approach is recognized in the2005 Planning Decree and investments thatadopt the approach are under way in Can Tho,Haiphong, Ho Chi Minh City and Nam Dinh.
Detailed area plans, prepared under theguidance of provincial/city People'sCommittees, are a requirement for urbandevelopment schemes. They predetermine thespecific uses of urban space and include thequality, quantity and position of eachdevelopment type and building footprint. Anurban design element to express architecture,built form, construction heights and landscapeof each urban area and street was introduced bythe 2005 Planning Decree. Unfortunately theyare often prepared before the necessary fundingfor their implementation has been secured. As aresult they do not provide a developmentcontrol framework for all stakeholders andpotential developers and therefore often fail to
produce usable guidelines for channeling urbanexpansion. Consequently much growth takesplace in unauthorized and unplanned areas.Many of the residential areas in Vietnam's citieshave developed on an ad-hoc basis as tightlypacked warrens of narrow, twisting lanes,without properly functioning drainage orsewerage systems, or open spaces forrecreation. Because of the rigid way they areprepared, area development plans must eitherbe amended, or ignored, to accommodate new,market driven proposals where developmentoccurs on a more flexible and dynamic basisgoverned by the availability of land on themarket, and capital to the developer. Amendingthe plans is bureaucratically complex and time-consuming. As a consequence, publicinfrastructure (water supply, solid wastemanagement, drainage and sewers) and theprovision of recreational space often have tofollow after development has occurred, at muchgreater cost.
Sector Planning
The overall goal of sector planning is themaintenance of the socialist market-oriented
32
In developed countries, the degree of spatialplanning specificity increases with each degree ofdecentralization. Using the United States or Canadaas examples (although master planning laws andprocedures differ by state/province), the federalgovernment reserves a few very specific planningactivities or land use controls to itself and delegatesthe balance. Master planning is primarily a localgovernment activity. A typical state or province willalso reserve some specific plans to itself (e.g., statelevel highway system, and resource preservation)and determine what topics local plans must addressand establish policies for consistency between localpland. Local governments prepare and implement
consistent land use plans and make provision forinfrastructure. The land use plans specifypermissible uses and standards establish theimpacts those uses are allowed to have (e.g., trafficimpact, surface water runoff, height, healthstandards, etc.). Individual projects are subject torigorous permitting and inspection. Local plans aresubject to proscribed standards for environmentalreview. Generally, local plans do not have to beapproved by higher levels of government althoughdistribution of funds can depend on theirconsistency. The legal system is used to testwhether local plans meet the guidelines, standardsand policies of higher levels of government.
Box 1
economy, particularly for major industries andagriculture. Sector plans are also prepared forinfrastructure e.g transport, water supply etd .The main planning functions are dividedbetween ministries at the national level,departments at the provincal level, and some ofthe large State Owned Enterprises (SOEs).Under central planning, one of the roles ofsector planning was to define targets for theproduction of large SOEs and to ensure theavailability of raw materials and the means ofproduction. As the market economy takes holdand SOEs have to respond to demand, costsrelated to physical location, design, orproximity to either suppliers or users will haveto be borne by the SOE themselves, and not thestate at large. Prescriptive sector plans arelikely to hamper industries in the new marketoriented era.
Government also uses sector planning to tryand manage the geographic allocation of stateresources to balance development in all regions.Showcase, or national self-sufficiency projectsremain the responsibility of sector planning.Unfortunately many are inefficient and have tobe protected by tariffs and subsidized in otherways. They are often a significant drain onnational resources and divert capital from moreeconomically viable investments.
Unfortunately sector plans and spatialplans for the same location are often notcoordinated in phasing, finance orimplementation. For example the drainageincluded as part of a transport master planmay not be coordinated with the separatedrainage and sewerage master plan. In somecases they may even propose conflictingstrategies. Land use plans formulated by localNatural Resources and EnvironmentDepartments are also frequently inconsistentwith detailed construction plans. The solutionlies in allocating specific responsibility withinthe city, or provincial administration, forcoordination.
The Challenge of Peri-UrbanDevelopment
Vietnam currently transforms 10,000 hectares ofagricultural land to urban use every year -mostly at the peri-urban fringe. Interestinglythis appears to contravene national policiesagainst loss of prime agricultural land andpreservation of food security. The largest cities(Hanoi, HCMC and Haiphong) are all locatedon fertile river deltas. Fortunately advances inagriculture production which enable moreintensive use of land, mean that increases inproduction are keeping ahead of demand.
The formal and the informal sectors are bothat work in peri-urban development. Informalurbanisation takes place in an ad hoc,unregulated manner, where local authorities arenot well prepared, or inclined, to manage theurban expansion. Densities increase in townsand villages without geographic expansion asnew residents and new families seekaccommodation. This is a function of additionalcrowding by extended families, or the rentingout of rooms, and also, more recently, throughnew construction and infill.
In the past the delay in issuing land usecertificates contributed to urban sprawl,through lack of control. It provided a rationalefor permissive officials to ignore informalconstruction. Densities have reached levels thatoverwhelm the sanitary and flood controlmethods that functioned in an agriculturalenvironment. There is also a cumulativenegative impact from many smallmanufacturing facilities discharging wastes andeffluents that are often highly toxic e.g fromtanning, dyeing and metal working, directly tothe environment. There has however been amajor initiative started in 2003 to issue LURCsfor all urban land. Coverage in the major citieswas reported to have increased from below 20%to well over 60% by 2005.
Urbanisation takes place both at the urban
33
fringe where suburban communes andpreviously discrete villages face envelopmentinto cities and towns. It also occurs through thedensification of rural towns and villages. Thisaffects the ways in which infrastructure servicesneed to be provided. This has a significantimpact on urban provision. For example a ruralwater supply project being supported by theWorld Bank for the Red River Delta has, becauseof the growing population densities, many of thecharacteristics of an urban water supply project.Central treatment and piped supply is economicand there are sufficient economies of scale toorganise management on a utility basis.Household who previously obtained water fromwells within their properties are now willingand able to pay for treated piped water. In manycases, because the groundwater had beenpolluted by increasing levels of domestic andindustrial wastewater discharges arising fromdensification, they have little choice. Techniquesfor wastewater and solid waste collection anddisposal that were adequate for ruralsettlements have been overwhelmed, as has theability of the local administrations to protect thehealth and welfare of the residents.
Not all development in peri-urban areas isunplanned. Many of the SOEs owned by theMinistry of Construction and large cityauthorities are active housing and multi-usedevelopers e.g the Tu Lien district in Hanoi.Private developers including foreigninvestors are also active e.g. Ciptura in TayHo District, Hanoi and Phu My Hung inSouth Saigon.
Land Law 2004
The new Land Law which came into effect onJuly 1, 2004 is having a significant effect onurban planning and urban management. Underthe law, all land continues to be owned by theState, but land regulation and management willbecome more market oriented.
The law delegates the responsibility for landadministration and registry to localgovernments. This has already reduced thelong delays in issuing land use right certificates(LURCs) by Government to companies andindividuals, which created problems in terms ofthem not being able to provide collateral forloans and in enabling the timely provision of
34
New Construction in the Peri - Urban Tu Lien District of Hanoi
infrastructure. The sequencing of landallocation did not necessarily follow thedevelopment proposed in spatial plans, theprovision of infrastructure, or the timing of thefinancial allocations for state sector activity. Thelaw also moves closer to adopting land pricingbased on market values, rather than it being setadministratively by government. Significantdifferences between the administrative price ofland and the price on the informal, but vibrant,real estate market, contributed to speculativedevelopment that was not synchronized withthe provision of infrastructure. The pricedistortion promoted corruption and alsocreated significant delays to investment projectsarising from protracted negotiations ofcompensation for land acquisition. The newLand Law should improve coordination,governance, planning, management and theability to provide infrastructure. The followingis a summary of the key improvementsintroduced:● Modernization of state land ownership and
administration● Use of market values for establishing
compensation, taxes, and fees (given theimperfect mechanics of the current market,it is however difficult to identify a true"market" rate)
● Recognition of real estate markets● Devolution of responsibility to local levels
for land administration and registry andpromulgation of uniform standards andlocal single points of contact for landregistration
● Greater availability of land registrationinformation
● Public participation (though still ratherlimited) in planning and public notificationof approved plans
● Consolidation of land use right certificatesinto a single type
● Improvements in compensation proceduresfor expropriated land
● Local officials to become more accountable● Long term leases for foreigners and overseas
Vietnamese to become transferableAs understanding and training increase,
these changes should facilitate the work ofdepartments responsible for urbaninfrastructure and reduce delays anduncertainties. In the short term, lack ofsufficiently detailed mapping systems inmedium and smaller cities and towns maydelay progress. The land administrationcomponent of the World Bank UrbanUpgrading Program will provide technicalassistance and capacity building to landregistration offices in HCMC, Hai Phong, CanTho, and Nam Dinh that will facilitate thegranting of land use rights and issuingcertificates and the subsequent management ofland.
The effectiveness of the new law will dependin part on the response of financial institutionsthat will need to develop lending procedures,risk assessment skills, and mortgages to provideloans for housing and small businesses. TheADB is supporting a "Housing Finance Project"to pilot procedures for the development of abroader based housing finance market.
Construction Law (2004)
The most significant changes introduced by thenew Construction Law (2004) are incorporatedwithin the new Decrees on Planning and onConstruction Investment Project Management,both of which were enacted in early 2005. Themain new features of the Planning Decree are:● Decentralization of the responsibility for
preparing spatial plans to PeoplesCommittees for most cities and provinces.
● Decentralization of the approval of plans forClass III and IV cities to Provincial andDistrict Peoples Committees respectively
● Review of plans by elected Peoples Councils● Addition of broader brush "Orientation
35
Plans" covering 20 year time periods forSpecial, Class I and Class II cities
● Addition of regional planning requirements.This is a useful step towards helping dealwith rapid urbanization. However, noguidance is given on the administrativestructure that will be necessary toimplement regional planning.
● Coverage of the redevelopment of existingurban areas (instead of just newconstruction). This is significant. It requiresthat spatial plans should take account ofareas that can be upgraded rather thanfocusing only on re-development which hasbeen the case in the past.
● The addition of an urban design componentto detailed construction plans. This isintended to address the lack of an effectivedevelopment control framework for theurban form, architectural patterns andlandscape.
● Introduces consultation in the planningprocess - People's Councils are required toreview plans and the plans must be put onpublic display. However, there are still nospecific requirements or mechanisms topromote active public participation in theprocess.The new Planning Decree introduces
worthwhile improvements. However, theprocess of developing spatial plans for citiesand provinces still remains largely top-downand is likely to continue the tendency to createidealized, rather than strategic and practicalvisions of the future. The opportunity has notbeen taken to promote meaningful coordinationand integration with socio-economic planningand sector planning.
The Construction Investment ProjectManagement Decree combines aspects of projectmanagement, procurement and technicalstandards. The most significant changes relate tothe procedures for large investment projects.Pre-feasibility studies will be replaced by
"Investment Reports". The content howeverremains largely the same. Feasibility Studieswill be replaced by Project InvestmentFormulation Reports. The latter require a higherlevel of technical detail, referred to as "basicdesign" than was formerly the case.
Urban Management
The weakness of urban management inVietnam needs to be overcome before effectiveplanning will be able to contribute tourbanization. The best plans are useless if theyare not, or cannot be followed.
In Vietnam the term "quan ly do thi", looselytranslated as urban management, is used tocover a broad mix of activities including:administration; coordination; planning;building and construction controls;enforcement of regulations; fiscal control; andthe maintenance of facilities; that make urbanareas function. The Ministry of Constructionand Departments of Construction at theprovincial/city level are nominally responsiblefor state management related to constructionand urban development, housing, architecture,technical infrastructure development andrelated public services. However, several otherministries and departments have overlappingresponsibilities in areas such as: landmanagement, transportation, environmentalprotection, finance and budget allocation, socio-economic planning, and the management ofState Owned Enterprises (SOEs). A tableshowing the various responsibilities for urbanissues among ministries is presented in Annex3. In western countries at the city/provincelevel the various sector departments wouldreport to a mayor or governor, whose officewould be responsible for coordinating thevarious inputs and taking decisions. InVietnam, where sector departments at thecity/province level report vertically to centralministries as well as horizontally to Peoples
36
37
Committees the latter do not have sufficientpower to efficiently fulfill this coordination andmanagement role.
The lack of clearly designated authority andlimited local autonomy make urbanmanagement difficult. Each functionaldepartment or entity protects its independenceand autonomy. Strengthening and rationalizingurban management through both institutionaland cultural change is the most important taskfor successful urban management. TheGovernment's attention and its urban policytend to be focused on master planning and largescale projects. Much less attention is directedon how to make urban areas more functionaland efficient. In the smaller cities and towns(Class II and lower), which report to provincialauthorities, urban management is stymiedbecause of their limited powers and the inabilityto cooperate across district lines with adjacentrural districts.
In addition to delegating authority for urbanmanagement to Peoples Committees, asindicated in the sections above, the form ofmaster plans and the way they are preparedneeds to be changed and much greaterresponsibility for detailed planning, includingthe flexibility to regularly adjust plans within abroad approved framework, also needs to bedelegated to local governments. This will enablelocal governments to better cope with thedemands of a market economy and the rapidpace of urbanization in a proactive way. Thiswill need to be done within an effectivegovernance structure with appropriate checksand balances to ensure local officials do notabuse the authority delegated to them. The mosteffective way to do this is to allow extensivepublic participation in urban planning andmanagement processes and to make alldecisions public.
Interestingly, the traditional urbanmanagement systems of China and Vietnam,based on Confucian principles, vested localofficial, then mandarins, with a high moralauthority to make decisions on behalf of thecommon people. They had a mandate tomanage. Despite adoption of the Soviet modelof socialism in the 1950s, this traditional form ofmanagement effectively persisted at the districtand ward/commune level, albeit informally asa management principal in regard to landissues.29 Such a decentralized system hasadvantages and disadvantages; the mainadvantage being that it brings decision makingclose to those affected, thereby allowing greaterparticipation. The disadvantages includefragmentation, diminished cooperation andcoordination, and the risk of self-serving and"rent-seeking" behavior. It is therefore veryimportant to ensure that effective governancestructures are put in place.
Infrastructure Development andInvestment Approval
The infrastructure and development approvalprocedure in the country is very complicatedand subject to the nature and size of project(projects are classified as A, B or C), theinvestment capital status (private, foreign directinvestment, ODA, state enterprises, and/orindividual), and the category of land use right.There are three types of development approvaland most projects require all three:● Investment approval● Issuance of land use right certificate● Development approval and building or
construction certificate.Investment projects that require land
allocation for development go through a pre-planning process with the local Department of
29. John Gillespie, 22 March 2004
38
Planning and Investment for investmentapproval and the local Department ofConstruction for guidance on the projectlocation. After approval, the project proponentnegotiates the compensation and resettlementplan. For large projects, initially an"Investment Report" (formerly a pre-feasibilityreport) is required by the Ministry orDepartment of Planning and Investment.Subsequently a more detailed "ProjectInvestment Formulation Report" and a basicdesign has to be submitted. Group A projectsfunded from foreign sources need approval by
central government. After getting theinvestment approval, the proponent submits arequest for land allocation to the localDepartment of Natural Resources andEnvironment. A construction permit based ondetailed design of the project is also required.Under the new Construction Law 2004,construct permits are issued either by theprovincial Department of Construction, or theDistrict People's Committee, depending on thecomplexity of the project. In some cities, forrelatively small investments, the process hasbeen consolidated into a "one stop shop".
39
Strategic Change in the InfrastructureFinancing Model
As Vietnam prepares to meet the demand forincreased investment, it needs to reduce itsreliance on the state budget and to startpreparing for the transition away fromconcessional donor financing for urbaninfrastructure services. The necessary transitionstrategy must involve diversification offinancing sources for infrastructuredevelopment, focusing on increasing the role ofthe private sector as a source of finance forinfrastructure and as a developer ofinfrastructure. The strategy must also recognizethe increasing role of localgovernments in promotinginfrastructure investments inaccordance with government'sdecentralization policy. Theincreased participation of theprivate sector in financinginfrastructure in coordination withlocal governments will supportdecentralization and improve theefficiency of infrastructureinvestments. However, the successof this new trend rests verycritically upon continuedimprovements in the corporategovernance environment at thelocal government level.
Key reforms related to theplanning and management of
infrastructure services can also improve thefinancing possibilities. The authorization bycentral government to allow local governments toborrow up to 30% of their annual budget fordevelopment investments (100% in the case ofHCMC and Hanoi) was a step in the rightdirection. It will be important for localgovernments to develop their credit-worthiness byensuring, to the extent possible, cost-coveringtariffs (operation, maintenance and investmentcosts) for infrastructure services and bydeveloping new sources of revenue. Improvedcost recovery will provide infrastructureenterprises with the possibility of self-financingusing retained earnings, and open the possibility
Chapter V
Municipal Finance
State-owned commercial banks
8%Budget
11%
Government bonds13%
Private21%
Users14%
ODA37%
Community1%
Infrastructure Investment Financing Mechanisms(% of Investment Finance)
40
for alternative financing sources that rely on futurerevenue streams. The development of newsources of revenue such as a broad based propertytax and/or a local income tax would providefurther opportunities.
Financing Sources
Sources of finance are described below. All, withthe exception of budget funding and equitizingstate-owned enterprises, will require localgovernments to demonstrate that they are creditworthy by making their budgets and accountsopen to public scrutiny, including independentauditing. Local governments will also have toimprove their efficiency by adopting moretransparent procurement of public works and bydeveloping a track record for the timelyprocessing and implementation of infrastructureprojects. A major step towards achieving thiswould be for cities and provinces to obtainindependent credit ratings.
Potential sources of finance include:● Budget transfers and local revenues● Government investment funds -
Development Bank and Local DevelopmentInfrastructure Funds
● Private investment● Bond Issues● Commercial Banks● Equitisation of State-Owned-Enterprises
Budget Transfers and Local Revenues: Thelimited funding available for urbaninfrastructure from budget transfers from thenational government and local fees and chargesneeds to be allocated to its most productive uses.Since budget funds are drawn from taxrevenues30 and taxation imposes welfare costson the economy, there is a real cost imposed on
the economy whenever budget funding is used.Hence, it is desirable to use alternative financingsources to the maximum extent possible, and tolimit the use of budget funding to only thoseprojects for which other financing sources arenot available or appropriate.
Considerations of externalities, or socialequity, involved in the provision of urbaninfrastructure services can in some cases justifythe provision of government funds, without arequirement of full repayment. For example,private individuals' willingness to pay fortreatment of waste water may be low, but thereare public health and environmental benefits forthe entire population of the city that wouldfrequently be sufficient to justify investments inwaste water treatment plants. Ideally, the set ofprojects eligible for budget support should belimited to projects where:● Cost recovery through user charges is
achieved to the maximum extent possible,but this is not sufficient to ensure financialviability of the project using non-budgetaryfinancing; and
● The social benefits of the project have beenshown to exceed private benefits by reasonof externalities or social concerns.At the local government level,
decentralization has increased their spendingobligations. As decentralization hasprogressed, the share of local governments intotal government expenditures has risen from26% in 1992 to 48% in 2002. As noted inChapter 3, during 2006-2010 annualrequirements will be of the order of US$ 378million for urban water supply, US$ 280 millionfor wastewater collection and treatment, US$239 million for drainage including canalrehabilitation, and around US$ 800-900 million
30. General government revenue amounts to about 23% of GDP, of which tax revenue constitutes about 57% andoil revenues about 30%. When the Government seeks to adjust its level of spending it must ultimately adjust its taxcollection, since its sales of oil are driven by commercial conditions. Consequently the marginal dollar of budgetrevenue is usually thought of as being derived from taxes.
41
for urban transport. This gives a total of US$ 1.7to 1.8 billion annually, or around 3.7% of GDPover the period 2001-2010. In addition, annualrequired spending on low income housing inurban areas has been estimated at US$ 835.4million, or 1.8% of GDP.
This has increased the urgency of localgovernments to mobilize financing. The 2005PER-IFA (Public Expenditure Review - IntegratedFiduciary Assessment) examined the challengesinherent in assigning adequate revenues to localgovernments. One potential area for reform isgreater revenue autonomy at local level. Atpresent all taxes are centrally collected. Therevenues from some taxes are retained 100% atthe central level, some other taxes are assigned100% to provinces, and revenues of remainingtaxes are shared between the central governmentand the provincial governments where the taxesare collected. District and commune governmentscan collect certain fees such as waste collectionand school tuition fees, but there are no localtaxes. The PER-IFA suggested the possibility ofpermitting provincial governments to introducelocal income taxes that could be collected togetherwith the existing national income tax, and ofintroducing a modern property tax at district andcommune levels. At present there are manyoverlapping fees on different real estate assetsand transactions, which could be consolidated ina single more efficient property tax. Sinceproperty development is a strong driver ofdemand for municipal infrastructure, propertytaxes are frequently seen as an efficient form ofcost recovery for publicly providedinfrastructure. There may also be the potential forgreater cost recovery for a range of municipalservices (e.g. parking fees).
At present municipal governmentsfrequently raise revenue through deals withprivate property developers, particularlythrough the sale of land use rights. Asprovincial governments do ad hoc deals with
the private sector under less than idealdisclosure environments, possibilities exist forinappropriate behavior. There is a need for abasic framework at the provincial level thatmakes public the operational standards of theprovincial government for partnering withdevelopers, both from the private and publicsectors. Ideally, the standards should bedeveloped by each local government andannounced to the public; alternatively, theymay be proposed by the central government.These standards should impose an obligation touse competitive bidding, and should establish atransparent procedure for dealing withunsolicited proposals.
Government Investment Funds: In recentyears specialist government investment fundshave been created at the national and provinciallevel, with significant roles in infrastructurefinancing. At the national level, the key publicfinancing institution for infrastructure is theDevelopment Bank (DB) formerly theDevelopment Assistance Fund (DAF),established in 2000, with branches throughoutthe country. At the local government level,twelve provinces have followed the lead of HoChi Minh City in establishing LocalDevelopment Investment Funds (LDIFs). Theseinvestment funds serve as mechanisms foraggregating and managing funds from a varietyof sources, to finance a range of projects focusedprimarily on infrastructure development. Animportant difference between the DB and theLDIFs is that the DB raises its funds solely frompublic sources, and lends to public enterprises.One of the motivations for the LDIFs is toprovide a legal structure for organizing jointventures with private investors. The LDIFs canalso make equity contributions to projects. Thefinancial resources involved in the governmentinvestment funds are considerable:● The DB is the biggest financial institution in
the country. In 2004, the DB stock of loans
outstanding was around 12 percent of GDP,and its capital amounted to VND 94,145billion (US$ 6 billion), includingcontributions from ODA (39.9%),Government bonds (14.8%), domestic trustfunds (12.1%), social security fund (10.2%),postal savings (5.9%), Treasury bills (4.2%),state budget (3.6%), capital mobilized byDB's branches (3.1%) and State credit (1.4%).Of the resources mobilized domestically,about 80 percent has been on-lent to SOEs.
● In 2004 the total operating capital of LDIFsin Vietnam was approximately US$ 300million, and the trend of provincialgovernments using LDIFs to increaseinvestment in infrastructure is rising.Available data indicate that the top-sevenLDIFs invested approximately US$98million in 2004, reflecting an investmentincrease of 118% for these funds over the2002 level."Because these institutions are fairly new,
their governance arrangements have not beenfully developed.● The DB formally reports to the Prime
Minister, but is also subject to oversightthrough its Board of Management by theMinister of Finance, State Bank of Vietnam,and the Ministry of Planning andInvestment. The combination of thesevarious lines of authority mean the DBsuffers from mixed management incentives,weak accountability, and limitedsupervision.
● The DB has no reserves for bad debts, nomechanism for evaluating the credit-worthiness of loans, no portfolio limits onweighting for individual sectors orcompanies, and no external audits.
● Many operational aspects of the institutions,including the LDIFs, are still at an early stageof development, including credit riskappraisal and management.
Decree 106/2004/ND-CP is a recentimprovement in the DB's regulatory framework.It narrows the list of eligible borrowers, andstates that only projects that are capable of directrepayment, are socio-economically efficient andhave feasible business plans are eligible for DBsupport. Project assets are to be used as security,and those assets cannot be assigned until loansare fully repaid. An element of risk-sharing,through co-payments by other governmentbodies or by commercial banks, is also required.DB investment lending and credit guaranteecannot exceed 70% of the total capital of aproject. These measures, if effectivelyimplemented, will increase the probability thatdebts will be serviced and fiscal costsminimized. But other problems of governanceand transparency remain.
The same general weaknesses in governanceand transparency exist in the case of the LDIFs.The Ministry of Finance, the lead agency formunicipal finance, has plans to legislate in thisarea, and a new decree envisaged in the 2001Public Administration Reform Master Programis in draft form and currently under governmentreview. The absence of central regulation ongovernance has been a source of flexibility,allowing provinces to experiment with differentstructures. It is important that if, or when, thecentral government legislates, the best featuresof each LDIF be retained. At the same time,legislation on crucial features such asgovernance of the funds should help to provideconfidence that investors' rights will beprotected, helping the funds to raise more long-term capital. The LDIFs have to date not beenable to appropriately leverage their initialcharter capital.
The most fundamental issues that need to beaddressed in the new legislation include:● While the decisions regarding how the
provincial governments use the LDIFs isappropriately left to the provincial
42
governments, the framework has noincentive structure (through the budgetallocation process, for example) todiscourage provinces from using the LDIFsfor policy lending purposes.
● Repayment planning is not adequatelyemphasized in provincial governmentborrowing. Absence of an independentcredit rating agency is a key problem.
● There is a perception at the provincialgovernment level that successful issuance ofmunicipal bonds may result in a decline inbudget support to the province by the centralgovernment.
● The rules for issuance of municipal bondsare not yet clear, and they do not alwaysprovide the right incentives to the issuers.For example, the tenure and the coupon ratesof the bonds are largely determined by theMoF. In addition, disclosure rules for thepublic offerings either do not exist, or arevery weak.Overall, these funds are helping to fill the gap
in long-term finance in Vietnam's capitalmarkets, but they also pose some importantrisks. In particular, they pose a risk to the fiscalpositions of localgovernments and given theunitary nature of Vietnam'sgovernment structure theymay well impose a contingentliability on the nationalgovernment. Given themagnitude of their operationsthere is a need to developgovernance structures thatplaces the institutions at arms'length from the national andlocal governments, todiscourage false expectationsthat projects are ultimatelybacked by government.Various governance and
transparency reforms are required to lessenthese risks. Government appears well aware ofthe associated risks. In particular, government istaking significant actions with the support ofdonors to provide the appropriate incentives tothe provincial governments and to establish anappropriate regulatory framework to supportthe development of LDIFs.
Private Investment: There is great potentialin Vietnam for increased private investment ininfrastructure. Private investment, includingforeign private investment, offers a virtuallylimitless source of financing, and could go far tomeeting the infrastructure investment agenda.As the table below indicates, over the period1997-2003 private investment in infrastructureamounted to about 15% of the totalinfrastructure investment - or only 8.5% if onelarge US$ 1.3 billion gas field and pipelineproject is excluded. Private sector participationin urban infrastructure (water, solid waste, andother development infrastructure sectors)financing has been particularly weak.
A wide range of modalities exist for privatesector participation, from simple servicecontracts, or management contracts where the
43
Private Investment in Vietnam 1997-2003 (Contractual Commitments)-US$ millions
Source: PPI database, except for telecommunications, where BCC network investmentsare drawn from USAID (2005).
Ports Airports Toll roads Telecoms Water Electricity Gas
1994 10
1995 128
1996 15 40 205
1997 70 714 110
1998 237 38.8
1999 120.5
2000 20
2001 154
2002 20 10 480 1300
2003 230 412
2004
private sector partner provides only theirexpertise to more complicated build, own andoperate (BOO) schemes where the private sectorprovides all of the investment and remains theowner and operator of the facilities.
Involving the private sector in undertakingsignificant investments in infrastructure is afairly complicated task. To attract privatefinance, investors need to earn a fair return ontheir capital invested commensurate with therisks undertaken, but these need to be balancedwith the protection of consumers from themarket power of privatized infrastructure. Thisbalancing act must be implemented intransaction documents (legal contracts, licenses,and laws established to induce the initialinvestments) and in an appropriate regulatoryenvironment. To get all of this right requiresskilled professionals, as well as careful politicalguidance. The best way of establishing theseskills is through pilot transactions. Ho Chi MinhCity Infrastructure Fund (HIFU) is promotingthe Thu Duc BOO Water Treatment Plant dealworth around $100 million and in Hanoi anothersimilar deal for the Song Da BOO WaterTreatment Plant was signed with Vinaconex, aSOE owned by the Ministry of Construction.These transactions involving SOEs and mainlystate owned banks will provide some usefullessons. However, pilot projects involvingprivate companies, rather than SOEs, andprivate sources of finance, rather than stateowned banks, would be even more useful interms of opening up access to much greatersources of finance.
Bond Issues: The national Government hasbeen working to develop the government bondmarket, in part to directly finance investment,including infrastructure, and more broadly toserve as a benchmark for broader capital marketdevelopment. It plans to raise VND 63 trillion(US$ 4 billion) by 2010 to be used mainly tofinance infrastructure and education projects. In
2004 the Government issued about VND 5trillion of bonds for infrastructure developmentand VND 2.5 trillion for the education sector,representing about 0.7% of GDP. Bonds of 2years and 5 years maturity have carried couponsof around 8%. In October 2005 the Governmentissued its first overseas government bonds,raising US$ 750 million at a rate of 7.125%.
The bonds are kept off-budget, to complywith the State Budget Law's limit on the budgetdeficit of 5% of GDP. Including off-budgetbonds and state-owned commercial banks(SOCBs) recapitalization would raise the officiallevel of public debt by about 3 percentagepoints, from its current level of around 33% ofGDP. The overall level is not currently worryingfrom the viewpoint of macroeconomic stability,but as the bond program expands thecontribution to the level of public debt willincrease. Clearly the bond issues should bereflected in official statistics of public debt, andif the bonds make economic sense, the StateBudget Law's limit on the deficit should beamended.
The principal purchasers of bonds have beenSOCBs and insurance companies. To ensure fullsubscription, the government has directedSOCBs to purchase bond issues. Insurancecompanies are obliged to invest in bonds orbank deposits. These investors would, if theycould, seek alternative investmentopportunities. Obliging financial intermediariesto invest in bond issues is not the ideal fashion toensure the highest returns for the country'ssavings.
At the provincial level, the first municipalbonds were issued by the Ho Chi Minh Citygovernment in 2003, in the form of a generalobligation bond, raising US$ 127 million. In 2004,HIFU managed the issue of another US$ 127million of municipal bonds for the city. The rulesfor issuance of municipal bonds are not yet clear,and they do not always provide the right
44
incentives to the issuers. Disclosure rules for thepublic offerings either do not exist, or are veryweak. The stock of local government debt inVietnam is not currently a threat to fiscal stability,but care will need to be exercised throughnational oversight to ensure borrowing, with thecontingent liability it imposes on the nationalgovernment, is kept within prudent limits.
Issuance of corporate bonds forinfrastructure development was pioneered byElectricity of Vietnam (EVN), which issuedbonds for the development of the Ialy hydro-electric power plant in 2001. On May 5, 2005EVN began issuing bonds to raise VND 200billion to finance a 500 kV transmission lineproject in the Central Highlands region. Thecoupon rate is 8.8% for the first year of the five-year bond, while in the following years theinterest rate will be equivalent to the averageinterest rate of the four major SOCBs plus 1.1%.Between now and 2010, EVN plans to sell morethan US$ 1.6 billion worth of registered bondson local and international markets. In the futurewater companies, or groups of water companiesworking in conjunction with a financialinstitution, should also be able to issue bonds.
Overall the market for bonds is poised forsignificant development but importantinstitutional reforms, addressing governanceand transparency in particular, are required topermit this potential to be realized.
Commercial Banks: The mismatch betweenthe long-term financing needs of infrastructureinvestment and the short-term deposits held bybanks means that banks are not the idealfinancing institutions for infrastructure.Nevertheless, by pooling their contributions ininvestment consortia the banks can play animportant role in infrastructure financing if theirfinancing is directed towards projects with thehighest returns. Vietnam's financial sector iscurrently dominated by four major (SOCBs),accounting for about 80% of the capital, lending
and assets of the banking system. Over the pastdecade the SOCBs have evolved fromspecialized policy-lending vehicles to morecommercially oriented financial intermediaries.However, much more needs to be done toreform the banking sector before it can beappropriately utilized to finance urbaninfrastructure development.
Infrastructure enterprises have to date notborrowed large amounts from the SOCBs, withthe exception of construction companies in thetransport sector where the SOCBs andcontractors are facing significant financialproblems as a result of a mismatch betweenplanning and financing approvals, combinedwith the failure of SOCBs to provide credit onstrictly commercial criteria. The practice ofinformally directing SOCBs for purposes ofgovernment policy, and the limited creditanalysis capacity of SOCBs has led to theaccumulation of non-performing loans (NPLs),amounting to about 18% of outstanding loans atthe end of 2003. A large proportion of NPLswere accumulated during the period 1995-98when policy loans were made to inefficientstate-owned enterprises. Since then: the StateBank of Vietnam has applied stricter control,including increased reserve requirements toaccount for NPLs: the banks have improvedtheir credit analysis; the Government hasprovided state budget resources to resolveNPLs of state-owned enterprises, and hasestablished the DB as a specific vehicle forpolicy lending and the Debts and AssetsTrading Company to help finance SOEs thatcan still trade their way out of debt. However,more progress is required as the practice ofdirected credit continues, and the SOCBs arecarrying low average capital adequacy ratio(equity/risk assets) of 3.5% (compared to theinternational standard of 8%).
Equitization of State-Owned Enterprises(SOEs): Internationally, many governments
45
31. Source: Vietnam Economy (2005)
46
have used the sale of shares of state-ownedenterprises as a means of raising substantialrevenue. To date, Vietnam's equitizationprogram appears to have been directed atexpected efficiency benefits, rather than as amajor revenue-raising device. But as Vietnamconfronts the financing challenges of its majorinvestment program, equitization could providean additional source of finance.
The equitization program is a process ofdiversification of ownership of state-ownedenterprises by sale of shares. For the most part,equitization has involved sales of shares toworkers, and has been attributed withincreasing workplace productivity by providingstronger worker incentives. Equitization canalso entail sale to another SOE, so it is notnecessarily equivalent to privatization.Equitization frequently entails a sale of as littleas 15% of the shares, with the State remainingthe dominant owner.
In 2003, about 450 SOEs were equitized, anda further 700 in 2004. Surveys conducted in 850equitized SOEs found that businesses whichsuccessfully completed restructuring increasedtheir capital by 44%, turnover by 24% and laborincome by 12%. Most of the equitizedenterprises have been small, with capital underVND 5 billion (US$ 300,000). Firms with overVND 10 billion capital accounted for only 13% ofthe equitized companies in 2004.31
Rules related to the equitisation of companiesinvolved in urban infrastructure under Decision155 of 2004 include:● The national electricity transmission system
will remain State owned, but distributionand generation are open to equitization of upto 49%.
● Management and maintenance of thenational railway network are to remain Stateowned, as are large airports and seaports,
sewage treatment works in big cities andpublic lighting.
● The State will retain at least 50% of capital inlarge urban water companies.
● The State will retain at least 50% of thecompanies operating in the managementand maintenance of important roads,waterways, boats and bus stops.
● Construction companies no longer appear onlists of SOEs where the State will retain atleast 50% of the capital.Thus the new Decision and the new Decree
provide a legal basis for the equitization of someinfrastructure SOEs.
Several features of the current equitizationprogram reduce its financing benefits. Investorswill reduce the amount they are willing to payfor shares in a company if:● There is inadequate disclosure of
information about the accounting positionand the business risks;
● An underdeveloped corporate governanceregime does not provide adequateshareholder rights to direct managers, ordoes not protect minority shareholders'rights to a proportional share of profits;
● Investors in infrastructure are not able toobtain management control;
● Shares are not listed on a stock exchange,reducing the ease with which shares can besold. Only a small proportion of equitizedcompanies are listed. In 2005 only 28equitized SOEs were listed on the Ho ChiMinh stock exchange, out of more than 2,400equitized SOEs.
● Sales are frequently restricted to managersand workers, who may be willing or able topay less for particular shares than generalinvestors.As the equitization process expands in size
and scope, these problems need to be remedied.
47
This could, in part, be achieved by a newcomprehensive law on equitization (or onequitization of infrastructure firms), dealingwith the methods of sale, legal rights of redressof minority shareholders etc. Alternatively, thegovernment could start with pilot projects, andimprove its practice as it goes on.
Requirements for Success inDiversifying Municipal Finance
The primary factors that will determine themagnitude and quality of municipal financemobilized at the provincial government levelinclude:● Technical Capacity: Local government
capacity to undertake innovative municipalfinance will greatly limit the extent to whichprovincial governments can take advantageof the new municipal finance tools - such asissuance of municipal bonds andpartnerships with the private sector. In thefuture, the difference in local governmenttechnical capacity may result in greaterdisparities in economic growth and livingstandards across the country.
● Disclosure Standards: The absence ofappropriate and consistent disclosurestandards for provincial governmentoperations is, and will continue to become, asignificant bottleneck to the emerging
decentralized municipal finance system.Lack of disclosure affects citizens' trust in thelocal government, undermines investorconfidence in government's investmentvehicles/agencies, and limits the ability oflocal government to form partnerships withprofessional private sector players.
● Public Private Partnerships Framework:As provincial governments do ad hoc dealswith the private sector under less than idealdisclosure environments, possibilities existfor inappropriate behavior. Hence, there isa need for a basic framework at theprovincial level that makes public theoperational standards of the provincialgovernment for partnering with the privatesector. Ideally, the PPP standards should bedeveloped by each provincial governmentand announced to the public; alternatively,they may be proposed by the centralgovernment.
● Focus on Debt Repayments: The incentivestructure at the provincial government levelmust emphasize the need for developingcomprehensive financing plans that canmatch investment needs with repayments.Recovering costs, to the extent possible,through user charges will be a key part ofthis as will the establishment of mechanismsfor prioritizing investments and sound creditmanagement policies.
t is very important for Government to dealproactively with the rapid pace ofurbanization in order to maintain the high
rate of economic growth (cities are the primaryengines of growth) and to help alleviatepoverty as increasing numbers of the rural poormigrate to the cities. Although there arepockets of poverty spread throughout cities,Vietnam has so far managed to avoid the vastsprawling slums that have developed in thelarge cities of other developing countries inAsia like the Philippines and India.Government should give priority to ensuringthat all urban residents, including the poor,have access to basic infrastructure services andaffordable housing.
Guiding Policies
With regard to policies that are specific to theurban sector, the Orientation Master Plan forUrban Development to 2020 needs to be revisedbecause it has become out of date since it wasapproved in 1998. It should reflect the country'smove towards a more market oriented economyand recognize the changes that have arisen fromthe increased decentralization that has takenplace. In particular it should take account of thechange of Central Government's role from thatof directly controlling development to that offacilitating, guiding and regulating it. TheOrientation should also be more realistic onwhat can be achieved within the time-frame itcovers, given the constraints that exist on
financial resources. The draft Urban WaterSupply Decree that is expected to be approved bymid 2006 sets a good example of a policydocument that provides a solid frameworkwithin which the sub-sector can grow. Similarinitiatives are required for wastewater anddrainage, solid waste management and urbantransport. Particular issues that need to beaddressed in these sub-sectors include guidanceon carrying out the economic and financialappraisal of high cost urban mass transitsystems and mechanized recycling andcomposting processes for solid waste; andtransparent procedures to safeguard the socialand environmental interests of people affectedby the construction of new wastewatertreatment and solid waste disposal facilities.The need for policy guidance on urbantransport is particularly critical given the highgrowth rate of car ownership and the movesbeing made to develop high cost mass transitsystems in Hanoi and Ho Chi Minh City.
Other broader policy areas such asDecentralisation and Financial Sector Reform arehaving a profound impact on urbandevelopment. Transferring greaterresponsibility to the administrative levelsclosest to the residents of urban areas throughdecentralization is obviously a positive step interms of being able to respond more quicklyand effectively to their needs and desires.However, this is a fundamental change in theway the country is administered and requires ahuge capacity building effort to strengthen
49
Chapter VI
Recommendations for Improving Urban Development
I
managerial and technical skills at the localGovernment level. Further decentralization ofauthority for urban planning and for theimplementation of projects is also likely to bebeneficial. Project implementation suffersunnecessary delays in the approval of feasibilitystudies, designs and the procurement processbecause of multiple, often redundant, reviewsat both local and central Government levels.These reviews need to be streamlined with asmuch responsibility as possible delegated to thelocal Government level. Financial sectorreforms will enable city and provincialGovernments to mobilize additional resourcesfor development (see below).
Needs, Access and Goals
The percentages of urban residents with accessto basic infrastructure services given in Chapter3 indicate there is much still to be done to catchup on the remaining backlog and to address theneeds arising from rapid urban growth. The costestimates presented in Chapter 5 indicate thatthe funding requirements are enormous.Mobilising additional sources of finance will beessential. It will be vitally important toeffectively prioritise investments within theconstraints of what can realistically be financed.This should include selecting appropriatedesign horizons and technical standards for newinvestments. For many infrastructure projectssuch as urban roads, water, and wastewatertreatment plants etc, it would be best to adopt anincremental approach with a relatively shortinitial design horizon of 10 to 15 years. Thiswould minimize initial investment needsthereby enabling more people to benefit. Itwould also allow designs to be better tailored tomeet the demand that actually materializes inthe future. Where the incremental cost ofproviding additional capacity is small, forexample large drains and sewers, it is moreappropriate to adopt longer term design
horizons. Adopting demand driven approacheswith beneficiary participation throughout allstages of the investment cycle would makeprioritization easier. It should also make it easierto mobilize additional financing by increasingbeneficiaries' willingness to pay. This isdemonstrated by the World Bank supportedpilot water supply projects in District Towns inHaiphong and Bac Ninh and the initial stages ofthe Urban Water Supply Development Project,all of which adopt a demand driven approachwith intensive beneficiary consultation. This hasresulted in the acceptance of full cost recoverytariffs that are much higher than the tariffs beingpaid in nearby cities.
In terms of relative priority across sub-sectors, it is probably most important to ensurethat all urban residents have access to pipedwater that meets national standards.Fortunately, it is easier to attract private sectorparticipation and to mobilize domestic capitalfor the water supply sector, than for most otherinfrastructure sub-sectors. Use of the statebudget should therefore be limited toproviding transparent subsidies to the poorand for making investments in poor provinces,where attracting others sources of finance willbe difficult.
Government has correctly been givingpriority to dealing with environmental
50
New water Treatment Plant at Nam Du, Hanoi
pollution and flooding, which is worst in thelargest cities, where the densities of people andindustry are highest. The costs from flooding, interms of property damage, are also highest in thelargest cities. The demand for wastewatercollection and treatment, improved drainage andthe safe disposal of solid waste increases aspeople become wealthier and better educated(Vietnam's literacy rate is very high).Government's policy in prioritizing the largestcities will deliver the highest level ofcost/benefit. It will be more difficult to mobiliseother sources of finance for these sub-sectors andfor at least the next 5 to 10 years funding willhave to come primarily from the State budget(including ODA). Currently all funding forenvironmental sanitation, with the exception ofequipment for solid waste management, isprovided by Central Government as grants. Itwill be necessary to change this to make the Statebudget go further by requiring wealthier cities tomobilize part of the funding, possibly on amatching basis e.g. the city/province is requiredto match every VND 1 billion grant provided byCentral Government with VND "x" billion fromtheir own resources. Cities/provinces wouldneed to increase wastewater and solid wastecharges for this to happen.
The need to address urban transport
problems is becoming increasingly important inthe largest cities. Car ownership growing ataround 10% per year is giving rise to congestioncreating demand for more road and parkingspace. City planners will need to balance thisagainst conflicting demands to preserve thehistorical character of cities such as Hanoi andHue, which make them so attractive to touristswho bring in substantial revenues. Care alsoneeds to be taken to preserve the pleasanthuman scale and vibrancy of Vietnam's cities.Introducing improved public transport systemsshould be given high priority to offset thedemand for more roads. This should focusinitially on the introduction of bus-basedsystems. In most cities around the world publictransport has to be subsidized to some extent tomake it affordable. Subsidies can be minimizedby contracting out the right to operate routes ona competitive basis and by adopting least costoptions - usually bus-based systems. Whereroads have to be widened, or car parksprovided, car owners should contributetowards their cost through taxes and parkingfees. Taxes and fees should also be used tomanage demand.
Making affordable housing available, giventhe very high cost of land in Vietnam's maincities, is a major challenge. The provision of
51
New wastewater Interceptor Tunnel under NhieuLoc Thi Nghe Canal, Ho Chi Minh City New Solid waste Landfill being built in Danang
social, or public, housing by Governments hasgenerally not been successful in most countries.The solution is in providing the necessaryincentives to private sector developers and toencourage landlords to invest in rentalproperty. In parallel it will be important todevelop the housing finance market as part ofthe broad financial sector reform. Borrowingwill become more affordable with increasedcompetition and through longer lending terms,which will become feasible as the capitalmarket matures. A very cost effective andsocially benign way to improve livingconditions and housing for poor people isthrough the in-situ incremental improvement,or urban upgrading, of existing slums. Thisinvolves the city investing in thecomprehensive improvement of tertiary levelinfrastructure (drains, sewers, water supply,paved roads/alleys, street lighting etc),providing householders with security of tenure(land use right certificates), and making smallloans available to enable residents to improvetheir houses. Research from other countriesshows that residents will invest up to 7 times intheir houses what the city invests ininfrastructure. The World Bank is supportingthis type of urban upgrading in Can Tho,Haiphong, Ho Chi Minh City and Nam Dinhand the preparation of a National UrbanUpgrading Program for the entire country.
Urban Management and Planning
There needs to be much better coordinationamongst Ministries and local Governmentdepartments responsible for socio-economicplans; sector plans; and spatial (master orconstruction) plans. All of the plans and spatialplans in particular should be based on the levelof investment that is realistically likely tobecome available in the time period they cover.Spatial plans need to become more strategic andless prescriptive. They also need to be able to
respond much more rapidly to market signals.Attracting investment in a global marketeconomy is unpredictable. Cities, in order tocompete effectively, must be able to quicklyadapt their plans, within an overall strategicframework, to meet the needs of investors.There should be much higher levels ofconsultation with all stakeholders (residents,businessmen and investors) during thepreparation of plans to ensure the plansrespond to their needs. The approval ofplanning applications also needs to be mademore transparent, with affected residents giventhe right to participate in the process.
Planning should be increasinglydecentralized and subject to more local control.In parallel with the delegation of increasedauthority to local Governments there must begreater accountability. In particular there mustbe much stricter enforcement of planningcontrols. The most effectively prepared citymaster plan is worthless if the strategiespresented are not enforced. Performancestandards for infrastructure that fit and benefitlocal situations should replace the practice ofadopting prescribed national standards. Suchperformance standards should be applied toroad capacity, wastewater treatment standards,the provision of open space, height limits,setbacks, mixed use compatibility, noise levels,etc. This would allow the incrementaldevelopment approach to infrastructurereferred to above to be adopted. Provided landreservations are made for the ultimateprojected need the physical infrastructure canbe developed gradually over time as needede.g. an arterial road that ultimately is expectedto require six lanes could start off with theconstruction of only two and be expanded astraffic grows.
The development of peri-urban areaspresents special challenges. Ideally theinfrastructure should be constructed ahead ofindustrial, commercial and residential
52
53
development, or at least on a "just-in-time"basis. It is however always difficult to mobilizethe necessary finance when it is needed.Enforcing the protection of road and utilityreservations over long time periods is also achallenge. To address these matters it is vitalthat: all the different forms of planning arecoordinated; the plans take a realistic accountof the level of funding likely to be available forinfrastructure; and the funding is effectivelyprioritized. The establishment of effectiveinstitutional arrangements by cities to managethe development of peri-urban areas will be ofkey importance.
In 2004 Government recognized theimportance of regional planning byestablishing a Steering Committee chaired by aDeputy Prime Minister to oversee theirpreparation. So far this has focused on spatialplanning. It needs to be broadened to ensurecoordination of the different types of planningand an effective institutional framework put inplace to ensure that the plans can beimplemented.
Municipal Finance - Resources andNeeds
As already noted, the financing needs of urbaninfrastructure are well in excess of State budgetresources. The cost estimates provided in ChapterIII indicate that investment levels for the twodecades from 2000 to 2020 need to be severalorders of magnitude higher than they were for the1990s if all urban residents are to receive access tobasic infrastructure by 2020. To meet these needsGovernment should empower cities/provinces tomobilize more funds from sources such as:national development funds, or banks, such as theDevelopment Assistance Fund; LocalDevelopment Infrastructure Funds (LDIFs), suchas HIFU; municipal bond issues; and commercialbanks. Cities should also be encouraged toincrease their self-generated revenues.
Within the inter-Governmental transferarrangements that apply to the State budget,Government should use the scarce resourcesavailable for urban development: to leverageother sources of finance; for pilot investmentsto demonstrate new ideas and policies; and forthe most disadvantaged urban areas. Wealthiercities and provinces should be able to mobiliseother sources of finance. The current inter-Government budgetary transfer mechanismdescribed in Chapter 2 should be reviewed andpossibly modified to ensure that there arepositive incentives to encourage themobilization of additional funds.
Cities/provinces should give priority todeveloping an appropriate enablingenvironment to attract investment ininfrastructure from the private sector. To attractfinance, cities will need to make themselvesmore credit-worthy - ideally by obtaining acredit rating from an independent agency. Cityfinances and procurement processes will needto become more transparent and subject toindependent audit in order for this to happen.In addition, a basic framework of regulations isrequired to guide public private partnerships toavoid actual, or perceived, conflicts of interest.
Cities should increase their self generatedrevenues by raising user charges so that theyfully cover the cost of providing infrastructureservices, including some, or all, of the capitalcosts (through depreciation including loanrepayments). People's Councils tend to bereluctant to approve the levels of increasenecessary, despite the fact that surveys indicatethat people are generally willing to pay morethan authorities are prepared to charge for adecent level of service. Research is required todetermine the impact that full cost recoverywould have on the poor and disadvantagedand to identify how they can be protected.Water tariffs are already close to full costrecovery levels in a few cities such as Hanoi,Haiphong and Halong. However, more needs
54
to be done in other cities/provinces. Solidwaste and wastewater charges are well belowfull cost recovery levels in all cities/provinces.In the case of wastewater charges, Decree 67 onEnvironmental Pollution needs to be amendedto remove the limitation it places onwastewater tariffs not exceeding 10% of thewater tariff, with half of the revenue raisedbeing transferred to Central Government. Forurban transport, care will need to be taken insetting fare levels to establish the appropriatebalance between achieving cost recovery andattracting passengers away from personalforms of transport to alleviate congestion.
The very high price of land and property inVietnam's main cities is a potential source ofrevenue that is utilized in many other countriesthroughout the world. City authorities shouldseek to mobilize some of this value throughstricter enforcement of transfer taxes and theintroduction of annual taxes based on propertyvalues.
The rules for issuing municipal bonds needto be strengthened by developing disclosurerules and giving greater emphasis torepayment planning. LDIFs should focus onlending on full commercial terms, eitherentirely, or in parallel with a grant providedfrom a separate funding source. In cases whereparallel loans and grants are adopted theeligibility criteria and the process should befully transparent. The practice of using LDIFsto manage other sources of money on a "pass-through" basis should be stopped.
Vietnam has made great strides in urbandevelopment since the "doi moi" reforminitiatives were introduced in 1987. Howevermuch remains to be done to enable its citiesand towns, which are the nation's mainengines of growth, to compete moreeffectively in the global market place.Adoption of the recommendations outlinedabove would make a significant contributiontowards achieving this.
55
Chapter VII
Annexes
ANNEX 1A: City Classification and Decentralized ResponsibilitiesANNEX 1B: Current City Classification (2006)ANNEX 2: Official MOC Urban Population Forecasts ANNEX 3: Central Governmental Responsibilities for Urban Issues
56
ANNE
X 1A
: City
Clas
sifica
tion
and
Dece
ntra
lized
Res
pons
ibili
ties
Urb
an A
dmin
istra
tive
Num
ber
of
Clas
sific
atio
n Cl
assif
icat
ion
Citie
s/To
wns
Char
acte
ristic
sAd
min
istra
tive
Resp
onsib
ilitie
s
Spec
ial C
ities
(Han
oi
2La
rges
t citi
es w
ith
●So
cioe
cono
mic
pla
ns, i
nves
tmen
t pla
n an
d bu
dget
s
and
Ho
Chi M
inh
City
popu
latio
ns o
ver 1
,500
,000
●Pl
an a
nd m
anag
e in
frastr
uctu
re in
vestm
ent
●Pr
epar
e an
d m
anag
e th
e la
nd u
se p
lan
in th
e lo
calit
y
●M
anag
e sm
all a
nd m
iddl
e siz
e SO
Es
●O
rgan
ize
the
impl
emen
tatio
n an
d co
nstru
ctio
n of
pla
nned
indu
stria
l or
proc
essin
g zo
nes
●Pl
an &
man
age
infra
struc
ture
-- lo
cal t
rans
port
syste
m (
excl
udin
g na
tiona
l
road
s an
d ra
ilroa
ds) h
ighw
ays,
wat
er s
uppl
y, d
rain
age
and
sew
age
syste
m
●M
anag
e hi
gh s
choo
ls, v
ocat
iona
l sch
ools,
clin
ics,
herit
age
sites
●D
ecid
e sta
te in
vestm
ent p
roje
ct (c
lass
es B
and
C)
●Li
cens
e fo
reig
n in
vestm
ent p
roje
cts
with
the
regi
stere
d ca
pita
l no
mor
e th
an
US
$ 5
mill
ion
(for H
anoi
and
HCM
City
the
proj
ect s
ize
is no
mor
e th
an
US
$ 10
mill
ion)
●Al
loca
te a
nd le
ase
land
for o
rgan
izat
ions
and
fore
igne
rs
●Re
giste
r non
-sta
te e
nter
prise
s
●Ap
prov
e &
man
age
the
hous
ing
deve
lopm
ent a
nd s
tate
ow
ned
hous
ing
stock
Nat
iona
l Citi
es -
Clas
s I
3Ci
ties
with
pop
ulat
ions
●
Gen
eral
ly s
ame
as S
peci
al C
lass
Citi
es a
nd P
rovi
nces
from
500
,000
to 1
,500
,000
with
low
er fi
nanc
ial l
imits
57
ANNE
X 1A
: City
Clas
sifica
tion
and
Dece
ntra
lized
Res
pons
ibili
ties (
cont
iniu
e)
Urb
an A
dmin
istra
tive
Num
ber
of
Clas
sific
atio
n Cl
assif
icat
ion
Citie
s/To
wns
Char
acte
ristic
sAd
min
istra
tive
Resp
onsib
ilitie
s
Regi
onal
Citi
es -
Clas
s II
12Ci
ties
with
pop
ulat
ions
●
C
ity s
ocio
econ
omic
and
phy
sical
pla
ns
from
250
,000
to 5
00,0
00●
L
ocal
fund
bud
getso
Loc
al la
nd u
se p
lans
(usu
ally
thro
ugh
cont
ract
with
the
Nat
iona
l Urb
an a
nd R
ural
Pla
nnin
g In
stitu
te)
●
Allo
cate
and
leas
e la
nd fo
r hou
seho
lds
and
indi
vidu
als
●
Man
age
craf
t vill
ages
●
Con
trol l
ocal
con
struc
tion
(i.e
., di
stric
t clin
ics,
unpa
ved
and
smal
l roa
ds,
distr
ict c
ultu
ral s
truct
ures
, prim
ary
and
seco
ndar
y sc
hool
s)●
M
anag
e th
e in
tern
al ro
ad n
etw
ork
●
Man
ge th
e so
cial
infra
struc
ture
(i.e
., di
stric
t clin
ics,
prim
ary
and
seco
ndar
y sc
hool
s)●
Is
sue
the
land
use
cer
tific
ates
●
M
onito
r the
ope
ratio
n of
fam
ily o
wne
d bu
sines
ses
●
App
rove
inve
stmen
t pro
ject
s (u
sing
state
bud
get c
apita
l) de
lega
ted
by th
epr
ovin
cial
aut
horit
ies
●
Allo
cate
lan
d fo
r ind
ivid
uals
and
hous
ehol
ds
Prov
inci
al C
ities
- Cl
ass
III16
Citie
s w
ith p
opul
atio
ns
●
Sam
e as
cla
ss II
, sm
alle
r sca
le,
with
low
er fi
nanc
ial l
imits
from
100
,000
to 2
50,0
00
Dist
rict T
owns
- Cl
ass
IV58
Citie
s w
ith p
opul
atio
ns
●
Sub
-dist
rict s
ocio
econ
omic
pla
ns &
bud
gets
from
50,
000
to 1
00,0
00●
A
lloca
te la
nd fo
r the
pub
lic s
ervi
ce in
the
sub-
distr
ict
●
Kin
derg
arte
ns, c
ultu
ral s
truct
ures
, & s
mal
l hea
lth c
ente
rs●
Im
prov
e lo
cal i
nfra
struc
ture
(i.e
., sm
all a
lleys
, roa
ds, s
ewag
e an
d dr
aina
gesy
stem
s)
Tow
nlet
s - C
lass
V61
2Ci
ties
with
pop
ulat
ions
fro
m 4
,000
to 5
0,00
0
58
Urban Classification Number of Cities /Town
Classification Characteristics
Special Cities (Hanoi and Ho Chi Minh City)
2
National center to promote national development More than 90% of non-agricultural labor Basically completed infrastructure Population over 1,500,000 people Population density over 15,000 people / km2
Class I (Haiphong, Danang and Hue)
3 National center to promote national or regional development More than 85% of non-agricultural labor Completed infrastructure in many aspects Population over 500,000 people Population density over 12,000 people / km2
Class II (Thai Nguyen, Nam Dinh, Viet Tri, Ha Long, Thanh Hoa, Vinh, Quy Nhon, Nha Trang, Buon Me Thuot, Dalat, Bien Hoa, Vung Tau, My Tho and Can Tho
14 Regional center to promote inter-regional or some sector development More than 80% of non-agricultural labor Relatively completed infrastructure Population over 250,000 people Population density over 10,000 people / km2
Class III (Vinh Yen, Bac Ninh, Hai Duong, Thai Binh, Lao Cai, Lang Son, Yen Bai, Bac Giang, Cam Pha, Dien Bien Phu, Son La, Hoa Binh, Dong Hoi, Tam Ky, Quang Ngai, Tuy Hoa, Pleiku, Phan Rang, Phan Thiet, Long Xuyen, Rach Gia, Soc Trang, Ca Mau)
23 Regional or provincial center to promote a provincial or some sector development within province More than 75% of non-agricultural labor Completed infrastructure in certain aspects Population over 100,000 people Population density over 8,000 people / km2
Class IV 54 Provincial center to promote the provincial development More than 70% of non-agricultural labor Completed infrastructure in certain aspects Population over 50,000 people Population density over 6,000 people / km2
Class V 622 Provincial center to promote the district and/or rural center development More than 65% of non-agricultural labor Infrastructure in development Population over 4,000 people Population density over 2,000 people / km2
Total 718
Annex 1B: Current City Classification (2006)
Sources: Department of Architecture and Construction Planning, Ministry of Construction (2006)
59
ANNE
X 2
: Of
ficia
l MOC
Urb
an P
opul
atio
n Fo
reca
sts32
City
33(19
98 C
lassif
icatio
ns)
Popu
lation
Cha
nge
Gro
wth R
ate
(%)
Ann
ual G
rowth R
ate
(%)
1998
2010
2020
1998
-201
020
10-2
020
1998
-202
019
98-2
010
2010
-202
019
98-2
020
1998
-201
020
10-2
020
2010
-202
0
Spec
ial C
lass Citie
s4,40
3,00
010
,017,0
0016
,500
,000
5,61
4,00
06,48
3,00
012
,097
,000
128%
65%
275%
10.6%
6.5%
6.5%
Ho
Chi
Minh
City
3,25
2,00
07,00
0,00
012
,000
,000
3,74
8,00
05,
000,
000
8,74
8,00
0115
%71%
269%
9.6%
7.1%
7.1%
Ha
Noi
1,151
,000
3,01
7,00
04,50
0,00
01,8
66,0
001,4
83,0
003,34
9,00
016
2%49
%29
1%13
.5%
4.9%
4.9%
Natio
nal C
ities –
Clas
s I
1,230
,740
2,58
6,00
04,
225,00
01,3
37,0
001,6
57,0
002,
994,00
013
5%64
%24
3%11.2
%6.4%
6.4%
Ha
i Pho
ng54
0,00
01,100
,000
1,800
,000
560,00
070
0,00
01,2
60,0
0010
4%64
%23
3%8.7
%6.4%
6.4%
Da
Nan
g47
6,00
096
8,00
01,4
25,0
0049
2,00
045
7,00
094
9,00
010
3%47
%19
9%8.6
%4.7%
4.7%
Hu
e21
5,00
050
0,00
01,0
00,0
0028
5,00
050
0,00
078
5,00
013
3%10
0%36
5%11.1
%10
.0%
10.0%
Regio
nal C
enters –
Clas
s II
1,754
,140
3,41
4,00
05,
040,53
01,6
59,860
1,626
,530
3,28
6,39
095
%48
%18
7%7.9
%4.8%
4.8%
Bie
n Ho
a29
1,000
600,
000
850,
000
309,00
025
0,00
055
9,00
010
6%42
%19
2%8.8%
4.2%
4.2%
Can
Tho
220,
000
300,
000
500,
000
80,0
0020
0,00
028
0,00
036
%67
%12
7%3.0%
6.7%
6.7%
Nh
a Tr
ang
216,
000
350,00
050
0,00
013
4,00
015
0,00
028
4,00
062
%43
%13
1%5.2%
4.3%
4.3%
Na
m D
inh19
8,00
025
4,00
030
0,00
056
,000
46,0
0010
2,00
028
%18
%52
%2.3%
1.8%
1.8%
Th
ai Ng
uyen
176,
000
279,00
046
7,00
010
3,00
018
8,00
029
1,000
59%
67%
165%
4.9%
6.7%
6.7%
Vu
ng T
au14
0,00
035
0,00
050
0,00
021
0,00
015
0,00
036
0,00
015
0%43
%25
7%12
.5%
4.3%
4.3%
Ha
Lon
g12
9,00
050
0,00
070
0,00
037
1,000
200,
000
571,0
0028
8%40
%44
3%24
.0%
4.0%
4.0%
Vi
nh12
2,00
025
0,00
038
0,00
012
8,00
013
0,00
025
8,00
010
5%52
%21
1%8.8%
5.2%
5.2%
Bu
on M
e Th
uot
106,
000
200,
000
350,00
094
,000
150,
000
244,
000
89%
75%
230%
7.4%
7.5%
7.5%
Vi
et T
ri86
,000
181,0
0029
3,00
095
,000
112,0
0020
7,00
0110
%62
%24
1%9.2
%6.2%
6.2%
Ho
a Bin
h70
,000
150,
000
200,
000
80,0
0050
,000
130,
000
114%
33%
186%
9.5%
3.3%
3.3%
Total 16
Citie
s (C
lass S, I, II)
7,38
8,00
015
,999
,000
25,765
,000
8,61
0,86
09,76
6,53
018
,377
,390
117%
61%
249%
9.8%
6.1%
24.9%
Clas
s III
Citie
s 2,
805,54
05,32
4,00
07,99
1,480
2,27
3,14
02,
667,48
05,
185,
940
81%
50%
185%
6.8%
5.0%
18.5%
Clas
s IV
Citie
s (Tow
ns)
809,00
01,2
31,0
001,3
89,0
0068
5,90
015
8,00
058
0,00
085
%13
%72
%7.1
%1.3
%7.2
%
Distr
ict, R
ural
Cente
rs (C
lass V)
3,69
7,88
06,48
6,00
07,96
5,99
02,
788,12
01,4
79,990
4,26
8,110
75%
23%
115%
6.3%
2.3%
5.2%
20 N
ew U
rban
Citie
s---
1,360
,000
2,88
8,00
01,3
60,0
001,5
28,0
001,5
28,0
00na
112%
nana
11.2%
na
Total U
rban
Viet
Nam
14,700
,560
23,863
,000
38,0
08,520
15,718
,020
15,6
00,0
0029
,939
,440
107%
65%
204%
8.9%
6.5%
20.4%
% U
rban
Viet
Nam
~ 23
%~
32 %
~ 40
%
32. M
inis
try
of C
onst
ruct
ion
(199
8) O
rient
atio
n M
aste
r Pla
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33. 1
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60
ANNEX 3: Central Governmental Responsibilities for Urban Issues
Ministry Urbanisation Functions and Responsibilities
Communist Party ● Policy guidance● Published party priorities minimally address urban issues
National Assembly ● Approves budget, sets expenditure priorities, prioritizes majorprojects ● Controls decentralization
● Sets formulae for local retention of revenue
Prime Minister ● Manages conflicting policies and agendas of ministries
Finance (MOF) ● Proposes budget (rural/urban priorities)● Allocates resources for state investments● Manages decentralization of revenues
Planning and Investment (MPI) ● Plans the state (or city, province or region) economy● Prioritizes sectors and major project locations● Integrates sector plans into overall socio-economic plan● Picks state investment projects● Seeks and approves FDI and ODA projects
Construction (MOC) ● Designated responsibility for urban issues● Prepared Urban Development Orientation Plan for 2020● Spatial (physical master plans) planning to locate projects
● Sets standards for city classifications and approves advancement ● Prepares spatial plans for most cities and provinces through the
National Urban and Rural Planning Institute34
● Controls urban water and sanitation projects● Controls SOEs doing construction and builds major projects● Controls permission for large building projects● Runs civil engineering and architectural universities
Transportation (MOT) ● Major transport projects (ports, rail, airports, national roads)● Road priorities and design● Controls SOE’s that build transport facilities
Natural Resources and Environment ● Responsible for land allocation(MONRE) ● Sets regulations for allocation of urban land
● Responsible for environmental regulations and controls
Industry ● Responsible for power generation and electricity management● Responsible for the management of energy SOEs
Telecommunications ● Responsible for the management of telecommunications ● Issue regulation for the operation in the telecommunication sector
Trade, Industry, Commerce Sectors ● Plans and runs industrial and production sector economy● Owns and operates sectoral SOEs
Rural Development ● Management of agriculture and rural production and development● Set regulations and plan the agricultural cultivation zoning● Responsible for the forest and water resources management● Responsible for rural water supply and sanitation.
34. Only the largest cities Special and most Class I have their own planning institutes and even they are notautonomous.