Executive Summary: Vietnam Urbanization Review
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1 Cities Alliance Project Output Executive Summary: Vietnam Urbanization Review Urbanization Review: Developing the Analytical Tool and Implementing a Pilot in Vietnam P This project output was created with Cities Alliance grant funding.
2 Executive Summary Vietnam will have only one chance to get urbanization right. If we fail at urbanization, we will fail at industrialization and modernization. -- Deputy Prime Minister Nguyen Sinh Hung, speaking at the Vietnam National Urban Conference, November 6 th -7 th, Introduction As Vietnam enters an accelerated period of urbanization with correspondingly faster economic development, the Government of Vietnam has placed strong emphasis on developing its system of cities. That commitment is explicitly stated in the above statement by Deputy Prime Minister Nguyen Sinh Hung. In accordance with that objective this report is dedicated to furthering the understanding of Vietnam s urbanization process by helping to identify key challenges and core policy priorities that the government will need to address. This Report is part of a series of Urbanization Review pilot projects being prepared for several countries. The Urbanization Review seeks to build a body of knowledge on the challenges of urbanization and ensuing public policy implications in a variety of settings. The Urbanization Review for Vietnam was prepared following extensive consultations with various stakeholders, including officials from national and local government, private sector groups and international and bilateral organizations active in development assistance in the urban sector in Vietnam. It also builds on a number of more in-depth studies that were commissioned specifically for the Vietnam Urbanization review. The intent of this phase of the Urbanization Review is to provide an understanding of how the urban structure in Vietnam is evolving along five transitions: administrative; demographic; economic; physical; and welfare. This is summarized in Chapter 1 of the Urbanization Review. The Urbanization Review then focuses its attention on understanding in more detail some core areas considered important for urbanization challenges in Vietnam, as identified as key areas of concern by those consulted in the preparation of this report. This includes: connectivity of the urban portfolio (Chapter 2); land, real estate, planning and mobility (Chapter 3); and basic urban services (Chapter 4). These are referred to as the core diagnostics. It is hoped, that this work will provide a fuller understanding of the basic elements of Vietnam s urbanization process, shed some light on the challenges it is facing and identify areas for further analysis that will aid policy makers in addressing these challenges. Some of areas for further consideration in a second phase or continuing input to the Urbanization Review are presented in the final chapter of the Urbanization Review (Chapter 5). Principal Messages of the Vietnam Urbanization Review Vietnam s Evolving Urban Structure Chapter 1 considers how Vietnam s urban structure is evolving. This analysis is done by considering five transitions across the entire urban system: administrative, demographic, economic, physical and welfare. Understanding these transitions is important for developing the right policies that will allow Vietnam to maximize the benefits from its ongoing urban transformation.
3 Vietnam has a low level of urbanization compared to many other countries in Asia stemming from years of mostly anti urban policies. Since the 1986 Doi Moi reforms, however, Vietnam s urban population has begun to grow. The review indicates that Vietnam is in an incipient stage of urbanization transitioning to an intermediate stage with rapid urbanization (30% urban; 3.4% urban population growth per year) with an increasing economic transition to industrial manufacturing in employment and economic output. Population growth in the past ten years has been fastest in Vietnam s largest cities of Hanoi and HCMC, their surrounding suburbs and some class 2 and 3 cities. With few exceptions, class 4 cities grew the least or lost population. Vietnam has developed two independent dominant core-periphery urban systems: Ho Chi Minh City and Hanoi. Vietnam s rapid economic growth is driven by these two urban systems with high growth and industrial concentration found in these cities and their surrounding areas. This finding is consistent with other rapidly developing countries in incipient or intermediate stages of urbanization. While growth is concentrated in these two core urban systems, Hanoi and Ho Chi Minh City manifest different economic growth trajectories driven by different conditions of economic geography. Ho Chi Minh City and the Southeast region host nearly half (45%) of overall manufacturing production. However, heavy and fast growing (higher tech) manufacturing activity is more intense in the Hanoi and the Red River Delta Region than in HCMC and the Southeast Region (55% and 39%, respectively). Industrialization is rapidly progressing in Hanoi and the Red River Delta region due to its proximity to the massive industrial bases in South China. But it appears that HCMC and the Southeast Region show some signs of saturation in production of low value-added products. These differences in economic profile have important implications for policy makers. While economic development is uneven and concentrated in the two core metropolitan regions of HCMC and Hanoi, as is to be expected, welfare improvements have been more widespread. Overall there appears to be strong convergence of welfare; this steady evening of welfare improvement is mainly driven by sustained and strong government commitment to inclusive social development as well as strong growth of core metropolitan cities and ensuing positive spillover to the hinterlands. But these improvements must be interpreted with caution. There remain large disparities in access to and quality of services provided; further there are areas of persistent poverty in Vietnam. Countries moving from incipient to intermediate stages of urbanization and from lower to middle income need also to consider not only access, but quality and reliability of basic services. Connectivity Chapter 2 considers the connectivity of the urban portfolio. Effectively connecting people and economic activities is critical for successful urbanization and economic growth. The general consensus of urban economics and the new economic geography is that reduction in transport costs within a portfolio of places enhances the scale of interaction and facilitates faster socioeconomic development. Inter-city freight movements confirm the dominance of the two urban systems of Ho Chi Minh City and Hanoi. However, these two regions are seriously limiting their competitive advantage on account of logistics bottlenecks and have disproportionately high transport costs. Improving urban road and infrastructure conditions would be priorities in HCMC and
4 Hanoi. Clearly investments in spatially connective logistic infrastructure are needed to sustain these engines of economic growth. But improving infrastructure is not sufficient. As is detailed in Chapter 2, reforms to reduce informal payments and corruption in the sector are needed to reduce costs, especially in the southeast, and further reforms in the trucking industry must also be made to improve efficiency. Freight transport costs in HCMC and Hanoi regions can be reduced by 57% and 67%, respectively, if their unit costs are reduced to levels of Class 1 cities. Land, Real Estate, Planning and Mobility Chapter 3 considers the functioning of land and real estate markets in Vietnam, and how well Vietnam cities are meeting their mobility demands. Land markets and urban planning are critical factors in helping urban economies to function efficiently and equitably. Efficient land markets are essential to provide land to both households and firms. While labor and capital can move geographically, land is fixed and must therefore be able to adapt to different uses as determined by market demand for land intensity and development. Due to practical limits to increasing land supply in urban areas and the propensity for natural monopolies, government intervention may be required. Public involvement in land seeks to enhance the efficiency of the market to deal with the positive externalities associated with private development and ensure the potential for the equitable access to land assets. One of the main challenges confronting fast expanding cities and metropolises (Hanoi, HCMC, Can Tho, Hai Phong, Da Nang, for example) is to maintain labor and consumer mobility while ensuring that land and housing remain affordable to a majority of households. Thus land use and mobility are tightly linked. Land and real estate market regulations appear to be improving but there are still more essential improvements to be made; this is evidenced by high land prices in many urban areas and a continuing large number of land transactions made informally. In addition, Vietnam s urban planning system continues to be overly based on design principles rather than facilitating the fluidity of land and housing markets and urban mobility. Many of these urban plans are never implemented, would be too costly to implement and in the end would not serve their intended purpose either. Vietnam s cities still enjoy relatively good urban mobility, due in large part to the nearly universal use of the motorbike as the primary means of transportation and its highly mixed land use development patterns; but this is changing rapidly. The logistical infrastructure of the largest cities of Hanoi and HCMC are not capable of sustaining extended use of motor-cars as the major means of transportation; indeed, increased car use would eventually lead to gridlock. While there are plans for urban transport systems in most major cities, a nearly universal preference for personal transport will compete with plans for urban transit systems. In addition, planned transit systems will have to take into account market driven and evolving land use patterns in cities; they must offer attractive options to commuters in terms of convenience and price to be successful. This challenge may be exacerbated by the increasingly polycentric layout of the country s large cities of Hanoi and HCMC. With car ownership on the rise, and the benefits of planned transit systems years away, a major challenge will be to slow down the transition to automobiles. Motorbikes may be a part of that solution. Unlike many other developing countries at similar income levels, Vietnamese cities do not have large expanses of urban slums. This may largely be the result of the government s pragmatic and accommodating approach towards customary and incremental housing development, which allows for small lot sizes, high levels of floor area ratios and incorporation of peri-urban
5 villages that are slowing urbanizing into the expanding urban fabric. These practices have enabled poorer segments of the population to access housing. Basic Urban Services Chapter 4 considers how well basic urban service needs are being met in Vietnam. International experience suggests that convergence of living standards is a pre-condition for convergence of incomes throughout a country. As a country s average income starts increasing, social disparities increase as well. Then, as countries start to develop, they initially focus on basic services, such as water, electricity, sanitation, health, and education. As they move toward higher development levels, access to basic services converges. Disparities between urban and rural areas persist and only start declining when countries reach upper-middle income levels (WDR, 2009). At early stages of urbanization, countries should focus on achieving universal access to services, i.e. a flat social landscape, rather than on convergence of incomes across the national territory. Convergence of access to basic services usually comes first. The Urbanization Review looked at access to certain basic services in Vietnam, such as water supply, sanitation and supply of electrical power. Vietnam has achieved about 96% access to electrical power supply, an achievement that is highly commendable for a developing country; however access to other basics services such as water and sanitation still remain at lower levels. Access to water and sanitation appears to increase with city size; access can be equalized further by learning from other countries and from Vietnam s own experience in the electricity sector. The main challenges for achieving a flatter social urban landscape as regards urban services while urbanization proceeds is to: (i) ramp up cost recovery which will lead to better services; (ii) increase the efficiency and the quality of service provision to meet growing demand and reduce costs; and (iii) reduce the dependence on public investment to find other, sustainable sources of financing, including private sector, to improve access and quality of service. Policy Considerations and Possible Program for Continued World Bank Support The intent of the Urbanization Review is not to articulate a set of policy priorities per se, but to highlight relevant policy areas and choices that emerge from the detailed analysis. These are summarized in Chapter 5. In addition, Chapter 5 suggests some specific areas where the World Bank can potentially provide continued analytical and advisory services and collaborate with the Government together with other development partners in helping to advance understanding of policy options and challenges in these key areas. The final Chapter of the Urbanization Review therefore outlines a possible program of analytical and advisory services that the Bank can provide. Some of this work would include new analytical work, while others are already planned or can be incorporated into World Bank lending operations. Moving this policy dialogue forward will require developing opportunities for policy dialogue channels with government, such as the Urban Forum which is in a process of being revitalized with World Bank support. It would also be important to strengthen collaboration with other development partners who are working with the Government of Vietnam on these issues. These would most likely include: Japan, the Korean Research Institute for Housing Studies, the Singapore Urban Hub, Asian Development Bank, KFW/GIZ, UN Habitat, Australia and AFD, among others.
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