68134 VIETNAM URBAN BRIEFS April 1, 2012 The Importance of Urbanization Vietnam will need to carefully manage the tradeoffs Addressing the Vietnam National Urban Conference that will come with rapid urbanization. There is the in November 2009, then Deputy Prime Minister potential for increased congestion costs, regional Nguyen Sinh Hung said, “Vietnam will have one inequalities, increasing urban poverty, urban chance to get urbanization right. If we fail at pollution and rising land and housing prices. Some urbanization, we will fail at industrialization and of these risks are already manifest and increasing modernization.� rapidly: increasing traffic congestion, increasingly polluted water ways and high urban land prices are Thus Vietnam has placed strong emphasis on the already a problem. At the same time, Vietnam must role that urbanization will play in its development be ready to employ urbanization as an instrument process. Urbanization does not guarantee to sustain economic growth. This will mean, among economic growth and modernization, but an other things, ensuring the economic integral part of Vietnam’s transition from a low to competitiveness of key economic regions, ensuring middle income country and beyond may well the social and environmental sustainability of cities depend on how well it manages the transition from making them desirable places to live and work for a largely rural to an urban economy – a transition all segments of society and increasing economic that is now well underway. No country has productivity through accelerated technological achieved high income status and strong economic advances and a better trained, educated and mobile growth without first urbanizing and nearly all workforce. countries become at least 50% urbanized before fully reaching middle income status. Vietnam How is Vietnam Urbanizing? expects to reach that point by 2025. The Vietnam Urbanization Review (November 2011), an analytical technical assistance report urbanization rate, % recently published by the World Bank, sets out to explore this question from several different points 80 of view and provides an overview of the on-going urban transition that is happening in Vietnam. The 60 following highlights some of the Vietnam 40 % Urbanization Review findings. 20 Two Dominant Urban Regions 1960 1970 1980 1990 2000 2010 year Vietnam has a complex system for classifying cities, Vietnam China South Korea Indonesia ranging from the special cities of HCMC and Hanoi India then going from Class I down to Class IV. Besides the two Special Cities, Vietnam has at least two cities whose populations exceed 1 million people ln(22,000) ln(GDP per capita) (Can Tho and Hai Phong) and several medium cities such as Da Nang which has a population of about 700,000. Yet despite this diversity, most of ln(3,000) constant 2000 US$ Vietnam’s economic and population growth is driven by two independent dominant core- ln(400) periphery urban systems of Ho Chi Minh City and Hanoi. The dominance of the major economic ln(50) regions of the Southeast (HCMC) and the Red River 1960 1970 1980 year 1990 2000 2010 Delta (Hanoi), together with the emerging Mekong Vietnam South Korea Delta economic region are to be expected at this China Indonesia India stage of Vietnam’s development as gains from agglomeration economies are consolidated. World Bank Vietnam No. 1 Page 1 VIETNAM URBAN BRIEFS April 1, 2012 However, these regions appear to be developing in (education and health) as well as infrastructure and different ways with some evidence that Hanoi is universal access to basic services will help to level moving more rapidly into heavy and higher the playing field and facilitate the fluidity of factor technology manufacturing even while Ho Chi Minh markets enabling firms and households to choose City and the Southeast region still dominate the best locations for economic activity and economic and manufacturing output. maximize Vietnam’s economic development. Connectivity Is Important Connectivity of the urban portfolio underscores the importance of continuing to invest in the development of the country’s regional economic growth drivers. Ho Chi Minh City / Southeast together with the Mekong Delta Region account for 62% of Vietnam’s industrial activity and Ho Chi Minh City / Southeast Region account for 71% of country’s seaport throughput. The bulk of manufacturing employment and its highest growth rates from 1999-2009 are located in Hanoi and Ho Chi Minh City and their neighboring suburban areas within 70KM from the city center. Even at this early stage of urbanization manufacturing activities are not confined to the administrative boundaries and in many cases in Vietnam there is strong manufacturing activity within a 50KM radius of the two major cities. Investing in logistics infrastructure will be critical to developing the country’s strongest economic regions. An intercity trucking survey conducted for the Urbanization Review indicates that transport costs are highest in the two main economic regions, with truckers indicating poor road conditions, and informal payments as the major bottlenecks. This suggests that connectivity can be improved not only through strategic transport and logistics improvements, but through regulatory reforms to improve services quality in trucking and logistics services. Analysis suggests that freight costs in the Ho Chi Minh City and Hanoi economic regions could be reduced by 57% and 67%, respectively by reducing these bottlenecks. Vietnam’s economic growth and competitiveness will depend largely on these regions and sustaining Better Planning Can Make a Difference strategic investments in these areas is important for Planning and urban management in Vietnam, rather economic development. Notwithstanding the rise of than facilitating the fluid functioning of land and important urban economic centers, rural areas are housing markets, is still overly focused on static still the major source of livelihood for a large of urban design principles. Strict adherence to static Vietnam’s population and 93% of it poor. For areas Master Plans, combined with a city classification without currently strong economic potential system that induces cities to annex rural areas, comparable to large cities investing in people combined with land lease for infrastructure World Bank Vietnam No. 1 Page 2 VIETNAM URBAN BRIEFS April 1, 2012 financing schemes are leading in many cases to networks and transit systems that are compatible urban sprawl and the development of new towns with rising urban densities and land use trends where there is little market demand. Improving the (such as the emerging policy centric development of planning process through better integration of the major cities) and that will reflect consumer planning functions, moving from static to dynamic demand for location of housing and commercial plans and using sharper tools to monitor real facilities. This would require a shift to integrating changes taking place in land and housing markets land use planning and development to be done in could serve to improve the planning process tandem with transit and urban transport considerably and lead to a more efficient allocation development. Minimizing the transition from of land uses. The following graphic demonstrates motorbike to car while Vietnam’s major cities the problem with Vietnam’s planning process. The develop their transit networks will be a major newly approved Master Plan would aim to de- challenge and priority to ensure greater mobility in densify the city by proposing a system of satellite Vietnam’s cities. cities for a future population of about 6.5 million people. This could potentially lock in multi-billion dollar investments in areas where there is currently no demand. Compare this to the Seoul, South Korea city footprint - a compact, livable and efficient city which is home to over 10 million people. Urban Land and Housing Markets Land markets in Vietnam reflect some deeper issues with land management and governance. On the positive side, by and large Vietnamese cities have managed to enable a pluralistic supply of housing to meet the needs of different market segments, through small contractors producing town houses, densification of peri-urban areas through New Towns Master Plan vs. Compact City infrastructure extension and through the incremental upgrading of housing stock. On the Good but Deteriorating Urban Mobility other hand, land prices are by most indications are Vietnam’s cities, including its largest cities, still have high, perhaps due in part to Vietnam’s two tiered relatively good mobility, due in part to the land pricing system and lack of good market predominance of motorcycles as the primary mode information. In Hanoi and Ho Chi Minh City land of transport. But this is changing rapidly. As prices and housing prices produced by formal incomes rise so is car ownership. The current road developers are perhaps affordable to only 5% of the networks in Hanoi and Ho Chi Minh City will simply population. Monitoring land and housing markets be incompatible with the demand for road space will be important as these are critical factors for created by a shift to individual cars for even a helping urban economies to function efficiently and fraction of the current trips made by motorcycles. equitably. Hence a priority will be the development of road World Bank Vietnam No. 1 Page 3 VIETNAM URBAN BRIEFS April 1, 2012 Basic Urban Services Vietnam has done a remarkable job in achieving The World Bank has been a strong supporter of nearly universal coverage (i.e. 96%) in access to Vietnam’s urban development. As Vietnam electricity. Access to other important basic services urbanizes and develops, urban development will such as water and sanitation remain at lower levels become an increasingly important part of the despite still remarkable improvement: by 2007 70% Bank’s development assistance in Vietnam. A of urban households had access to piped water. By greater focus will be placed on knowledge services contrast wastewater collection and treatment levels to assist policy makers. One of the primary are still very low. And it appears that access and objectives of the Urbanization Review is to identify quality to urban services diminishes with city size. challenges and options for a smooth urban As Vietnam moves to higher income levels and transition. For a full copy of the Vietnam universal access is achieved in other services, the Urbanization Review please visit the World Bank next goal would be to focus on the quality and website at: sustainability of urban services. Tariff levels for urban water supply generally cover only operations www.worldbank.org/en/country/vietnam and maintenance costs, and non-revenue water (losses) is as high as 40% in major cities, for About Vietnam Urban Briefs example. A major challenge for local governments This is the first Vietnam Urban Briefs publication. will be the financing of infrastructure services. As Vietnam Urban Notes will be a regular monthly quality of services improves, tariffs will need to series of notes highlighting the operational, policy increase to cover, to the extent possible, and analytical work on urban issues in Vietnam. investment costs as well as operations and Findings, views, interpretations and conclusions maintenance costs. Local governments have limited expressed herein do not necessarily reflect the options to raise own-source revenues for views of the Board of Directors of the World Bank investment and rely increasingly on land sales or the governments they represent. (leases) for a large share of their budgets (e.g. 20% of HCMC’s 2008 budget). Sustaining strong Noteworthy investment in cities will depend on more Mekong Region Urban Upgrading Project Approved: sustainable sources of financing. On Mach 22, the World Bank Board of Directors approved the $292 million IDA financing for the A Final Word Mekong Delta Region Urban Upgrading Project. The Vietnam is now widely considered a development project aims to improve living conditions and urban success story. Driven by the Doi Moi reforms begun infrastructure in six cities in the Mekong Delta in 1986, Vietnam has rapidly evolved from one the Region of Vietnam poorest countries in the world to an emerging middle income country. In the span of about 25 years its GNI per capita has risen from less than $100 to over $1,000, living standards have tripled and the poverty headcount has fallen by 80%. The World Bank-Vietnam Country Partnership Strategy suggests that the country’s long-term development prospects are solid, but the sustainability of its growth will necessitate a shift from a reliance on low-cost labor and natural resource exploitation to a greater focus on productivity growth and technological advances while also ensuring greater macroeconomic sustainability. This shift will happen in parallel with the shift to urbanization. World Bank Vietnam No. 1 Page 4