Special edition

On behalf of the ADB, let me start by thanking Vietnam for hosting the 44th Annual Meeting of the ADB this year. Vietnam is a founding member of the ADB and I am pleased that it is the first ADB Annual Meeting held in Vietnam.

-Ayumi Konishi - Asian Development Bank Country Director for Vietnam

This will be a great opportunity for Vietnam to profile and share with the world the rapid socio-economic development it has achieved since the start of doi moi process and particularly its progression to a middle income country last year. I think it will be a great opportunity for so many people coming from all over the world to witness, first hand, the great progress Vietnam has made over a quarter of a century and also appreciate the vision Vietnam has for its future. As a new, emerging middle income country, Vietnam also faces new challenges. Vietnam can certainly learn a lot from the experiences of other countries in avoiding the "middle income country traps."

It is also a good time to discuss the concerns over increasing threat from higher global commodity prices and possible shortages of food. Since Vietnam is among the countries vulnerable to the adverse impact of climate change, natural resource management and environmental sustainability are all important issues on which Vietnam can learn from the experiences of other countries.

Together with a number of development partners, the ADB resumed its assistance to Vietnam in 1993. As we appreciate the great progress Vietnam has made particularly in ensuring that the rapid economic growth accompany corresponding reduction in poverty, the ADB is certainly very much proud of having been a development partner of Vietnam, whose GDP per capita has increased six times over this period while reducing the poverty rate from over 58 per cent in 1993 to just about 10 per cent in 2010.

As ODA has very much been an integral part of Vietnam's development process, I believe all the development partners can highly commend Vietnam's achievement. We are mindful that in Vietnam, ODA's disbursement has always been just between 3 to 5 per cent of its GDP, so in fact ODA has not been a very large part of the country's economy. But I do believe in Vietnam, ODA has been used in a very critical part of its development process, including key investment in economic and social infrastructure, support to its reform efforts and in reaching out to the poor. So at the macro level, I think we can say ODA in Vietnam, including ADB assistance, has been very effectively utilised.

The ADB has approved, since 1993, more than 100 loan funded projects and about half of them have been completed. Evaluation of those projects suggests that with 95 per cent "success rate," most of the ADB projects in the past have been able to deliver good, intended results. In fact, we are aware that the experience of other development partners is also similar or even better.

Having said that, however, we need to note that many of these projects have been successfully completed with significant implementation delays. While many of the ADB assisted projects are originally designed with a project implementation period of five years or so, there are projects that took 10 years to complete. The average may be above eight years and if we are to count the time from the original project concept formation, this means most development initiatives took more than 10 years before they are actually realised.

Successful ADB projects are an integral part of Vietnam’s development process

Project implementation delays do not only mean that the intended benefits of the projects are delivered to people much later than originally hoped, but a more significant loss is that with inflation in Vietnam, the actual costs of projects increase and in an effort to fit the project activities within the original projects, many of the projects faced reductions in project scope.

The key issue is the timing and mechanism for project approval. Typically, most loans disburse very little in the first three years or so. After the approval of a loan, it takes about a year to mobilise project management units for the project and to recruit consultants. The consultant will spend another year to develop further details of the project design to the level that it can be broken down into actual draft tender documents. And then, it takes another year for the approval of the detailed designs and to conduct tender. Unless we can substantially reform this overall process, it will not be possible for Vietnam to improve the efficiency in ODA utilisation. In this regard, we believe the key would be greater delegation of authorities with accountability, and the transparency to expose problems, if any. The total size of active the ADB's loan portfolio in Vietnam is now about $6 billion, of which about $5 billion is undisbursed. This situation can be explained partly by the fact that the average age of loans is still young at about 3.2 years. But what it also means is that, unless Vietnam can address this issue of start-up delays it will not be easy to improve the portfolio performance. Much of the project work, now happening only after loan approval or loan effectiveness needs to be moved to form a part of project formulation and preparatory activities, if this situation is to be substantially changed.

Among the community of development partners, Vietnam is well known as one of the first countries that have "localised" the Paris Declaration on Aid Effectiveness, signed on March 2, 2005 in Paris by more than 100 ministers, heads of agencies and senior officials committing their countries and organisations to continue to increase efforts in harmonisation, alignment and managing aid for results with a set of monitorable actions and indicators. In Vietnam, the Hanoi Core Statement was discussed and agreed at the mid-year meeting of the Consultative Group on Vietnam, held in Can Tho in June 2005, translating the Paris Declaration on Aid Effectiveness for local implementation in Vietnam. In the Hanoi Core Statement, there is a strong emphasis on ownership, alignment, harmonisation and simplification, management for results, and mutual accountability. The reference to ownership and alignment clearly states that Vietnam defines operational development policies through its Socio-Economic Development Plans (SEDP), and development partners are to use the government's SEDP as the base document to develop each country/agency's assistance plans.

To this extent, effective implementation of Vietnam's SEDP 2006-2010 and how ODA partners can contribute to that, has been the central issue of aid effectiveness in Vietnam. In other words, aid effectiveness is directly linked to Vietnam's socio-economic development and growth, guided under the SEDP 2006-2010. Similarly, as Vietnam is now preparing the next SEDP for 2011-2015 based on the Socio-Economic Development Strategy 2011-2020 approved by the 11th Party Congress in January this year, many development partners including ADB are preparing their own country assistance strategy for Vietnam to ensure their alignment with the upcoming new SEDP 2011-2015 scheduled to be approved by the new National Assembly after the election on May 22. This means the effective implementation of ODA in Vietnam will have a direct link with the effective implementation of the country’s SEDP 2011-2015.

As the Socio-Economic Development Strategy 2011-2020 views (i) the reforms of economic organisations, (ii) substantial improvements in infrastructure and (iii) development of human resources as the three areas in which the country needs to see "breakthrough", ADB, as one of the major development partners of Vietnam, will also try to assist the government most effectively in working on these three challenges. An important aspect here is that, in fact, these three issues are also inter-related. Effectiveness in the use of ODA resources, for example, is currently substantially impacted by the problems of public procurement and the issue of state-owned enterprises. There are common practices to undertake procurement under many smaller packages with an intention to provide business with many small contractors resulting in higher project costs. Improving public administration, or building and managing new infrastructure efficiently and effectively cannot be achieved without better capacity of economic organisations staffed with better trained human resources.

Many people were afraid that Vietnam's progression to the middle income country status may mean a reduction in ODA when there is still many challenges in which ODA support can be useful. In reality, however, what we have seen so far is that while there will be a number of grant donors phasing out their operations in the future, with larger loan assistance particularly for infrastructure development, the overall volume of ODA may not necessarily reduce.

Yet, what would probably be important to note is that as Vietnam's needs are changing including its development context (including its regional and global economic contexts), there should also be changes in the thrust of ODA cooperation with development partners including the ADB.

One important element in this regard is that we anticipate the increase in the need for "knowledge-based" contribution to Vietnam's continuing socio-economic development with a vision to move towards higher places in the technological ladder in all industries. As Vietnam's economy becomes stronger, Vietnam will become capable of mobilising the funds it will need for its socio-economic development from international capital markets. Even at that stage, Vietnam may still choose to continue borrowing from the ADB if such borrowing will not be for the sake of money, as such, but for related introduction of better sector policies, managerial practices, innovation and new technology. Capacity building in a changing domestic and international context will also continue to be particularly important.

The second area may be to catalyse mobilisation of private sector resources. In fact, with a large investment target, even under SEDP 2006-2010, Vietnam was very keen to mobilise greater financial resources from the private sector for its socio-economic development in general, and for infrastructure development in particular. While we consider success in achieving this target was in fact rather mixed, it is obvious that the government will need to pursue this strategy further in the years to come, with the recognition that the government alone will not be able to achieve the country's target. Equally, or even more importantly, Vietnam will need technology and management skills of private sector, in addition to the financial resources, in order to make its economy to be more efficient, so that it can be more deeply integrated into regional and global value chains.

With the establishment of the ASEAN Economic Community by 2015, Vietnam is expected to continue enhancing its role in the regional and global economy. With ADB's mandate to contribute to regional cooperation, we would also expect that Vietnam and the ADB will step up our cooperation in promoting and facilitating regional economic cooperation and integration.

We very much appreciate the important role Vietnam has played in implementing Greater Mekong Subregion Economic Cooperation Programme, and we would like congratulate Vietnam for it excellent work as the chair of ASEAN last year. As the pace of regional and global integration accelerates, I do believe Vietnam and the ADB will need to work even more closely in the future.