At the end of June, the Management Authority for Urban Railways (MAUR) in Ho Chi Minh City announced the completion of Metro Line No. 1’s second tunnel excavation, paving the way for completion of the first phase of the project next year. 

The 20-km metro line, which connects Ben Thanh Market in the city’s District 1 and Suoi Tien Park in District 9, passing through Di An town in Binh Duong province, requires total investment of $2.49 billion and has been one of the most important official development assistance (ODA) projects sponsored by Japan in Vietnam.

One of eight urban railway lines envisaged in the city’s master plan after 2020, Metro Line No. 1 has caught the attention of the public as the first to have a reasonably specific completion date and that it traverses the city’s inner core and potentially connects with satellite cities in Dong Nai and Binh Duong provinces. The Japan International Cooperation Agency (JICA) began supporting the project in 2007 and has provided three loans, with a fourth and final loan agreement expected to be signed during the next fiscal year.

Substantial support

Some 76 per cent of Metro Line No. 1’s elevated section has been completed. The underground section from Ben Thanh to Opera House station is nearly half completed, while the section from Opera House station to Ba Son station is nearly two-thirds completed, according to JICA Vietnam Office. All tasks, including tunneling, track work, the procurement of trains, and the installation of various systems are scheduled to be operational by the end of 2020. 

According to the “Survey Report on Overseas Business Operations by Japanese Manufacturing Companies” released by the Japan Bank for International Cooperation (JBIC) late last year, Vietnam ranks third in most-promising countries for overseas business in the medium-term. “The relationship between Japan and Vietnam is now in a ‘golden age’,” said Mr. Konaka Tetsuo, Chief Representative of JICA Vietnam Office. “Reflecting the favorable bilateral relationship, a huge amount of Japanese ODA has been provided to Vietnam in ODA loans, grant assistance, and technical cooperation.”

Japan is a fully-fledged strategic partner of Vietnam and is committed to giving the country ODA resources. “Japanese ODA has continued to play a key role in terms of infrastructure development, technology transfer, and, to a certain extent, institutional reform,” said economic expert Mr. Vo Tri Thanh. “We can see these clearly, as Vietnam has become a middle-income country and ODA had declined while commercial capital has increased. Many studies show that ODA only succeeds when there is an institution attached to national reform. Japan is known as an important sponsor of Vietnam, which is at its greatest at the national level.”

In recent years, Mr. Tetsuo noted, the share of Japanese ODA out of the total to Vietnam exceeds 30 per cent and Vietnam has been one of the biggest recipients in the world of Japanese ODA. JICA’s comprehensive evaluation survey for Japanese ODA-funded projects in Vietnam during the 2003-2016 period revealed that 95 per cent of all projects are evaluated at “A” (Highly Satisfactory) or “B” (Satisfactory), while the remainder suffered from inefficiency or delayed completion. 

Moreover, he added, it is particularly noteworthy that most projects (90 per cent) achieved targets in cost and completion time and their sound impact in terms of development and sustainability was also ensured in many regards, including technology transfer, contributing to comprehensive socioeconomic development.

Three-pillar strategy

JICA has supported Vietnam over the past three years in recording sustainable growth and its national target of being a modern industrialized country following three pillars. Japanese ODA has been allocated to many sectors under these three pillars, especially those with key projects. 

The first pillar is the promotion of economic growth and the strengthening of international competitiveness. “Rapid and sustainable economic growth in keeping with the global economy is one of the most important policies in Vietnam,” said Mr. Tetsuo. “JICA recognizes that Vietnam needs to particularly address the challenges in macroeconomic stability and economic restructuring such as State-owned enterprise (SOE) reform, industrial competitiveness enhancement, human resources development, and infrastructure.”

Regarding policy reform, JICA has recently helped Vietnam improve its investment environment through policy dialogue and advice, and prepared long-term industrialization strategies for six key sectors, as well as in SOE reform and the restructuring of the banking sector. In terms of business development, JICA has also been supporting the development of small and medium-sized enterprises (SMEs) via a two-step loan in the SME Financing Program (SMEFP), supporting industries by renovating business management, improving production techniques, and accelerating their access to finance.

In infrastructure development, JICA pays special attention to the development of vital transport projects like roads, seaports, airports and railways, power plants, and electricity transmission networks through the application of advanced Japanese technology and techniques. It has financed the construction of eleven power plant projects with a total capacity of 4,640 MW, accounting for about 17 per cent of the installed capacity operated by Electricity of Vietnam (EVN) and about 11 per cent of the installed capacity of Vietnam’s entire power grid. 

The strengthening of resilience is the second pillar in Japan’s supportive strategy. Despite a high economic growth rate, Vietnam is facing a range of social and environmental issues, including poverty, economic disparity, insufficient health services, environmental pollution, and climate change and disaster prevention. JICA has supported its response to these challenges through activities such as infrastructure construction; agricultural and rural development; health service improvements through upgrading major hospitals and vaccine production; national disaster prevention; environmental management and natural environment conservation; and minimizing the damage and strengthening the capacity to cope with climate change.

Finally, good governance is one of the main foundations of sustainable socioeconomic development. Through this third pillar, JICA has conducted a series of technical cooperation projects since 1996 to support Vietnam with its judicial and legal reform as well as administrative renovation. JICA believes the challenges Vietnam needs to address in governance are legal and judicial reform, capacity and administrative function enhancement, and strengthening the function of the National Assembly and public broadcasting to increase awareness among the population.

Heavy burden

Japan has contributed significantly in recent years to Vietnam’s infrastructure development, according to economic expert Mr. Le Dang Doanh. In terms of capital use, Vietnam is assessed as using it positively and effectively, but in the view of some Japanese partners, implementation was at times too slow and the reciprocal capital was insufficient, while the handling of technical issues such as site clearance and compensation took an overly long period of time.

During an annual press conference held in Hanoi in May, JICA Vietnam lamented the slow payment by the Vietnamese Government to its ODA projects’ contractors. For instance, one of Japan’s biggest ODA projects, Metro Line No. 1, has been delayed several times due to prolonged difficulties in paying contractors. Without official approval, the project could not receive sufficient funds from the State budget to keep the work on schedule, as unpaid contractors repeatedly suspended construction.

The metro project was not the only one short of capital. The main reason for tightened belts was the government’s policy of better controlling public debt, during which it considerably reduced ODA loans from foreign entities. “We have noted in recent times the significant efforts of the government in sound public debt management,” Mr. Tetsuo told VET. 

The public-debt-to-GDP ratio has been kept within the 65 per cent limit approved by National Assembly and was actually brought down to about 60 per cent recently after a peak in 2016 of 63.6 per cent. “JICA respects the prudence of the Vietnamese Government in carefully considering suitable institutional arrangements to make a balance between resource mobilization for socioeconomic development and the financial security of the country,” he said.

Nevertheless, on the ground, ODA projects face serious difficulties owing to the strict management of budget allocations and lengthy approval processes for reallocation. When a project faces budget shortages, according to JICA, delayed payments to contractors cause physical progress to slow down. This also leads to inefficiency in the utilization of ODA loans, low disbursement of readily-available funds, and increased project cost due to delayed schedules. 

Furthermore, foreign contractors involved in ODA projects are future candidates for private investment and it should be noted that a positive experience in ODA projects would boost their appetite to expand in the country for the medium to long term. “We underline the importance of a more flexible approach in the management of ODA loans in order to realize positive impacts in socioeconomic development both in the short term and the medium to long term,” Mr. Tetsuo said.

Strategies necessary

Problems should be understood in three regards, according to economic expert Mr. Thanh. “Firstly, apart from evaluating ODA’s impact on every specific project, it is also related to macroeconomic issues,” he said. “It is linked to budget expenditure and should be seen as public debt. This is part of stabilizing the macroeconomy and affects national economic growth. It is also an effect of Vietnam capping public debt at 65 per cent, and this must be considered when disbursing ODA.”

Secondly, from the donor side, funds are from their budget so they have to be efficient and follow their own domestic processes. Thirdly, on Vietnam’s side, there are legal issues, with the country amending its public investment law and there are many legal documents governing ODA. For the efficient use of ODA, he said, there must be effective interaction between the donor and the recipient country.

Not only JICA but also other international development organizations are currently facing difficulties in implementing ODA given the control over public debt, the medium-term public investment plan (MPIP), and relevant laws and decrees, and a more flexible and streamlined approach in this regard is long overdue. It is also important to properly evaluate completed and ongoing projects to identify lessons learned for further improvements in the effective use of ODA. Appropriate evaluation is an indispensable step under the plan-do-check-act (PDCA) cycle and enables good project formulation and implementation. The government perhaps needs to consider enhancing the evaluation of publicly-funded projects in general and ODA projects in particular.  

Following commitments made in June between the two governments, JICA affirmed that it has been preparing and finalizing the necessary procedures for several projects in Vietnam while expediting the progress of ongoing projects towards early completion, with the cooperation of relevant ministries and provincial governments. In parallel with traditional ODA schemes, JICA will also try to enhance activities related to private sector partnerships as well as seek citizens’ participatory cooperation, while paying due regard to the strict control of public debt by the government and reflecting the complex nature of development challenges to overcome the “middle-income trap”. JICA also continues to contribute to socioeconomic development and nation building through various types of programs and projects.

Prime Minister Nguyen Xuan Phuc thanked Japan for providing ODA to Vietnam over the past 26 years, aiding the country’s efforts to boost the economy, reduce poverty, and develop infrastructure, when receiving Mr. Kawamura Takeo, Chairman of the Japanese House of Representatives’ Committee on Budget, who is on a visit to Vietnam, in Hanoi on August 22. Vietnam and Japan are enjoying booming relations in all fields with increasing high-level exchanges and political trust, he said. 

The Prime Minister described Japan as Vietnam’s top economic partner, as it is the country’s largest provider of ODA and second-largest foreign investor. The government greatly appreciates Japanese ODA and has put major efforts into fulfilling commitments in ODA-funded projects agreed to by the two countries and making effective use of ODA in general. 

To take the strategic partnership to new heights, Prime Minister Phuc asked Mr. Takeo to back the expansion of bilateral economic ties and FDI flows from Japan to Vietnam as well as support the continued provision of ODA to the country, particularly in projects in infrastructure, high-quality human resources training, and climate change response. He affirmed that Vietnam has consistently worked to facilitate Japanese investors doing business in the country. 

Vietnam EconomicTimes