Vietnam Country Environmental Analysis

Exports are growing by 20 percent per year, and Foreign Direct Investment (FDI) inflows by 10 percent per year.

Future rapid economic growth (an expected doubling of GDP in the next 10 years) and associated industrialization and urbanization, and Government’s huge investments in infrastructure pose significant pressures on the environmental sustainability of Vietnam’s development.

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Environment sustainability is included in Vietnam’s Comprehensive Poverty Reduction and Growth Strategy (CPR6S) and the accompanying Vietnam Development Goals, which together with other government’s strategies and action plans identify steps to address the environmental challenges inherent to rapid economic growth. The assistance programs of the Bank and other donors are explicitly aligned with the CPR6S. The Banks policy dialogue with Government has been broadly focused on public financial management, administration and state-owned enterprises (SOEs).

Engagement on environmental policy issues has been modest, but its coverage in the Poverty Reduction Strategy Credit (PRSC) program is improving. PRSC3 (2004) included new policy actions on the national Law on Environmental Protection and regulations on pollution control, in addition to land and resource management issues that were included in PRSCI and 2.

Government is raising the profile of environmental sustainability in its national and international dialogue.

In 2003, Government created the Ministry of Environment and Natural Resources (MONRE), initiated separation of regulation of some natural resources from that of users, and approved the National Strategy for Environmental Protection (NSEP). In 2004, the EIA requirements for project approvals were increased nd the Strategy for Sustainable Development (Agenda 21) was adopted. MONRE is now drafting amendments to the Law on Environmental Protection to enable new policy tools and remedies for pollution prevention and cleanup, and adjustments to cover environmental management in the private sector.

Despite these signs of progress, there is need for substantial improvements in the policy framework for environmental sustainability and the institutional arrangements to achieve this.

Progress in achieving results has been slow due to weak commitment by sectoral agencies, low awareness in local departments and officials, and capacity hallenges at all levels. There is a fundamental lack of environmental integration at planning and programmatic levels, especially in public investment planning process and in regional plans for land and resource use.

In addition, awareness on the mechanisms for stakeholders to hold government agencies accountable for their performance is weak. Objectives The CEA will analyze environmental policy and regulatory frameworks and their implementation, to assess their effectiveness and appropriateness in meeting the CPR6S’s objectives on environmentally sustainable development. The CEA will xamine country systems for environmental management with the aim of making recommendations on how these can more effectively be used to achieve results on the ground.

Specifically, the CEA will: Investigate environmental issues and risks in following areas: environmental management legal frameworks and their uses, and environmental sustainability issues within key areas of active support in Vietnam: industrial development, public investment in infrastructure, policy and institutional development, trade liberalization, and privatization/equitization of State Owned Enterprises.

Identify gaps in the existing institutional arrangements and incentives for improved environmental compliance and overall environmental governance, prioritize policy improvements, and develop, Jointly with government counterparts through a consultative process, specific actionable recommendations to assist Vietnam and inform the Banks policy dialogue on sectoral and cross-sectoral issues. ? Assess and describe public participation and public awareness on environmental issues and priorities at national and local level, and make recommendations on its use by Government of Vietnam and the donor community ? Propose recommendations that would assist GOV in the development of a strategy/action plan to implement the agreed priority measures.

This particular focus of the CEA has been chosen in light of the ongoing, broader Bank portfolio, and feedback from informal discussion with government, international donors, and civil society counterparts on issues that can have a catalytic effect on other proposed and ongoing reform initiatives in the environment sector. The study has relevance to a wide range of audience, most notably to country policymakers, and Bank and other development partners.

These may include government agencies such as the Ministries of Finance, Planning and Investment, Trade, Industry and Environment and Natural Resources. Key issues Vietnam’s economy is growing again, with a favorable long term outlook of high paced growth and prosperity.

In this context, the CEA will present an in-depth analysis of critical environmental challenges and institutional and implementation issues that bear directly on the sustainability of the forecasted sustained economic growth, and assessment will cover the following priority issues: State of the environment.

There have been many assessments of Vietnam’s environment, particularly in the natural resources management but also with good coverage of urban and industrial issues. The CEA will overview Vietnam’s range of environmental issues, and place the industrial and urban environmental management issues in this overall context. This will include environmental issues, trends, policy context, current programs, and institutional arrangements for environmental management. These will be used to try and establish benchmarks and indicators against which environmental progress has been, or could be, measured.

The sources of information will be strategies and sector specific background papers (e. g. Vietnam Environment Monitors; Vietnam Poverty-Environment Nexus Country Report etc. ) by donors (WB, ADS, UNDP, and bilaterals), line ministries, institutes, and NGOs. Also, a public opinion survey will be carried out to gauge public opinion on environmental issues and priorities in Vietnam. Although some relevant information is collected in social assessments and other project preparation tools, there has not yet been a systematic survey of public opinion.

Such information would be useful in ssessing gaps in national priorities, understanding the issue of trade-offs that inevitably will affect decisions on investments in environmental management systems; Environmental and Social Challenges in Growth and Restructuring of the Industrial Sector. Particular attention will be given to: Industrialization. Industrial production grew from 20 to 37 percent of GDP between 1990 and 2000, with the some of the greatest growth coming from SOEs, especially in oil and gas, electricity, cement, and garment industry.

Because of their contribution to economic growth, starting at the beginning of 1990s, the state nterprise sector has undergone important reforms, which have increased autonomy, imposed a hard budget constraint and established a clear profit motive. In addition, progress in the reform of the regulatory framework for private enterprises and foreign trade has subjected state enterprises to increased domestic and international competition.

Yet, these reforms are still incomplete as some state enterprises still benefit from high levels of protection and state subsidies, and the environmental liabilities of the state enterprise sector has yet to be addressed. The CEA will examine these issues in key manufacturing sectors. It will start with an assessment of selected industrial sectors, including their size and growth, profiles of their specific environmental and social typologies based on energy consumption, air and water discharges, waste generation, and health implications.

Based on the sectoral assessments, the CEA will provide a forward-looking analysis of the challenges and opportunities. Trade Integration. Industrial growth in Vietnam is explicitly export oriented: third in 2002.

This trend has been aided by trade liberalization agreements, and anufactured exports can be expected to continue to increase when Vietnam gains entry to the WTO. The CEA will examine the policy and institutional improvements needed to improve the environmental sustainability of Vietnam’s industrial trade. ? Industrial growth in Vietnam is explicitly export oriented: manufactured exports have risen from about 6 percent in the 1990s to almost one-third in 2002. This trend has been aided by trade liberalization agreements, and manufactured exports can be expected to continue to increase when Vietnam gains entry to the WTO. The CEA will xamine the policy and institutional improvements needed to improve the environmental sustainability of Vietnam’s industrial trade.

Urbanization (migration, slum formation, pressure on services and basic infrastructure). ? Decentralization. As a result of the 1996 State Budget Law, Vietnam has moved toward greater decentralization of governance. By 2002, the share of total expenditures under provincial authorities had increased to 48 percent in 2002. In the environment sector, development and environment policies remain centralized in the Party and Government, but their implementation is decentralized to the Provincial Peoples Committees, where there is limited capacity for environmental management.

In 2001 , the Government made a clear commitment to address this issue by assisting in the decentralization of environmental functions, clarifying the lines of responsibilities for environmental protection and budget requirements to carry out monitoring and enforcement, increasing the influence of provincial and district-level environmental departments over planning and investment at the local level, and also make the environmental institutions part of the government broader efforts to reform the public sector.

Potential poverty impacts of structural changes. One of the challenges to Vietnam’s economic growth is the disparities in the level of participation in, and benefiting from, Vietnam’s dynamic development. The impact of these disparities are seen now in higher levels of poverty in rural communities and, particularly in ethnic minorities. Economic reforms, such as trade liberalization and the transformation of state-owned enterprises, may create losers.

While the population at large has much to gain, reforms may also have differential impacts on different groups. Given the riority attached by the government to socially-inclusive development, appropriate mechanisms need to be found to assist those who not directly related to the reforms, such as those related to health status or environmental degradation.

Environmental and social liabilities of SOE reform. Trade liberalization. ressure on resources/degradation of environment or opportunity to promote better environmental management? o Renovation of capital stock: regulations and incentives to promote greater efficiency (win-win) The analytical framework for the study will use both primary and secondary data ources, and be based on: i) an upfront assessment of key environmental issues and priorities, based on existing strategies and/or sector specific background papers (e. g. Vietnam Environment Monitors; Vietnam Poverty-Environment Nexus Country Report etc. which would allow to establish benchmarks and indicators against which environmental progress could be measured; and i’) a combination of technical review of the issues identified, and an assessment of needs based on the following considerations: a.

Review of Policies. The role of policies for improving outcomes on the key environmental issues. The CEA will review environmental policies, and recommend improvements in existing policies or development of new policies to better serve environmental and economic objectives; b. Regulation and Enforcement Needs. Adequacy of existing regulations and enforcement for achieving the policies.

The CEA will evaluate the effectiveness of implementation mechanisms, including specific procedures and institutional arrangements for clearances and licensing; compliance monitoring and enforcement; conflict resolution and grievances; public participation and information disclosure; c. Cost Recovery and Financing. Vietnam has begun to implement the “polluter pays” principal, although the majority of environmental management costs are still borne by the public sector. The CEA will assess whether costs for new or existing regulations can be recovered from the private sector. .

Trade-offs. There will be trade-offs between the level of environmental protection feasible and the costs of achieving them in the short or medium term. The CEA will factor into account that Vietnam is still a developing country with relatively weak institutions in its analysis and recommendations. e. Institution building.

The CEA will review constitutional and legal mandates of central, state and local governments, and identify areas of conflict/overlap/need to clarify responsibilities, and will document institution building needs for the key issues.

The CEA will recommend institutional development and capacity building measures that will help to overcome these deficiencies and provide stronger incentives for integrating environment objectives in decision-making and project implementation. Links to the CAS and Sector/Country Program The CEA is designed to provide an analytical basis for moving forward with the nvironmental agenda identified in the Banks Country Assistance Strategy (CAS) and associated Vietnam Development Goals (VD6s).

The 2003 CAS update develops a reform-oriented program around three pillars (transition to a market economy; equitable, inclusive and sustainable development; and promoting good governance) that are aligned with the Government’s CPR6S. Both documents identify ensuring environmental sustainability and providing a healthy environment for the poor as strategic priorities.

The CEA will support the Banks Vietnam program in several areas, including policy ased and project lending and the proposal under preparation to pilot the use of country systems for environmental safeguards.

With regard to policy-based lending, the CEA will build on the environmental reform agenda inputs to the Poverty Reduction Support Credits (PRSC2-4), which focused on improvements to the Law on Environmental Protection, the National Environmental Strategy and pollution control. The CEA will also be one of the building blocs of Vietnam Development Report 2006 which will be focusing on structural issues. With regard to the use of country systems, the CEA will include an analysis of the legal framework for Environmental Assessment and the capacity for its implementation.

Government and Other Counterparts The Ministry of Planning and Investment, and MONRE will be the key counterparts for the preparation of the CEA, thus furthering a fruitful partnership started with the preparation of the first issue of the Vietnam Environment Monitor in 2001. In addition, the team will also seek the endorsement of, and collaboration with other government agencies with relevant environmental mandates on the proposed objective and structure of the exercise, and also other multilateral and/or bilateral donors active in Vietnam.

Finally, collaboration and consultation will be entertained with academia, civil society, and relevant NGOs for them to provide inputs and give feedback on the concept, work plan, and draft report before finalization and official release. Link with Development Partners In addition to help strengthen the collaboration with other donors active in Vietnam, especially in the context of the East Asia and Pacific Region donors’ harmonization initiative, the Vietnam CEA exercise plans to build on the results and findings of ongoing programs of bilateral donors, particularly the work of the CIDA, DANIDA and

SIDA on pollution control and policy and institutional capacity development. Outputs and Dissemination The Vietnam CEA exercise will have a set of outputs, which will include draft reviews/ assessments for each of the selected themes, and a public opinion survey to assess and describe public participation and public awareness on environmental issues and priorities at national and local level. The main findings of these thematic reviews and opinion survey will be used to prepare a final report, and develop a set of benchmark final output will be a reader-friendly publication, made available in English and

Vietnamese, and to be disseminated through different channels, including workshops, the Internet, and the national and local media to broaden accessibility of its data and information. The The CEA could also serve as the basis for strengthening the dialogue on governance, and capacity building that MONRE and MP’ are currently carrying out in collaboration with local governments, civil society and NGOs. Team arrangements and timetable The Vietnam CEA Team will comprise: Phil Brylski (Country Sector Coordinator,