L'AFD and Vietnam by Agence Française de Développement

Paddy field in Ha Giang ÂŠ D. Falchier

AFD AND VIETNAM

A close partnership

VIETNAM FACES THE CHALLENGES OF RAPID GROWTH Vietnam is on a rapid path of change. For 20 years now, its growth rate has remained at around 7%. The country has experienced a whole host of social, economic and institutional changes. Between 1991 and 2011, its per capita GDP doubled, meaning Vietnam has attained the status of middle-income country. Its exports have tripled in value. The country is one of the world’s leading exporters of rice, coffee, rubber and certain manufactured products, such as clothing and mobile phones. This success goes hand in hand with an increasingly active presence in international fora, such as the UN, ASEAN and APEC. In 2007, the country joined the World Trade Organization. It is currently seeking to increase the number of free trade agreements signed with OECD countries. In addition to its political stability and social cohesion, it benefits from a combination of factors that make it attractive for foreign investments. After having shown encouraging results, Vietnam is today at a turning point for its growth: reforms are underway or continue to be necessary in order to pursue its sustainable, equitable and wealth-creating development. Indeed, while growth has already significantly reduced poverty, the country still needs to face new changes. Some 16% of the population lives below the poverty line. Three Vietnamese out of four are rural dwellers. About a million young people enter the labor market every year. By 2025, the country will have a population of 125 million inhabitants. Vietnam needs to overcome major challenges, including job creation and training for young people, the absorption of the urban demographic wave, the increase in low-carbon energy needs and capacity and, finally, a more sustainable management of its natural resources (water, soil, renewable energy). Vietnam needs to pursue its economic modernization in order to sustainably support its development. The reform of the banking sector, the Equitization of Stateowned Enterprises and the rationalization of public investments have been initiated. Finally, it must gear up for the consequences of climate change. Its two main deltas, the Red River and Mekong, are particularly vulnerable in the event of a rise in water levels.

Vietnam is a key partner for France in Asia and is one of the main beneficiaries of financing allocated by AFD, with some EUR 1.4bn allocated since 1994.

AFD’s activities for 2013-2015 are defined in its Country Intervention Framework. They aim to help the country implement a new growth model under the Socio-economic Development Plan 2011/2015 and the Green Growth Strategy defined by Vietnam. They are in line with the objectives of France’s Official Development Assistance strategy and are subject to a periodic review with the Vietnamese Government. S upport urban development. Public service improvements in urban areas and the participation in structural projects in the transport and energy sectors are financed through loans to the State, but also directly to local authorities’ investment funds, public enterprises or via PROPARCO to private enterprises involved in public-private partnerships (PPPs). This financing allows essential support to be pursued, such as for the Hanoi metro, or projects for power transmission lines, and to improve living conditions for both urban and peri‑urban communities in cities. The focus is on access to basic services (water, energy, transport), with a concern for reducing all forms of pollution. S upport the modernization of the productive sector with a strong environmental and social impact. AFD’s action focuses on vocational training (to reach international standards), the development of financial institutions with a strong social impact, for example the continued support to Co-op Bank and People’s Credit Funds (a cooperative bank that supports rural and urban SMEs), microfinance (improving the legal and regulatory framework) and, finally, increasing the quality and productivity of agricultural sectors by promoting the integration of small producers into market dynamics (rubber, tea, milk and the aquaculture sector).

AFD’S ASSISTANCE SUPPORTS THE TRANSFORMATION OF VIETNAM’S GROWTH MODEL

The aim of the support for agricultural sectors is to promote the integration of small producers into market dynamics

AFD addresses the main public policy issues by organizing workshops with the Vietnamese authorities for officials from ministries and public institutions (energy efficiency, transport, PPPs, etc.). These workshops provide the opportunity to present innovative practices.

elp the country combat climate change. In view H of the climate challenges and the need to sustainably manage environmental issues, AFD supports major water management and flood prevention programs (as part of projects for hydroagricultural infrastructure and the surveillance of coastal areas in the regions most under threat), as well as public policies, both in terms of mitigating the impacts of climate change and adapting to new situations. In addition to budget support to the program to combat climate change, other forms of support are developed, for example, to promote renewable energy or energy efficiency.

Since 1994, AFD has financed 69 projects. It now has an annual target commitment for the State of EUR 100m. It aims to directly finance public enterprises in order to scale up its operations. Its financing – as “untied aid” – is open to international bid invitations. AFD’s Center for Financial, Economic and Banking Studies (CEFEB) also provides its expertise in higher education. In addition, AFD manages the activities of the French Global Environment Facility (FFEM). It provides grant financing for the initiatives of French NGOs (over 10 NGOs supported since 2008). AFD also operates in Vietnam via its subsidiary PROPARCO, which finances private enterprises.

AFD contributes its know-how and can mobilize French expertise to come up with solutions that combine sustained growth, an increased social impact and greater respect for natural resources.

URBAN DEVELOPMENT FUNDS

HFIC (Hô Chi Minh City Investment Fund for Urban Development) was the first municipal investment fund to be set up in Vietnam. Since 2006, it has benefited from two AFD credit lines (totaling EUR 50m). This financing is earmarked for economic and social facilities in Greater Hô Chi Minh City: urban waste, local health centers, social housing, etc.

Long Bien Bridge in Hanoi

A EUR 1.5m grant also aims to build the fund’s management capacities, with a focus on upgrading its environmental and social assessment procedures, structuring a training center and improving management procedures (risk management, information systems, human resources, etc.). This partnership has already benefited some 47,500 people, including 10,000 people who have benefited from new highquality housing. AFD has supported the urban funds of the cities of Da Nang, Can Tho, Lao Cai and Khanh Hoa along the same lines. To date, it continues to be the main bilateral donor for these municipal development instruments.

BROADER AND CONCERTED SUPPORT

AFD actively participates in the aid harmonization objectives. Since 2003, it has been a member of the Six Development Banks Group, comprising the Asian Development Bank (AsDB), World Bank, Japan’s JICA, Korea’s Eximbank (KEXIM) and Germany’s KfW. In consultation with the government, this group has made a package of proposals to harmonize and improve official development assistance management procedures. Two-thirds of AFD’s financing is provided through cofinanced programs. It has also strengthened its links with the European Union by contributing to the joint programming exercises and by mobilizing the Asian Infrastructure Facility to promote cofinancing.

AFD’s support is coordinated with all French cooperation stakeholders. Several projects benefit from activities implemented by decentralized cooperation (Aquitaine Region with Lao Cai Province, Île-de-France with Hanoi, Rhône-Alpes Region with Ho Chi Minh City Region).

Vietnam will need to absorb accelerated urban growth over the next twenty years

Government’s “climate” roadmap and has also established a reference platform for dialogue between ministries, donors and NGOs. Vietnam is one of the only middle-income countries where this type of approach has been developed by AFD (the other countries are Indonesia, Mauritius and Mexico).

PROPARCO SUPPORTS PRIVATE SECTOR DEVELOPMENT

With a total commitment of some EUR 160m, Vietnam is one of PROPARCO’s main countries of operation in Asia, both due to the investment volumes and the background to its relations with the country. PROPARCO operates via medium and long-term loans on commercial terms in euros, dollars, or in local currency, as well as through equity investments and guarantees.

SUPPORT FOR PUBLIC POLICIES: THE FIGHT AGAINST CLIMATE CHANGE Between 2010 and 2012, AFD disbursed three annual EUR 20m tranches for climate loans to Vietnam (SP-RCC: Support Program to Response to Climate Change). This program was jointly initiated in 2009 by AFD and Japanese cooperation, JICA. It has supported the Vietnamese

PROPARCO is AFD’s subsidiary specialized in private sector financing. It has been operating in Vietnam since 2001, where it has an extensive mandate for operations. This mandate allows it to finance projects that support sustainable growth and reduce poverty. PROPARCO has, in this respect, invested in the infrastructure sector in Vietnam (gas-fired combined cycle power plant, ports), the financial intermediation sector (via two of the country’s largest commercial banks), investment funds and the textile industry. Vietnam’s main deltas are particularly vulnerable in the event of a rise in water levels

All the line ministries take part in this dialogue on public policies, which covers a wide range of areas of mitigation (energy efficiency, renewable energy, transport, construction, waste, etc.) and adaptation (water resource management, agriculture, forests). The Vietnamese Government outlined its objectives for the fight against climate change during the program’s first three-year cycle (2010-2012). This political will resulted in the Prime Minister’s approval of the National Climate Change Strategy in December 2011 and of the National Green Growth Strategy in September 2012. Between 2006 and 2012, AFD allocated some EUR 350m (43% of its total financing over the period) to Vietnam to support 12 projects that contribute to the fight against climate change and to adaptation to its impacts.

MODERNIZING THE ENERGY SECTOR Since 2000, AFD has committed some EUR 210m to support power generation, transmission and distribution in Vietnam by financing the Huoi Quang hydropower plant project, the main high-voltage power lines and rural electrification in the Mekong Delta. Thanks to these operations, a 675 km transmission grid has been built, a 6,000 km distribution grid and 110,000 new households have been connected. AFD is the first donor to lend directly (without a State guarantee) to Vietnam Electricity (EVN). In this context, AFD – while seeking to rigorously control its risks – directly contributes to the sectoral dialogue to restore financial balance in the sector and at EVN, in coordination with the other partner donors, such as the World Bank and Asian Development Bank. AFD has been supporting the Government for the sector reform by providing technical assistance to the Electricity Regulatory Authority (ERAV) since 2006 for the liberalization of the electricity market.

AFD’s strategy for operations in Vietnam for 2013-2015 underscores its aim of supporting the modernization of the power sector in order to make it more equitable and sustainable.

AFD is also helping to strengthen the technical and commercial performance of the National Power Transmission Corporation (NPT) and is supporting the Ministry of Industry and Trade for the definition of an energy efficiency roadmap in the steel industry.

The Huoi Quang hydropower plant project

EXAMPLES OF PROGRAMS AND THEIR IMPACTS

become schools of excellence with international standards. Six training programs (automotive technology, industrial electricity, metal cutting and welding, two telecommunications programs) will allow over 3,000 people to gain qualifications every year.

Phuoc Hoa Dam

Improving water resources management in the Dong Nai Basin, loans worth approximately EUR 50m cofinanced with AsDB to build the Phuoc Hoa dam, a channel to transfer water from the Bé River to a reservoir and new irrigation areas in two provinces (Long An and Tay Ninh). The project will raise the drinking and industrial water supply capacity of Ho Chi Minh City and neighboring provinces. It will also contribute to controlling saltwater intrusion in the Sai Gon River and to flood management at the Dong Nai – Sai Gon watershed.

Metro line n° 3 “Nhon-Hanoi Station”, EUR 110m loan and a EUR 0.5m grant, cofinanced with the French Ministry of Finance’s “Emerging Countries Reserve”, the Asian Development Bank and the European Investment Bank for the construction of one of Hanoi’s first metro lines. This 12.5 km line will change the daily lives of over 160,000 Hanoi residents at the scheduled commissioning date in 2018. A few years later, passenger levels are expected to reach 400,000 a day. This transport system will save 200,000 tons of CO2 over twenty years of operation. This project also benefits from a EUR 1.27m FFEM grant. Rehabilitation of the Bac Hung Hai water system, EUR 20m loan, combined with a EUR 0.8m grant, cofinanced with AsDB for these rehabilitation works and the capacity building for water resources management at the Red River Delta’s largest polder – 215,000 ha and 2.8 million inhabitants for the four provinces of Hanoi, Hung Yen, Bac Ninh and Hai Duong. AFD is financing the construction and rehabilitation of five pumping stations, as well as drainage and irrigation systems. A study on the possible consequences of climate change on the Red River Delta is also being financed via an AFD grant.

Support to PPPs, EUR 8m loan and EUR 600,000 grant, cofinanced with AsDB, for a fund dedicated to financing feasibility studies and to support the Ministry of Planning and Investment’s role as leader of the pilot PPP mechanism. The project will finance over 20 feasibility studies, which may lead to structural investments estimated at several hundred million euros.

Program to support vocational training, EUR 24.5m loan and EUR 500,000 grant to finance five training centers (Dong Nai, Vinh Phuc, Tam Diep, Dung Quat and Nghi Son), two of which are to

Trade Capacity Building Program (TCBP), EUR 5m grant from a Fund jointly replenished by AFD and the French Ministry of Finance. The project supports the creation of Protected Geographical Indications (pepper, cashew nuts) and an ecotourism project in Lao Cai Province. It will also build the capacities of market regulators in the field of intellectual property protection.

Each year Vietnam needs to integrate 1 million more young people into the labor market

AFD is present on four continents where it has an international network of seventy agencies and representation offices, including nine in the French Overseas Communities and one in Brussels. It finances and supports projects that improve people’s living conditions, promote economic growth and protect the planet, such as schooling for children, maternal health, support for farmers and small businesses, water supply, tropical forest preservation, and the fight against climate change. In 2011, AFD approved nearly €6.9 billion to finance activities in developing countries and the French Overseas Communities. The funds will help get 4 million children into primary school and 2 million into secondary school; they will also improve drinking water supply for 1.53 million people. Energy efficiency projects financed by AFD in 2011 will save nearly 3.8 million tons of carbon dioxide emissions annually.

www.proparco.fr

PROPARCO, AFD’s subsidiary dedicated to private investment, promotes private investment in emerging and developing countries in order to boost growth, promote sustainable development and reach the Millennium Development Goals. Its financing is tailored to the specific needs of investors in the productive sector, financial systems, infrastructure and private equity investment.

FFEM

www.ffem.fr

FFEM is a bilateral public facility set up by the French Government in 1994 following the Rio Summit. It aims at promoting global environmental protection via sustainable development projects in developing or transition countries. The French Global Environment Facility supports physical projects in recipient countries. Its operations are learning-based and support experimental, innovative or exemplary approaches.

This brochure respects the environment and was printed using vegetal ink on PEFC™ certified paper (sustainable forest management).

AGENCE FRANÇAISE DE DÉVELOPPEMENT (AFD) 5 rue Roland Barthes 75598 Paris Cedex 12 – France Tél. : +33 1 53 44 31 31 Fax : +33 1 44 87 99 39 www.afd.fr AFD VIETNAM HANOI Agency 6-8 rue Ton That Thiep – BP 137 District de Ba Dinh, Hanoï Tél. : (84 4) 3823 67 64/65 Fax : (84 4) 3823 63 96 afdhanoi@afd.fr http://vietnam.afd.fr HO CHI MINH CITY Agency 113 Hai Ba Trung, Ben Nghe, D1 Tél. : (84 8) 3824 7243 Fax : (84 8) 3824 3106 afdhochiminhville@afd.fr http://vietnam.afd.fr

Creation: Planet 7 – March 2013

Agence Française de Développement (AFD) is a public development finance institution that has been working to fight poverty and foster economic growth in developing countries and the French Overseas Communities for seventy years. It executes the policy defined by the French Government.