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United nations industrial development organization Preparatory Activities for Rio+10

November 21st, 2001

Vietnamese national industrial overview

National Report prepared for Rio+10 World Summit on Sustainable development

Prepared by Prof. Dinh Van Sam (Team leader) Dr. Tran Hong Ha Dr. Do Huu Hao Dr. Tran Van Nhan MSc. Hoang Thanh Nhan Dr. Pham Khanh Toan Mr. Le Minh Duc

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Abbreviations SOEs State-Owned Enterprises

JICA Japan International Cooperation Agency

SIDA Swedish International Development Cooperation Agency

EU European Union

CIDA Canadian International Development Agency

IPs Industrial Parks

SMEs Small and Medium-Sized Enterprises

VND Vietnam Dong

USD US Dollar

FDI Foreign Direct Investment

NEA National Environment Agency

MOSTE Ministry of Science, Technology and Environment

DOSTE Department of Science, Technology and Environment

MOI Ministry of Industry

LEP Law on Environmental Protection

GEF Global Environment Facility

UNDP United Nations Development Programme

WWF World Wild Fund

EIA Environmental Impact Assessment

WB World Bank

ADB Asian Development Bank

UNIDO United Nations Industrial Development Organization

HDI Human Development Index

ODA Official Development Assistance

CMEA Commission of Mutual Economic Assistance

UNEP United Nations Environment Programme

IUCN International Union for the Conservation of Nature

DANIDA Danish Agency for Development Assistance

WFP World Food Programme

EST Environmentally sound technology

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table of contents

Page I. Introduction 4 II. Development of (manufacturing) industry and achievements in the various dimensions of sustainable development

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III. Policies directed at the development of industry

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IV. Policies directed at industrial environmental management

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V. Policies directed at technology transfer, particularly EST

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VI. Experience with integrated policies and programme

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VII. Major constraints and obstacles in enhancing the contribution of industry to sustainable development

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VIII. Multilateral and bilateral support programmes enhance the contribution of industry to sustainable development

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IX. Reflections and future directions for the country

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References 18 Annexes 19

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Viet Nam’s Industrial Overview (Used as Input for National Report to Rio+10)

I. Introduction During the 1980s, Vietnam experienced a serious economic recession as a consequence of multiple year wars, embargo and ineffective management. Since 1986, The Government of Vietnam has introduced the "Doi Moi" policy of renovation, the implementation of which has brought the country to a new era with fundamental and significant economic achievements. This has been primarily due to the release of its domestic production power, the implementation of global integration and the utilization of external resources. But besides these socio-economic achievements, the nation's environmental degradation has become evident. Of the many environmental problems, one can see that there are six major ones including forest depletion, decline in biological diversity, soil degradation, (marine and in land) water contamination, air pollution and the problem in solid and hazardous waste management. Having learnt environmental and ecological lessons from wars and from other countries in the region, Vietnam has also become aware of the effects on environment caused by industrialization. However, as the country is still poor and facing immediate demanding challenges, the Government of Vietnam has decided to gradually tackle these increasingly important environmental issues. During the economic transition stimulated by the initial reforms in 1986, the Government of Vietnam has realized that while economic growth is vital to the country, social enhancement and prosperity, and the improvement of the people's living standards are ultimate goals of the country’s economic development. In 1986, a draft “National Conservation Strategy” was prepared. In 1991, a “National Plan for Environment and Sustainable Development in Vietnam for the 1991-2000 Period” was formulated by the former National Committee of Science (now the Ministry of Science, Technology & Environment, MOSTE) with assistance provided by UNDP, UNEP, and SIDA, and formally approved by the Chairman of the Council of Ministers (now the Government).

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In 1992, Vietnam participated in the UN Summit Conference held in Rio and committed to Agenda 21. In December 1993, the Law on Environmental Protection was adopted by the National Assembly and the Law was enacted in January 1994. In June 1998, the Politburo of the Communist Party of Vietnam promulgated the Directive 36-CT/TW on “Strengthening Environmental Protection in the Period of Industrialization and Modernization of the Country”. In 2000, the “National Strategy for Environmental Protection for the 2001-2010 Period” was formulated by MOSTE to submit to the Government for approval. These important landmarks demonstrate that Vietnam is determined to develop its economy and protect the environment. It is obvious that the formulation of Vietnam’s strategy toward sustainable development has been greatly and positively influenced by Agenda 21 in terms of viewpoint, methodology and experience in implementing sustainable development strategy. This Report, from a sustainable development point of view, highlights the achievements in industrial sector in the past ten years. Vietnam’s industrial development should be seen in the context of socio-economic and environmental changes toward sustainable development. These are closely interacted and interdependent factors. However, in the particular case of Vietnam - a poor country challenged by its integration with the rest of the world including those affluent economies, there are other issues that need further discussion. So it is evident that the right selection of environmentally sound and appropriate technologies is a “key” to the success of Vietnam’s sustainable industrial development. II. Development of (manufacturing) industry and achievements

in the various dimensions of sustainable development 2.1 Achievements in Industrial Development 2.1.1 Increase of Industrial Production Value Vietnam’s industrial production value increased from VND 103.370 billions (1994 price) in 1995 to around VND 200.000

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billions in 2000, which means that the average annual increase was 14.5 % between 1991 and 2000. In comparison with the 1990 outputs, coal and crude oil outputs reached 10.8 million tonnes (or 2.3 fold) and 16.3 million tonnes (or six-fold) respectively; electricity was 26.6 billion kWh (or threefold); cement was 13.3 million tonnes (or 5.3 folds); steel was 1.7 million tonnes, or 16.5 times; chemical fertilizer was 1.3 million tonnes or 3.8 times higher. New products have entered domestic market instead of imported ones, namely automobiles, motorcycles, refrigerators, washing machines, office equipment, printed circuits, telecommunication and informatics equipment. Exported markets have been expanded not only to South East Asia but also to fiercely competitive markets such as Japan, Europe and North America. Major industrial exports include crude oil, fisheries, shoes and garments. 2.1.2 Industrial development has created shifts in

economic structure and within industrial sector itself Industrial share to the country’s GDP increased from 19.8% in 1991 to 36.6% in 2000. Internally, positive structural changes in industrial sector have initially created a rather solid industrial structure. The processing industry became a fast growing sector, representing 80.5% of the overall industrial production value and 18.7% of the country’s GDP. The figures for the mining sector in 2000 was 13.5% and 9.5% respectively. Within the industrial sector itself, several new key sub-sectors have emerged such as oil and gas industry with its share of 11.2%; food processing and brewage - 20.1%; textiles, tannery and shoes and garments - 12.4%; chemistry, rubber and plastics - 9.6%. In addition, high-tech industrial sub-sectors have been established and developed such as automobile, precise mechanics and electronic and telecommunication industries. Regional shifts in industrial structure have been given due attention by the Government in such a way as to maintain the same level of development in all geographical regions. In many provinces, industrial estates and/or export processing zones have been established, and these have initially attracted more foreign direct investment (FDI) flows. However, both domestic and foreign investment flows to remote rural areas have still been so little. The economy has witnessed a considerable change in share distribution. The share of industrial sector from FDI flows grew from 10% in 1990 to 31.82% in 1998 and to about 35% in 2000. And this made the share of industrial production in

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domestic production decrease from 90% in 1990 to 68.18% in 1998 and even 64.15% in 2000 as estimated. 2.1.3 Industrial development has created additional

employment From 1991 to 1999, the number of employees working in industries increased by more than 660,000. The number of laborers working in household owned industries increased by 433,000; in private and shared industries - 303,000; in foreign capital owned industrial sector - 284,000 employees; while in the collective sector the number reduced was 375,000. 2.1.4 Enhanced technical infrastructure in industrial

production The value of fixed assets in industrial sectors was at VND 181,500 billions as of 31 Dec.1999, or 2.59 times higher than that of 1995. On an average, this value increased by 26.8% per year, and accounted for 58.9% of gross property value of the overall national economy. 2.1.5 Industrial roles and potentials of economic sectors

and components enhanced - State-Owned Enterprises (SOEs) Sector: A larger proportion

of major products is primarily produced by the SOEs. These include electricity (99.9%), coal (97.4%), fertilizer (95.3%, pesticides (89.6%); cement (71.2%), cane sugar (75%); beverages (70.6%); tobacco (99.2%), fibers (91.8%), textiles (47%); paper (64.7%), and steel (42.8%).

- Foreign Capital-Owned Industry Sector: a fast growing sector in terms of the number of enterprises and the volume of capital investment flows. Its output grows by 22.5% per year (while annual growth rates of SOEs and private enterprises are 11.4% and 11.0% respectively). New and high value products including oil and gas, automobiles, motor cycles, luxury home appliances, electronic and telecommunication products are primarily produced by foreign capital owned sector that plays an important role in the production of export goods.

- Small and Medium Sized Enterprise (SMEs) Sector: mostly run by the collective economic sector with a small share to the overall industrial production. The sector has experienced an unstable and inefficient development in the past many years. Although it has been restored recently but the rate of rehabilitation is slow. While private enterprises only contribute a share of 21.7% to the industrial production value, it employs 61% of the labor force and owns 11.4% of the total capital investment. This sectoral development has been encouraged through the establishment of limited liabilities and/or joint stock companies.

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- Industrial Parks (IPs) and EPZs; the first EPZ was established in Vietnam in 1991. By June 1999, there were 66 IPs established, including three EPZs, one Hi-tech Park in 27 cities and provinces across the country. Out of 66 zones, there are 15 parks established based on the already existing operational industrial areas; 30 small sized parks and 20 new ones that meet international standards (including 13 joint ventures and/or 100% foreign capital owned estates).

2.2 Vietnam's Socio-economic Achievements In addition to the industrial development, the economy has been gradually stabilized, thus ensuring the continued and sustained industrial development. 2.2.1 The continued higher rate of economic growth helped

the country get rid of super inflation and economic crisis (CPI)

From 1991 to 2000, the country’s GDP grew by 7.55% per year or 2.07 times, which brought Vietnam to the rank of regional economies with rapid growth rate during the 1990s. Especially in agricultural sector, Vietnam has become a rice exporter from one that experienced rice deficiency. The country was also successful in control and reduction of inflation rates. The consumer-pricing index increased by 67.5% in 1991 compared to that of December 1990, but this increase was only 0.1% in 1999 and the index was reduced to 0.6% in 2000. 2.2.2 The economic structure shifted toward intensified

industrialization and modernization - GDP structure: contributions to the country’s GDP by

construction industry and service sectors were 23.5% and 36% in 1999 and increased to 36.6% and 39.1% respectively, while the combined contribution of forestry and fishery sectors was 24.3%.

- Zonal economic structure: has been shifting toward the establishment of zones with dynamic economic development, specific farming zones, and large scale and centered industrial zones in order to bring local comparative advantages into full play.

- Economic policy reforms: Vietnam has put into place a wide range of its macro-economic policy reforms. These reforms have created a more dynamic and efficient economy. These can be seen as great and significant achievements during the 1991 to 2000 period.

2.2.3 Successfully promoted global integration

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In October 1993, Vietnam resumed official relations with international donors. In 1995, Vietnam established diplomatic relations with the USA, signed with EU an agreement on economic, trade, science and technological cooperation, and became the seventh member of the Association of South East Asian Nations. In 1998, it became a member of the Asian Pacific Economic Cooperation forum. By July 2000, Vietnam had signed trade agreements with 61 countries including the USA, thus increasing its trade partners from 50 countries in 1990 to 170 countries and territories in 2000. Since 1993, donors have committed a total ODA of US$ 17.5 billion and US$ 1.2 billion to support Vietnam's economic reforms. From 1991 to 2000, FDI flows to Vietnam increased with permits granted to 2940 foreign investment projects with a total registered capital of US$ 37.3 billion, making up 20-30% of its overall capital investment. 2.2.4 Positive improved indicators of economic growth and

social development - The total capital investment from 1990 to 2000 was VND

700,000 billion, or 27.7% of the country’s GDP. As lower production and business performance, the savings-to-total-income (NDI) ratio increased from 1.4% in 1990 to 18.9% in 1995, accounting for only 50% of the total cumulative capital.

- Total social investment compared to the GDP rapidly increased from 15.1% in 1991 to approximately 27.2% in 1999.

- Per capita income: at current price, per capita GDP increased from US$ 222 in 1991 to US$ 400 in 2000.

- Human development index (HDI): Vietnam‘s HDI went up from 0.472 in 1990 to 0.671 in 1999, bringing the country from the 121st to the 110th place in the UN system’s HDI ranking among 174 countries of the world.

- Population, labor, jobs and unemployment: natural population growth rate continuously decreased from 2.33% in 1991 to 1.75% in 1998. A total of laborers working in all economic sectors increased from 30.2 million in 1990 to 40.6 million in 2000. The workforce in agricultural sector dropped from 73.26% in 1991 to 62.5% in 2000,

- Unemployment rate in urban sector dropped from 9-10% in 1990 to 6.5% in 2000.

- Poverty and income inequity (GINI): In the 1997 UNDP Report on Human Development, Vietnam ranked 33rd with the HPI of 16.2% (as a sub-indicator to per capita income) among 78 developing countries according to the HPI ranking. Recent surveys on income inequity among segments of the population revealed that Vietnam’s GINI was 0.35

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in 1994; 0.632 in 1996; and 0.390 in 1999. These show that income distribution among segments of the population has changed but still equitable.

III. Policies directed at the development of industry From 1986 to 2001, Vietnam’s policies on economic and industrial development were revised and improved by the Congresses of the Communist Party of Vietnam. The Sixth Communist Party Congress in 1986 is recognized as a landmark in policy reform in an effort to break through against poverty. At that time, acceleration of nation production became the focus with the goal of creating wealth as much as possible for the society. Recently, sustainable development has been emphasized in these policies and economic, social and environmental issues have been given equal priority. In 1999, the Ministry of Industry was assigned to formulate a “Vietnam Industrial Development Strategy for 2001-2010” by the Government. Industrial development viewpoints, objectives and policies are highlighted in the Strategy. 3.1 Industrial Development Viewpoints - Industrial development should be in an effective and

sustainable manner on the basis of making full use of comparative advantages, competitiveness, domestic strength and international cooperation.

- All economic sectors in the society should be encouraged to develop industrial production within the context of open- market mechanisms and the State’s management and regulation;

- Priority industrial sectors should be selected taking into account national industrial development orientations and regional and local advantages.

- Industrial development should be integrated with urban planning and environmental protection, rural development, natural and cultural heritage conservation.

3.2 Strategic Objectives of Industrial Development The overriding goal of the Strategy is to develop Vietnam into an industrial nation by 2020. - A fundamental change in industrial sector should be

brought about so that industry should become a driving force to promote economic development;

- Industrial structure should be shifted toward both import-substituting and export-oriented industries;

- Selective basic industrial sectors with essential and key products should be gradually developed.

3.3 Development Orientation toward 2010

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- Priority should be given to develop processing industries, especially agricultural product processing industry combined with expanding agricultural, forestry and fishery raw material sources; labor intensive industries of consumer and export goods, and handicrafts; and profitable and competitive industries. Some new industrial sectors should be selected to be developed taking into account natural and financial resources available to the country in order to create a solid foundation for economic and industrial developments.

- Priority should be given to develop modern and high-tech industrial infrastructure for various sectors such as energy, petro-chemistry, chemistry, electronics, software, metallurgy, mechanics and machinery building.

3.4 Major policy solutions for the Strategy implementation - SOEs should be further liberalized by improving their

self-control rights, respecting their legal person’s rights, and promoting transfer of ownership such as securitization, operating and financial leases, in order to improve their performance.

- Preferential policies should be developed to encourage investments in industrial development and joint ventures to establish larger economic groups, reaffirm the positive role of private economic sector, mobilize domestic funds, creating legal equity, and institutionalize relevant policies to support enterprises of all economic sectors.

- Policy incentives should be created to promote export goods production and develop labor intensive industrial sub-sectors;

- A policy on human resource training should be developed; - Policies on science and technology should focus on

increasing the State budget allocation to scientific and technological activities, completing relevant intellectual property laws and regulations, creating good climate for strengthening international relations with other countries, and encouraging technological renovations by national enterprises;

- Financial, market and protection policies should be improved to further enhance “open-door” economy to all economic sectors, help local industries enable to strengthen their healthy competitiveness in the markets, encourage consumption of domestic goods, and prevent and control fake goods and illegal trade;

- SMEs Supporting Policy should be developed by the Government to provide SMEs with access to financial sources and/or credits, market information, transfer of technology, training, and even land use.

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- Policy on industrial raw material area development should focus on planning stable raw material area development to be integrated with industrial location, providing local farmers with technical guidance in adopting technical advances to their raw material production, and improving raw material quality and performance.

IV. Policies Directed at Industrial Environmental Management The viewpoint on environmental protection and sustainable development was first reflected in the “National Conservation Strategy” in 1988. The “ National Plan for Environment and Sustainable Development” was adopted by the Government of Vietnam in 1999. This reaffirms that Vietnam is determined to achieve sustainable development of the country and fulfil its commitments to international community for the global prosperity. This Plan advanced various action programs on 1) Natural resource conservation and rehabilitation; 2) urban and industrial pollution control; and 3) enhancement of environmental planning, management and protection institutional framework. Followed the Strategy, a wide number of industrial environment related policies has been promulgated. In general, Vietnam’s industrial environment policies are in line with the guiding principles of industrial pollution prevention and industrial environmental remedy and improvement in order to harmoniously integrate industrial development with socio-economic development and environmental protection. These policies have been reflected in the State’s policies such as natural resource rational utilization and savings, technological renovations toward a green and clean industry, and integration of environmental considerations into industrial development programs, plans and projects, environmental impact assessment requirements for existing industries and new development programs and projects (at macro level), and so on. - Industrial environmental management institutional

development: In addition to the established system of national environmental management including National Environment Agency (NEA) at the central level and Departments of Science, Technology and Environment (DOSTEs) at the provincial level, industrial environmental management units have been established in MOI and industries corporations. However, these institutions are still small and therefore industrial environmental institutional capacity should be strengthened by creating more specialized units in charge of industrial environmental management at relevant line ministries and agencies, IPs and EPZs. Such system would be provided with

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technical guidance from the environmental sector and managed by the industrial sector.

- Legal development to enforce the compliance with the Law on Environmental Protection (LEP): Since the introduction of LEP in 1994, the Prime Minister has enacted 14 decrees, decisions and directives that are relating to industrial environmental management. Especially, Directive 36-CT/TW on “Strengthening Environmental Protection in the Period of Industrialization and Modernization of the Country” (1998); Oil and Gas Law (1993); Mineral Resource Law (1996); Ordinance on Radiation Safety (1996); Ordinance on Natural Resources (1989); Directive on Urgent Measures On Solid Waste Management in Urban and Industrial Areas (1997); Decision on the Establishment of Vietnam GEF (1997); Decision on Hazardous Waste Management (1999); National Plan for Oil Spill Prevention and Response (1999) ... all together provide a legal framework to support environmental protection in general and industrial environmental management in particular.

- Additionally, MOSTE has issued a wide range of legal documents specifying environmental protection by developing a set of more than 200 environmental standards, for example. Similarly, line ministries, agencies and provinces and cities have also developed their environmental legal documents within their jurisdiction.

- Environmental Impact Assessment (EIA): The implementation of EIA of investment development projects and existing industries has been strongly strengthened and this has positively contributed to environmental protection at both central and local levels. Although the requirement for EIA of macro level industrial development programs and a project has been introduced, this is still at a low level.

- Environmental control and inspection: these include solid, liquid and gaseous waste control, certification of pollution control among industries, inspections and handling of violations against environmental laws and regulations; all these have been strengthened and have successfully prevented and put many environmental problems under control. Economic instruments are under consideration to be included into environmental quality control and management. Environmental crime is included in Criminal Code 15/1999/QH-10 approved by the National Assembly in 1999. As defined, environmental crimes include “air, water and land pollution, and import of technologies, machinery, equipment, waste and substance that seriously pollute the environment.” This Code has strongly enforced the compliance with environmental laws and regulations and improved environmental education among industries.

- Environmental monitoring and analysis: in 1994, a national network of environmental monitoring and analysis was

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established by MOSTE and has been in operation ever since. The network expanded from five monitoring stations in 1994 to eight stations in 1995; 14 stations in 1997; 17 stations in 1998; and 19 stations in 1999. The quality of environmental monitoring has been increasingly improved, and national procedures for environmental monitoring and analytical methods have been completely formulated.

- Environmental Investment: the Government has made Investment in many national programs closely related to environmental protection. These include a five million-hectare reforestation program, a master planning of industrial environmental protection, an industrial pollution prevention policy, a cleaner production program, a poverty alleviation program, and a national program on rural clean drinking water supply and environmental sanitation. Besides, other investments have also been made by the Government in environmental management, investigation and research activities. However these investments are still limited if compared to a real need in environmental protection, in particular at local level.

- International cooperation for environmental protection has been strengthened with various international organizations, namely UNDP, UNEP, WWF, IUCN, WB, ADB, GEF, UNIDO and others, and with other countries such as Canada, Sweden, Australia, Switzerland, Denmark, the Netherlands, Japan and so on. These environmental cooperation activities have helped Vietnam be able to fulfil its commitments to international environmental treaties, make full use of various mechanisms provided by different environmental conventions and protocols to attract financial investments to national environmental protection.

V. Policies Directed at Technology Transfer, particularly EST During the 1980s, Vietnam’s technology was 30 to 50 years behind that of the rest of the world. Lower technological level was considered a major obstacle to deter the country from effective development. Since the introduction of the “open-door” policy, a wider range of new policies have been developed and given priority to attract both investment and transfer of advanced technologies to support national industrial reforms. From 1990 to 2000, the total investment capital was VND 700,000 billion, or 27% of the country’s GDP. This amount was primarily invested in infrastructure development such as transportation, energy and telecommunication to create the major premise of industrial development in place recently.

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However, this capital met only 40 to 50% of all development requirements. Lack of investment capital in industrial development used to result in inequitable relations with foreign partners in joint ventures. This explains why Vietnam in many cases has been reluctant to accept even less advanced technologies. On the other hand, as the world is entering the “post-industrial era” and environmental pressures are growing, many industrialized countries tend to transfer polluting industries to developing countries including Vietnam, which has various advantages in terms of political stability, availability of cheap and skillful labor, and lower environmental standards. As a result, low level or regional average level production technologies can be seen in joint ventures and even in 100 per cent foreign capital owned companies in Vietnam. In the present situation of the world economy, foreign investment flows are a “dream” of developing countries. Vietnam is no exception. The Government of Vietnam has tried its best to maintain Vietnam as a “destination" for foreign investors by improving its investment policy, simplifying administrative and banking procedures, and providing foreign investors with more preferential conditions. At the same time, incentives have been developed to encourage import of new and environmentally sound technologies (EST) and discourage transfer of polluting technologies. The Government of Vietnam has included technical assistance, transfer of technology as priority issues into various bilateral cooperative agreements, such as: - Energy cooperation program with the Federation of Russia; - Software cooperation program with the Indian Government; - Hoa Lac Hi-tech Park construction program with Japan and

the Republic of Korea. This Hi-tech park was established by the Government in 1998. The park is considered to be an “incubator” to develop technological breakthroughs with the goal of developing national technological capabilities in the future, and as a “gate” for transfer of new technologies. In addition, a program on research and development capacity building has been invested by the Government since 2000, which focuses on constructing national key laboratories. Another program on human resources development has been implemented by sending Vietnamese experts to developed countries for study and technical training with an expectation that they would become contributors to technological innovation in the future.

VI. Experience with Integrated Policies and Programmes

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A lesson has been learnt that the Asian financial crisis has been attributed to both macro-economic and financial management methods of the countries in the region. However, some other cause may be that of social and natural resource mismanagement. Being aware that sustainable development of the country is an objective, Vietnam has, in the past 15 years, developed and completed five national environmental strategies. As discussed in Chapter I, these strategies have had a positive impact on national development policies. Sustainable development has been explicitly integrated into national economic and policy reforms and environmental institutional development, thus providing a vision on which the country would pursue sustainable industrial development. It is recognized that technologies (including EST) are an important factor in sustainable industrial development, but this process also requires other economic and social supports including economic, legal and institutional instruments, and public awareness. Indeed, it is the environmental strategies that have positively impacted on policy makers in making decisions on national economic development and technological innovation programs and projects. This integration of social and environmental considerations with economic and industrial development decisions is not easy but a determinant for sustainable development in developing countries where public awareness is still low and only limited resources are available. However, there are various obstacles for Vietnam. The concept of environmental protection is still new to Vietnam and therefore its definition is not properly perceived while a system of sustainable development indicators is being developed. Environmental protection and sustainable development strategies are seen as separate considerations of environmental sector by several economic sectors and as a result, socio-economic and environmental considerations have not been adequately integrated into the industrial policy, program and project planning process. This can be explained by weak and limited capabilities in environmental and economic benefit analysis and EIA at policy level. A recent formation of combined processing industrial and material-cropping zones is a good example to illustrate improved awareness of environmental protection and sustainable development. In the past several years, while progress has been made in processing industry, unsustainable factors have been

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revealed. These have been adjusted on the basis of linking it to material cropping zones and markets and ensuring interests of the farmers and workers. This process can meet growing demands for both domestic consumption and exports. It can make full use of advantages in terms of climatic, land, forest and marine conditions. At the same time, it can involve a great number of local laborers in socio-economic development and environmental protection. Practical experience in developing industrial sectors toward sustainable development has shown that the process has immediately proved to be very highly efficient due to the co-energy of positive factors. VII. Major Constraints and Obstacles in Enhancing the Contribution of Industry to Sustainable Development Firstly, it can be said that a less developed economy is a major obstacle to deter a country from sustainable development. Environmental protection and sustainable development can become neglected when the country confronts with many vital and essential needs to be immediately tackled. Secondly, an obsolete technology based industry is another major obstacle to limit its contribution to the economy, society and sustainable development of the country. A backward industry is likely to have potentially negative impacts on the environment and has inadequate capacity and resources to respond to environmental protection requirements including pollution treatment and environmental remedy. Again, an outdated industry is unable to make its contribution to sustainable development, and therefore a strong and high-tech based industry is a must to make the contribution of industry to sustainable development possible. This is just a “ necessity” but not an “ adequacy” as traditional industrial sectors cause certain damages to the environment, such as natural resource depletion and environmental pollution. To make an industry able to contribute to sustainable development, such an industry must acquire environmentally sound and clean technologies to ensure growing demands for social consumption and development to be satisfied and negative impacts on the environment to be prevented and controlled, and adopt eco-design to industrial products. These are demanding challenges facing the contemporary human beings. Industrial development itself makes a fundamental contribution to economic development. However, industrial successes do not directly bring about a socially equitable distribution and in some case, they accelerate an impoverishment of a segment of the population and result in a

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social tension within communities. In reality, social and environmental conflicts have weakened positive factors of industrial development. Typically, construction of a large-scale hydroelectric power project or mining area would cause a relocation of local people and place their lives under extreme difficulties, if there is no appropriate compensation policy. VIII. Multilateral and Bilateral Support Programmes Enhance the Contribution of Industry to Sustainable Development Prior to 1993, Official Development Assistance (ODA) mainly came from the Commission of Mutual Economic Assistance (CMEA) and the former Soviet Union. At that time Vietnam received around Russian Ruble 12.6 billion. Many CMEA and USSR funded projects produced considerably positive effects on the country’s economic and industrial developments. However, at that time, sustainable development issue was not addressed. In 1993, the resumption of official relations with major multilateral donors such as the International Monetary Fund, the World Bank and Asian Development Bank, and the main bilateral donor countries including Japan, Canada, Sweden, Switzerland, Denmark, and others through their international development agencies (JBIC, JICA, CIDA, SIDA, SDC, DANIDA, etc,.), marked a new stage of ODA activities in Vietnam. The impressive performance in economic reform from 1989 to 1993 led to a surge in donor confidence and commitments. Issues of natural resources conservation, environmental protection and sustainable development became the government priorities for ODA. 8.1 ODA ODA is viewed as an important role in investment, which makes up one fourth of total investment in the country. ODA commitments for the present period is set at more than US$ 10 billion and the Government expects to make disbursement of some USD 7.5 billion. The ODA commitments have focused on five priority areas: - Agricultural and rural development: including agricultural

restructuring, industrialization, and improvement in rural living standards;

- Industrial development: primarily enhancing power generation capacity, transmission and the distribution network;

- National road improvement; - Human and institutional development: through various

educational and training projects;

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- Social and cultural development: to implement the primary health improvement program, population and family planning program and the nationwide vaccination program.

The energy sector has been the largest recipient of ODA. JBIC and WB have been the largest donors for the sector. An increasing number of donors wish to support policy reform or institutional capacity building, or sustainable development and environmental protection. Number and Scale of Environment ODA projects In the past 15 years since 1985, there have been 408 environment ODA projects implemented with a total amount of US$ 1,028 million in ODA commitments (excluding waterway projects that accounted for USD 1 billion). Urban and industrial sectors have had 45 projects with US$ 155.822 million, of which 12 projects on urban master plans with US$ 31.724 million; 10 urban and industrial pollution projects with US$ 106.271 million; 10 projects on market incentives to control pollution with US$ 5.962 million; three projects on pollution standards and monitoring with US$ 1.508 million, and 10 projects on environmental monitoring networks with US$ 10.357 million. In 1998, a large project on “Vietnam Cleaner Production Center”, 1998-2003, was started with financial assistance of US$ 2.5 million provided by the Swiss Government through UNIDO. The project aims at national cleaner production capacity building and initial progress has been made by the project to contribute to improving production technology and national cleaner production promotion policy and strategy development. 8. 2 Bilateral FDI Flows Primarily, FDI flows have concentrated in infrastructure development and transfer of technology. As of 15 Oct. 2000, there were 2.514 FDI funded projects with a total amount of US$ 35.655 billion in FDI commitments. However, only US$ 16.576 million have been disbursed. Industry and construction sectors received 1.555 projects with US$ 18.571 billion, of which there were 25 oil and gas projects with US$ 2.144 billion and 204 construction projects with US$ 3,376 billion. 8.3 Multilateral Organization Contributions Multilateral organizations include WB, ADB, UNDP and WFP that have dominated environment ODA, and among them:

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- WB, the largest donor has had a total commitments of more than US$ 400 million funding two priority areas of forest protection, and rural development and energy efficiency,

- ADB is the second donor focusing its ODA on natural disaster management and reduction, urban planning, urban and industrial pollution mitigation, and fishery resource and watershed forest conservation.

- UNDP has provided a total financial assistance of US$ 19 million, primarily funding projects on sustainable natural resource use, and environmental public awareness and education. In addition, other donors such as Global Environment Facility (GEF), Multilateral Fund of the Montreal Protocol have also provided technical and financial assistance to help Vietnam enable to fulfill its commitments to international environmental treaties. Both UNDP and UNIDO have played the most important role as “catalysts” and “active guides” in the process of sustainable industrial development in Vietnam.

8.4 NGO Contribution Most NGO projects are small in terms of their scale and therefore they are not represented in overall contribution database. However, the cumulative impact of around 300 NGO projects operating in the field of environmental protection has significance more than that reflected in the database. In summary, effective implementation of the bi- and multi-lateral ODA projects has acknowledged a success of the country’s economic reforms and “open-door” policy introduction. By looking at sectoral ODA distribution, one can recognize that while the economy is still poor, the government ODA priorities have been given not only to economic development but also to improvement in social life and environmental protection. Besides achievements in the economic reform, Vietnam is determined to renew its efforts in economic and administrative reforms with the goal of creating a new driving force to support the country’s development and its global integration. It is also recognized that through the ODA program implementation the transfer of industrial technology and experiences in economic and environmental legal and policy development have benefited Vietnam in the process of sustainable development of the country. Especially, direct effects produced by some specific ODA projects, such as the SDC funded project on “Vietnam Cleaner Production Center”, the JICA funded project on cleaner production in industries and the energy savings and production equipment efficiency program, have contributed to its sustainable development.

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IX. Reflections and Future Directions for the Country 9.1 Unexpected Effects of Development Social equity is a traditional objective that Vietnamese society pursues. In the end of the 1980s when the economy experienced a serious recession, the State of Vietnam developed its national objective on “economic growth to be combined with social equity and advancement” in its official “economic reform” instrument. Since the introduction of its economic reform, Vietnam gained high economic growth rates that have helped the country enable to get rid of poverty and continue its development. However, in the social development front, progress has been slowly made, and a segment of the population has still suffered difficulties. Income disparity between the richest and the poorest of the population has increased and social crime has been growing. In the environmental field, environmental components including air, water and land have been increasingly polluted. More serious problems have been facing urban and industrial environments. Forest and marine resources have been depleted due to over-exploitation. Natural disaster including flood and drought has tended to be increased in terms of both frequency and severity. Unsustainable development factors have become evident. Obviously, in a market-oriented economy, economic growth itself is not enough to ensure equitable sharing of its products and improvement in social services, people’s living standards and a healthy environment to be achieved. 9.2 Future Directions for the Country's Development Many practical lessons drawing upon the country and the world have proved these perceptions. The 1998-1999 Asian financial crisis has made Vietnamese leader awoken to the fact that concepts of rapid development and sustainable development must be clarified. To get right directions for the society’s development requires new institutions and instruments to harmonize socio-economic and environmental benefits. In response to these requirements, a wide range of policy initiatives has been developed and supplemented. They are: * In the field of social development: policies on education, health care and insurance, employment, social services and subsidies, hunger elimination and poverty alleviation, rural remote area development, etc,... have been improved and completed. During the 1999-2001 period, large-scale projects funded by WB, ADB and bilateral donors have focused on hunger eradication and poverty alleviation, rural remote area

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economic development, education and training, and human resource development. * In the field of environmental protection: Vietnam has gradually approached to sustainable development. In 1998, the Politburo of Vietnam Communist Party issued its Directive on “Strengthening environmental protection in the period of industrialization and modernization of the country”. The Directive reaffirms the environmental viewpoints of the State of Vietnam, as follows: - Environmental protection is the cause of the whole Party,

the entire people and army. - Environmental protection is as an inseparable part of

socio-economic development policies and plans at all levels and sectors, and as the solid foundation on which sustainable development and successful implementation of industrialization and modernization of the country will be achieved.

- Pollution prevention is the guiding principle to be combined with pollution treatment, environmental improvement and nature conservation.

- Domestic strengths should be brought into full play while strengthening international cooperation in environmental protection and sustainable development.

- Industrial environmental issues have become a top priority.

In mid-2000, MOSTE was assigned by the Government to formulate and submit the National Strategy for Environmental Protection, 2001-2010. The overall goal that the Strategy set out is “to further protect and improve the environment in order to enhance the quality of the people’s life and health, and to ensure sustainable development of the country to be achieved.” Also, a strategy for cleaner production promotion in Vietnam, 2001-2010, is being under development by MOSTE. Although environmental protection is still new to Vietnam, environmental protection strategies have been formulated and implemented alongside with its economic renovation process in the past 15 years. This can be viewed as a great achievement in creating cells of a national strategy for sustainable development. 9.3 Challenges and options To find the best way toward sustainable development is a strategic determination of Vietnamese leaders and the entire people. However, there are many great challenges ahead. - Vietnam’s economic and industrial developments should be

strongly promoted in terms of scale and rate in incoming

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years otherwise it would be lagged behind in the process of global integration. In the meanwhile, there are many constraints including poorly developed infrastructure, high poverty rate, high population pressure, incomplete operational mechanisms, lack of investment capital and low technological level chronically facing the country.

- In a global integration trend, various heavy burdens will be diverted from part of the “post-Industry” developed world into developing countries including Vietnam. Vietnam must compete in attracting foreign investment flow while struggling against inflows of obsolete technologies and wastes and ecological invasion, and even social crimes and consumption patterns from outside.

- In principle, while a socio-economic and environmental linkage is the unity, serious conflicts between these issues are likely to be caused in a poor country where there are so many urgent needs to be daily tackled. A wise selection of future directions is a determinant for the country’s development. A proper selection of future directions for the country first requires all levels of leaders and policy makers to be penetrated with sustainable development ideology.

Achievements that Vietnam has gained are encouraging. But they are not a powerful “force” but “a potential” to sustain the country’s development. Indeed, these achievements have led to a surge in Vietnamese confidence in the right direction they selected, and in international admiration for the country. This fruits, in some aspects, is a successful integration of economic development with social equity improvement and environmental protection. Besides, Vietnam is endowed with rich natural and human resources that will be a decisive advantage for the country’s development if adequate investment in these resources is made. Sustainable development is an indispensable way that Vietnam has selected. References 1. General Statistics Service, The 10 Year Socio-economic

Situation in Vietnam, 1991-2000, Statistics Publishing House, Hanoi, 2001.

2. Le Dang Doanh and Nguyen Minh Tu (Editors in Chief), Economic Growth and Social Policy in Vietnam in Transition Since 1991 and ASEAN Experience - Labor Publishing House, Hanoi, 2001.

3. Ministry of Industry, Industrialization and Modernization and Vietnam Strategy for Industrial Development toward the year 2010 - The 2020 Vision- Hanoi, Oct. 2000.

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4. Vietnam capacity 21, Process Toward Sustainable Development in Vietnam, referential document, MPI and UNDP, Hanoi, Feb. 1999.

5. IUCN/UNDP, A Study on Aid to the Environment Sector in Vietnam, Hanoi, Nov. 1999.

6. National Environment Agency (NEA), Vietnam's Environment: An Overview of Urgent Issues, Hanoi, Dec. 2000.

7. Vietnam - Environmental Program and Policy Priorities for a Socialist Economy in Transition - the World Bank - Jun. 1995.

8. NEA, National Environment Agency- Establishment and Development- Hanoi, 2000.

9. The Government of Vietnam Report for the Conference on Environmental Partners, Hanoi, Mar. 2000.

10. Vietnam GEF Office, Vietnam - the 2001-2010 GEF Strategy and the 2001-2005 GEF Program.

11. UNIDO, Socialist Republic of Vietnam- Annual Report of Vietnam

12. Proceedings of Industrial Workplace Environment Workshop II - Vietnam's Industrial Environment at the Threshold of the 21st Century, Workshop Proceedings, Hanoi, Apr. 2001.

13. Vietnam - National Plan for Environment and Sustainable Development, 1991-2000, State Committee for Science, UNDP, UNEP, SIDA, Hanoi Aug. 1991.

14. WB, Vietnam - Economic Report on Industrialization and Industrial Policy - The World Publishing House, Hanoi, 1995.

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ANNEXES table 1: Index industrial gross output at constant 1994 prices by ownership (Previous year = 100)

Of which

Total

State economic sector

Non state economic sector

Foreign invested sector

1991 110.4 106.2 107.4 145.6

1992 117.1 116.1 109.4 140.3

1993 112.7 114.8 108.1 113.6

1994 113.7 115.2 111.3 112.8

1995 114.5 114.9 116.9 108.8

1996 114.1 111.6 111.5 121.7

1997 113.8 110.8 109.5 123.2

1998 112.5 107.7 107.5 124.4

1999 111.6 105.4 110.9 121.0

2000 115.7 112.1 118.3 118.6

Average index industrial gross output per year

1991-

1995

113.7 113.4 110.6 123.3

1996-

2000

113.5 109.5 111.5 121.8

1991-

2000

113.6 111.4 111.0 122.5

Source: Statistical Yearbook 2000 of Vietnam.

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Table 2: Index industrial gRoss output at constant 1994 prices by industrial activity (Previous year = 100)

(%)

1991 1992 1993 1994 1995

Total 110.4 117.1 112.7 113.7 114.5

Electricity 105.2 105.5 110.4 115.3 119.1

Fuel 138.0 138.4 112.9 113.6 110.3

Manufacture of

ferrous metal

156.7 115.0 133.3 104.1 135.3

Manufacture of

nonferrous metal

133.1 144.6 106.3 80.0 112.0

Manufacture of

machinery and

equipment

97.9 112.6 115.8 114.0 111.2

Electrical Technology 102.1 108.3 136.0 120.4 107.6

Manufacture of non

metallic

97.6 105.1 109.5 133.6 120.6

Chemical 121.2 121.4 119.6 122.8 115.3

Constructive material 116.4 118.7 115.5 122.4 115.8

Manufacture of wood

and wood products

104.5 101.9 100.2 131.3 129.5

Manufacture of

cellulose and paper

products

93.7 115.7 110.5 118.2 128.6

Porcelain and glass 122.2 114.7 116.2 117.7 108.8

Manufacture of

rations

107.4 112.3 99.7 139.6 112.6

Manufacture of Food 106.5 114.3 112.4 100.8 112.7

Textiles 101.1 111.5 101.0 113.3 100.4

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Manufacture of

wearing apparel

112.3 121.9 139.8 143.8 131.3

Tanning and dressing

of leather,

manufacture of

leather products

64.0 136.5 160.8 161.2 190.6

Printing 111.5 117.9 118.9 158.9 133.5

Other 95.4 107.8 108.6 108.6 95.2

Source: Statistical Yearbook 2000 of Vietnam.

table 3: Index industrial gross output at constant 1994 prices by industrial activity (Previous year = 100)

(%)

1996 1997 1998 1999 2000

Mining and quarrying 114.7 114.7 115.3 116.4 107.6

Mining of coal 115.1 115.5 95.9 95.8 109.5

Extraction of crude petroleum and natural gas

115.0 114.2 118.5 122.0 106.3

Mining of metal ores 119.6 61.0 116.0 95.8 115.8

Quarrying of stone and other mining

110.9 129.9 114.2 92.1 119.5

Manufacturing 113.6 113.6 112.1 110.8 117.6

Manufacture of food products and beverages

114.4 110.1 107.3 103.4 103.9

Manufacture of tobacco products

101.7 104.9 111.2 98.0 118.0

Manufacture of textiles

102.0 113.9 115.2 100.3 112.0

Manufacture of wearing apparel

114.9 127.2 107.9 111.8 116.5

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Tanning and dressing of leather, manufacture of leather products

125.8 148.0 107.1 109.1 114.3

Manufacture of wood and wood products

96.2 98.4 94.0 107.6 115.8

Manufacture of paper and paper products

117.8 115.3 120.2 109.2 118.0

Publishing, printing and reproduction of recorded media

100.3 107.0 115.3 107.7 108.4

Manufacture of coke, refined petroleum products

60.8 40.0 129.1 93.2 105.6

Manufacture of chemical and chemical products

123.8 115.0 112.8 118.9 122.8

Manufacture of rubber and plastics products

123.6 126.5 125.2 122.8 125.8

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1996 1997 1998 1999 2000

Manufacture of non-metallic mineral products

110.5 120.8 112.4 107.6 117.5

Manufacture of basic metal

118.7 97.9 102.0 122.6 115.4

Manufacture of fabricated metal products, except machinery and equipment

126.1

121.0

118.3

119.6

122.0

Manufacture of machinery and equipment

116.0

107.3

122.5

105.5

111.2

Manufacture of office, accounting and computing machinery

141.8

95.5

604.0

746.8

300.0

Manufacture of electrical machinery and apparatus

123.4

123.0

139.9

127.5

125.0

Manufacture of radio and communication equipment and apparatus

149.1

106.5

106.1

114.8

115.6

Manufacture of medical, precision and optical instruments, watches and clocks

129.1

91.4

154.1

107.5

111.9

Assembling and repairing motor vehicles

94.2

118.5

102.4

110.7

120.6

Manufacture and repairing of other transport equipment

104.7

91.6

186.2

135.4

155.0

Manufacture of furniture

115.0 113.2 109.8 120.6 122.8

Recycling 138.6 108.5 120.7 79.2 106.6

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Electricity, gas and water supply

118.5 115.0 111.8 110.9 111.4

Production, collection and distribution of electricity; manufacture of gas, distribution of gaseous fuels

120.1

116.2

112.2

111.5

112.0

Collection, purification and distribution of water

107.0

105.4

108.6

105.5

105.6

Source: Statistical Yearbook 2000 of Vietnam.