Vietnam Urbanization: Efficiency and Sustainability in Focus

Over the past 20 years, Vietnam has made remarkable economic progress, with an average annual GDP growth of over 6%. This growth has been driven mainly by productivity gains and clustering effects generated by rapid urbanization reportedly coupled with some new challenges.

Pressures from urbanization

The share of the urban population has increased from less than 20% in 1986 to more than 36% today or 36 million people. Currently, cities contribute more than 50% of the country’s gross domestic product (GDP). During the urbanization process, Vietnam has benefited from the efficient use of the clustering economy for growth by using fiscal, land, labor and other resources.

According to Ms. Carolyn Turk, World Bank Country Director for Vietnam, despite impressive achievements, Vietnam's urbanization is now at a turning point when the approach to the current urban development is gradually reaching its limit. Policymakers could choose an “easier” approach by continuing current space policies (which have yielded good results in recent decades) but this is likely to increase costs for long-term development prospects due to increased challenges. Or Vietnam can choose a “harder” approach by reshaping its approach and adopting a strategy that puts improved efficiency and sustainability at the heart to ensure that Vietnam's urbanization will be successful in a rapidly changing world.

In particular, pressures on city governments to supply services are growing. To quickly respond to growing demand, city governments often focus on rapidly building and expanding infrastructure and services without taking into account for climate or sustainability risks. In addition, there are many gaps in policies, mechanisms and capacities to effectively integrate climate and resilience issues into investment plans. As a result, prioritized investments deviate from the sustainable and low-carbon path and fail to capitalize on potential opportunities for financial gain.

Addressing challenges

The Politburo approved Resolution 6 on planning, construction and management of sustainable urban development in Vietnam to 2030, with a vision to 2045. This important resolution is a tool for defining and setting the vision, foundation and approach for the coming years and directing the country’s smart, green and sustainable city development in the 2030-2045 period. The resolution enables policymakers at all levels to develop a holistic country approach - combining policies, regulations, institutional arrangements and investment programs - to address increasingly complicated urban challenges and effectively coordinate intersectoral solutions.

“If Vietnam effectively implements this important resolution, it will be key to success for development in the coming time,” said Ms. Carolyn Turk. Besides, Vietnam should refer to some lessons learned from international experience. Accordingly, institutional strengthening and capacity building are needed to facilitate approach transformation toward sustainable and resilient urban development. This change requires integrated spatial planning that takes climate issues into account and allows ministries, departments and sectors to work together on a digital platform to develop master plans. Once the master plans are defined, execution is critical. Vietnam should focus on limiting the conversion of agricultural land to non-agricultural land, which has been on the rise for the past decade. According to “nighttime light” data, Vietnam’s “urban” area quadrupled in seven years (from 2010 to 2017) compared to the 14-year period (from 1996 to 2010). From 2000 to 2015, Vietnam’s urban population density remained at 1,890 people per square kilometer, low compared to the region.

To improve the competitiveness and efficiency of cities in Vietnam, increasing the investment fund for urban infrastructure is very important, especially investment for flooding risk management and a high-capacity public transport system, said Ms. Carolyn Turk. This requires allocating additional investment resources to cities while considering other measures to increase the investment fund.

In particular, to slow climate change effects and achieve net-zero emissions as committed at COP-26, Vietnam will need considerable funds to support the transition to a low-carbon economy and maximize access to highly concessional financial resources. “Vietnam should explore additional sources of financing such as the sale of carbon credits to the international private market. The infrastructure of this marketplace is already in place and working smoothly, including the registry and the measurement, reporting and verification (MRV) system. This market quadrupled in size last year after doubling in the previous year, and this growth trend is expected to continue in the near term,” she said.

The 10-year emission reduction potential was estimated at 109.7 million tons, equivalent to US$1.76 billion of carbon offsets, at US$25 per ton. The World Bank estimated that this approach can cut initial capital costs by half and, in some cases, it will make industrial parks more competitive in the eyes of leading manufacturers and processors that require green processing and manufacturing technology, thus allowing industrial parks to sell goods at higher prices.

By Anh Mai, Vietnam Business Forum