Toward Sustainable and Balanced Development: Strategy and ......Unemployment figures for Lao Cai,...

STRATEGY and ACTION PLANfor the GREATER MEKONG SUBREGION NORTH–SOUTH ECONOMIC CORRIDOR

Toward Sustainable and Balanced Development

Toward Sustainable and Balanced Development

STRATEGY and ACTION PLAN for the GREATER MEKONG SUBREGION NORTH–SOUTH ECONOMIC CORRIDOR

© 2010 Asian Development Bank

All rights reserved. Published in 2010.Printed in the Philippines.

ISBN 978-92-9092-075-5Publication Stock Number RPT090665 Cataloging-In-Publication Data

Asian Development Bank. Toward sustainable and balanced development: Strategy and action plan for the Greater Mekong Subregion North–South Economic Corridor. Mandaluyong City, Philippines: Asian Development Bank, 2010.

1. Development. 2. Greater Mekong Subregion. 3. North–South Economic Corridor.I. Asian Development Bank.

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Contents

Abbreviations v

Map: GMS North–South Economic Corridor vi

Basic Information on the North–South Economic Corridor and Its Components vii

Part I: Strategy for North–South Economic Corridor Development 1 Background 3 The North–South Economic Corridor 5 Development Potential, Constraints, and Risks 7 Strategic Framework for the Development of the North–South Economic Corridor 13 Action Plan for the Development of the North–South Economic Corridor 20 Implementing the Strategy and Action Plan 21 Critical Success Factors 28

Part II: Action Plan for North–South Economic Corridor Development 2008–2012 29

Appendixes 60 1: Profile of the GMS North–South Economic Corridor and Its Components 60 2: Proposed Tasks of Key Greater Mekong Subregion Institutions in

North–South Economic Corridor Development 84

References 92

List of Tables and Figures

Figure 1: Key North–South Economic Corridor Provinces/Areas and Growth and/or Border Nodes 6

Figure 2: Organizational Framework of the GMS Economic Cooperation Program 22

Figure A.1: NSEC Cross-Border Trade, 2005 70

Figure A.2: Major Special Economic Zones in NSEC Areas 74

Table A.1: Share of Intraregional Trade to Total Trade 69

Table A.2: Source Country Composition of Foreign Direct Investment Inflows 72

Table A.3: State of Development of NSEC Roads 77

Table A.4: Status of CBTA Implementation at NSEC Border-Crossing Points 80

Abbreviations

ADB – Asian Development BankASEAN – Association of Southeast Asian NationsCBTA – Cross-Border Transport AgreementCCI – Chambers of Commerce and IndustryCIQ – customs, immigration, quarantineDWT – deadweight tonsECF – Economic Corridors Forum EOC – Environment Operations Center EWEC – East–West Economic CorridorFDI – foreign direct investmentGMS – Greater Mekong SubregionGMS-BF – GMS-Business ForumGPP – gross provincial productICT – information and communications technologyLao PDR – Lao People’s Democratic RepublicMOU – memorandum of understandingNSEC – North–South Economic CorridorPRC – People’s Republic of ChinaSEA – Strategic Environmental AssessmentSEC – Southern Economic CorridorSEZ – special economic zoneSFA–TFI – Strategic Framework for Action

on Trade Facilitation and InvestmentSOM – Senior Officials’ MeetingWGE – Working Group on EnvironmentWTO – World Trade Organization

GMS North–South Economic Corridor

Source: ADB.

Basic Information on the North–South Economic Corridor and Its Components

continued on next page

1: Population and Land Area

Location and/or Area

Total Population

(‘000)

Land Area (‘000

sq km)

Population Density (persons

per sq km)

Rural Population

(%)

Literacy Rate (%)

Poverty Incidence

(%)PRC 1,311,000 9,600.0 137 59.2 98.9 13.4

Yunnan 44,300 394.1 112 70.5 85.0 7.9

Kunming 6,086 21.5 283 63.5 – –

Yuxi 2,214 15.3 145 82.3 – –

Xishuangbanna 1,050 19.2 55 69.2 – –

Honghe Hani and Yi 4,312 32.9 131 82.1 – –

Guangxi 49,610 236.7 210 65.4 97.0 9.8

Nanning 6,595 22.1 298 73.1 98 –

Chongzuo 2,307 17.4 133 83.3 96 –

Lao PDR 5,622 236.8 22 82.9 68.5 38.6

Louang Namtha 145 9.3 16 82.9 35.0 57.5

Bokeo 145 6.2 23 94.8 51.5 37.4

Oudomxay 265 15.3 17 84.9 57.0 73.2

Myanmar 52,171 676.6 77 75.1 89.9 26.6

Shan State 5,061 155.8 32 78.7 – –

Thailand 65,110 513.1 127 68.0 98.0 9.5

Chiang Rai 1,303 11.7 111 81.9 78.5 15.2

Chiang Mai 1,603 20.1 80 76.1 86.1 18.6

Phayao 506 6.3 80 77.6 88.3 19.5

Lamphun 371 4.5 82 73.5 90.2 5.8

Lampang 789 12.5 63 71.3 89.8 16.5

Tak 483 16.4 29 79.0 81.8 29.6

Phitsanulok 790 10.8 73 83.0 94.9 12.0

Kamphaeng Phet 817 8.6 95 86.5 93.3 6.8

viii Strategy and Action Plan for the Greater Mekong Subregion North–South Economic Corridor


Total Population

(‘000)

Land Area (‘000

sq km)

Population Density (persons

per sq km)

Rural Population

(%)

Literacy Rate (%)

Poverty Incidence

(%)Nakhon Sawan 984 9.6 103 79.8 92.9 17.1

Sing Buri 242 0.8 294 72.7 96.9 10.5

Ayutthaya 732 2.6 282 66.3 97.0 3.5

Bangkok 6,796 1.6 4,248 – 96.7 1.6

Viet Nam 83,120 331.2 252 74.0 90.0 29.0

Lao Cai 575.7 6.3 91 81.6 – –

Yen Bai 731.8 6.9 106 80.2 – –

Phu Tho 1,328.4 3.5 377 84.3 – –

Ha Noi 3,145.3 0.9 3,415 34.7 – –

Hai Phong 1,792.7 1.5 1,175 54.2 – –

Vinh Phuc 1,169.0 1.4 852 86.0 – –

Lang Son 739.3 8.3 89 79.9 – –

Bac Giang 1,581.5 3.8 414 90.8 – –

– = no data, Lao PDR = Lao People’s Democratic Republic, PRC = People’s Republic of China.

Notes:

1. Population data for the PRC refers to 2006, to 2005 for Yunnan and Guangxi; rural population data and literacy rates from 2005.

2. Total population data for Myanmar are 2002 estimates, rural population is based on the 1983 Population Census conducted by the Department of Population (apparently, the last census made in Myanmar; in 1991, only the Population Changes and Fertility Survey was made), and the literacy rate is from UNDP’s Human Development Report 2006.

3. Yunnan prefecture data are provided by Dofcom office in Yunnan.4. Population data for Thailand provinces were from the National Economic and Social Development

Board, 2005.5. Poverty incidence and rural population of Thailand were taken from the National Statistical Office,

2006. 6. Literacy rate of Thailand was taken from the 2000 Census. Literacy rates and poverty incidence for

Thailand were taken from UNDP’s Thailand Human Development Report 2007.7. Poverty incidence for Myanmar is based on results of the Household Income and Expenditure Survey

in 2001.

Sources: ADB, Statistical Database System (SDBS); ADB, Key Indicators 2006; ADB, Regional Cooperation Strategy Program Update 2007–2009; China Bureau of Statistics, China Statistical Yearbook 2006; Yunnan Statistical Yearbook 2006; Guangxi Statistical Yearbook 2006; National Statistics Centre, Lao PDR, Lao PDR Statistical Yearbook 2005; National Economic and Social Development Board, Thailand, Statistical Yearbook 2004; General Statistics Office, Viet Nam, Statistical Handbook 2006; UNDP, Thailand Human Development Report 2007; Ministry of National Planning and Economic Development, Myanmar, Statistical Yearbook 2003.

1. Population and Land Area (continued)

Basic Information on the North–South Economic Corridor and Its Components ix

2: Income Levels and Economic Structure


GPP/cap ($)

Structure of Production (%) Unemployment Rate (%)Agriculture Industry Services

PRC 1,713 12.5 47.5 39.9 4.2

Yunnan 956 19.3 41.3 39.5 –

Kunming 2,268 – – – –

Yuxi 1,907 – – – –

Xishuangbanna – – – – –

Honghe Hani and Yi 747 – – – –

Guangxi 1,080 22.4 37.1 40.5 –

Nanning 1,382 16.5 32.0 51.5 –

Chongzuo 810 36.9 27.5 35.6 –

Lao PDR 599 44.4 29.2 25.5 –

Louang Namtha 389 71.0 12.7 15.3 –

Bokeo 300 70.0 – – –

Oudomxay 300 70.0 – – –

Myanmar 209 50.1 15.2 34.7 –

Shan State – – – – –

Thailand 2,713 9.6 46.9 43.5 1.5

Chiang Mai 1,602 15.9 19.0 65.1 3.4

Chiang Rai 873 30.9 10.2 58.9 3.1

Phayao 920 27.9 10.9 61.2 0.7

Lamphun 3,340 8.1 71.0 20.9 1.0

Lampang 1,271 11.1 36.3 52.6 0.4

Tak 1,389 27.5 31.2 41.4 0.9

Phitsanulok 1,379 24.4 15.3 60.2 1.7

Kamphaeng Phet 1,725 15.9 56.3 27.7 0.5

Nakhon Sawan 1,531 24.4 26.4 49.1 0.9

Sing Buri 1,910 17.2 32.0 50.8 2.7

Ayutthaya 8,995 2.1 85.7 12.2 1.2

Bangkok 7,414 0.1 25.6 74.2 2.0

continued on next page

x Strategy and Action Plan for the Greater Mekong Subregion North–South Economic Corridor

– = no data, GPP/cap = gross provincial product per capita, Lao PDR = Lao People’s Democratic Republic, PRC = People’s Republic of China.

Notes:

1. Data for the PRC refers to 2005. Yunnan prefecture GPP per capita figures are from 2004 using average exchange rate at RMB8.2768 = US$1. Guangxi prefecture figures are from 2005.

2. Lao PDR figures are from 2005; provincial data for Bokeo and Oudomxay are based on the Northern Region average figures. Available figures for Louang Namtha are from the Ministry of Foreign Affairs.

3. Thailand figures are from 2005 using average exchange rate of B40.2 = US$1.

4. Viet Nam data refer to 2006; Lao Cai is the average GPP for 2000–2005; Ha Noi refers to 2005; Vinh Phuc and Hung Yen refer to 2004; Lang Son GPP is from 2002, while the economic structure is based on 2005; unemployment rates refer to urban areas. Unemployment figures for Lao Cai, Yen Bai, Phu Tho, Lang Son, and Bac Giang are based on regional data for the North East; Hai Phong and Vinh Phuc are based on the Red River Delta Region data.

5. Agriculture includes hunting, forestry, and fishing.

6. Industry includes mining and quarrying, manufacturing, electricity, gas and water supply, and construction.

7. Services include trade, hotel and restaurant, transport, storage and communications, financial intermediation, real estate and related business activities, public administration and defense, compulsory social services, education, health and social work, other community, social and personal services activities, and private households with employed persons.

Sources: ADB, Statistical Database System (SDBS); ADB, Key Indicators 2006; China Bureau of Statistics, China Statistical Yearbook 2006; Thailand National Economic and Social Development Board (NESDB) for GPP and economic structure; UNDP, Thailand Human Development Report 2007 for unemployment rates; CEIC Database Online; Lang Son data from www.langson.gov.vn.


GPP/cap ($)

Structure of Production (%) Unemployment Rate (%)Agriculture Industry Services

Viet Nam 723.5 20.9 41.0 38.1 5.3

Lao Cai 315.5 – – – 5.1

Yen Bai – – – – 5.1

Phu Tho 356.4 27.0 38.7 34.3 5.1

Ha Noi 1523.7 1.6 40.8 57.6 6.2

Hai Phong 564.9 10.6 40.8 48.5 5.6

Vinh Phuc 240.0 24.1 49.7 26.2 5.6

Lang Son 249.5 42.0 16.2 41.8 5.1

Bac Giang 300.1 40.6 25.1 34.3 5.1

2. Income Levels and Economic Structure (continued)

Part I: Strategy for North–South Economic Corridor Development

Background

The Economic Corridor Approach

The economic corridor approach to subregional development was adopted by the Greater Mekong Subregion (GMS) countries during the Eighth GMS Ministerial Meeting, held in Manila in 1998, to help accelerate the pace of subregional economic cooperation. In their Joint Statement, the GMS ministers declared that “GMS member countries will create economic corridors linking the subregion to major markets; nodal points within these economic corridors will serve as centers for enterprise development; economic corridors will be an expansion of key transport corridors so as to enhance economic activities and benefits, and over the longer term to build on the potential of the subregion as a land bridge serving the People’s Republic of China (PRC), Southeast Asia, South Asia and East Asia.”

The economic corridor approach is expected to extend the benefits of better transport links to remote and landlocked locations in the GMS, which have been disadvantaged by their lack of integration with more prosperous and better-located neighboring areas. Its operationalization would (i) provide a spatial focus to GMS activities, with the backbone, growth centers, and nodal points catalyzing the development of surrounding localities; (ii) open up many opportunities for various types of investments from within and outside the subregion; (iii) promote synergy and enhance the impact of subregional activities through the clustering of projects; (iv) provide a mechanism for prioritizing and coordinating investments among neighboring countries; and (v) generate tangible demonstration effects.

An economic corridor is not simply a connection between point A and point B. The movement of people and goods can begin and end anywhere between points A and B. The impact of an economic corridor also goes beyond the main route or “line.” It extends to the areas whose access to major economic centers could be strengthened through connecting these points.

North–South Economic Corridor Development: Priority GMS Initiative

The development of the North–South Economic Corridor (NSEC), which links major economic hubs in the northern and central parts of the GMS, was identified by the GMS ministers at the Eighth GMS Ministerial Meeting as one of the three priority projects under the economic corridor approach.1 NSEC development was subsequently included as one of the flagship programs under the Ten-Year GMS Strategic Framework, which was endorsed by the leaders of the GMS countries during the first GMS Summit held in Phnom Penh, Cambodia in 2002.

1 The other two are the East–West and Southern Economic Corridors.

4 Strategy and Action Plan for the Greater Mekong Subregion North–South Economic Corridor

Several projects aimed at improving transport links in NSEC have been completed in the last few years, thus enhancing physical connectivity among national components within the corridor. These investments have been complemented by efforts under the Cross-Border Transport Agreement (CBTA) and the Strategic Framework for Action on Trade Facilitation and Investment (SFA-TFI) to facilitate the movement of goods, people, and vehicles along the corridor. Although these activities have helped in establishing an operational transport corridor, many more are needed to transform NSEC into a full-fledged economic corridor. The development of an economic corridor is complex and long, and the building of transport links is only the initial stage. NSEC development requires a multisector, holistic, and closely coordinated approach, especially when many of the key transport links in the corridor have either been completed or are nearing completion.

Purpose and Scope

The formulation of the Strategy (Part I of this document) and Action Plan (Part II) for NSEC Development is aimed at (i) operationalizing a multidimensional approach to economic corridor development; (ii) sharpening the focus, improving coordination, and ensuring effective and sustained implementation of NSEC initiatives; and (iii) mobilizing financial and technical resources from various sources and broadening the support of various stakeholders, especially at the local level, for NSEC development.

The North–South Economic Corridor

NSEC consists of three major routes along the north–south axis of the GMS (see GMS map highlighting these routes) that connect major population and economic centers in the northern and central parts of the subregion, namely, (i) the Kunming–Chiang Rai–Bangkok via Lao People’s Democratic Republic (Lao PDR) or Myanmar route (also referred to as the “Western Subcorridor”), (ii) the Kunming–Ha Noi–Hai Phong route (also referred to as the “Central Subcorridor”), and (iii) the Nanning–Ha Noi via the Youyi Pass or Fangcheng–Dongxing–Mong Cai route (also referred to as the “Eastern Subcorridor”).

NSEC’s Western Subcorridor begins in Kunming, Yunnan Province, and traverses Yuxi Municipality and Xishuangbanna Dai Autonomous Prefecture (Xishuangbanna) before crossing into Louang Namtha and Bokeo provinces on Lao PDR side and Shan State on the Myanmar side. The subcorridor then passes through Thailand’s Chiang Rai Province, where the route branches into two, with one going through Chiang Mai, Lampang, Tak, and Kamphaeng Phet, and the other going through Phayao, Phrae, Uttaradit, and Phitsanulok, before reaching Nakhon Suwan, Ayutthaya, and finally Bangkok. The Western Subcorridor involves the following border crossing points: (i) Mohan–Boten (Yunnan Province and the Lao PDR), (ii) Daluo–Mengla (Yunnan Province and Myanmar), (iii) Houayxay–Chiang Khong (the Lao PDR and Thailand), and (iv) Tachilek–Mae Sai (Myanmar and Thailand).

The Central Subcorridor also begins in Kunming and passes through Honghe Yani and Yi Autonomous Prefecture (Honghe) before crossing into Viet Nam’s Lao Cai Province at the Hekou–Lai Cai border crossing point. From there, the corridor traverses Viet Nam’s provinces of Lao Cai, Yen Bai, and Phu Tho before reaching Ha Noi and Hai Phong. The Eastern Subcorridor consists of two alternative routes. The first originates in Nanning, Guangxi Zhuang Autonomous Region (Guangxi), traverses Chongzuo and crosses into Viet Nam’s Lang Son Province through the Youyi Pass that links Pingxiang on the PRC side and Dong Dang on Viet Nam’s side, and reaches Ha Noi through Bac Giang Province. The second route involves travelling south from Nanning to Fangcheng and then along the coast to the Dongxing and Mong Cai border-crossing point and onward to Hai Phong and Ha Noi. Figure 1 shows the key provinces and areas that are traversed by the main NSEC routes, as well as adjoining provinces and areas that are expected to be strongly affected by NSEC development.


Figure 1: Key North–South Economic Corridor Provinces/Areas and Growth and/or Border Nodes

Source: ADB.

Development Potential, Constraints, and Risks

Potential and Opportunities

NSEC has vast potential for development since it is endowed with abundant natural resources, is economically diversified along its north–south axis, and has close historical and cultural ties among its national components. The corridor covers some of the least developed and most ecologically sensitive areas in the GMS, and the realization of this development potential through subregional cooperation can substantially help reduce poverty and achieve more balanced and sustainable development, not only within the NSEC national components, but also in the subregion as a whole. NSEC areas stand to benefit from the increasing flow of goods and people, as well as expanding commercial and investment activities along the corridor and adjoining localities. Annex A presents a profile of NSEC and its components to provide the human, physical, social, and economic context for NSEC’s development.

NSEC is a “natural economic corridor” in the GMS, because the multimodal transport and infrastructure network in the subregion has a generally north–south orientation. It is strategically located, linking the more developed and industrialized economies of the PRC and Thailand. NSEC serves as the main land route for trade between the PRC’s Yunnan Province and Thailand, and provides an important land link opening up sea access to landlocked Yunnan Province. It is also a direct trade conduit between southern PRC and northern Viet Nam. Having the PRC’s only two borders with the countries of the Association of Southeast Asian Nations (ASEAN), NSEC is well positioned to serve as a gateway for ASEAN–PRC trade, which is expected to expand rapidly with the implementation of the free trade agreement (FTA) between the PRC and ASEAN. NSEC’s links extend northward—beyond Yunnan Province and Guangxi—to the rest of the PRC and southward—beyond Thailand—to Malaysia, Singapore, and the rest of ASEAN. NSEC intersects the GMS East–West Economic Corridor (EWEC) in Thailand’s Tak and Phitsanulok provinces, thus providing access to the Andaman Sea and South China Sea and generating mutually reinforcing momentum for the development of the corridors.

The underlying impetus for NSEC development emanates from the complementarities among the GMS countries. However, there is a wide diversity in topography, natural resources, structure of production, levels of income, and other factors along the corridor, which enables optimization of comparative advantages within NSEC. The northern part of the corridor is composed mostly of mountainous and rolling terrain, interspersed by valleys and plains with scenic landscapes. They have abundant natural resources, especially minerals and forests, as well as high biodiversity. They


are generally sparsely populated and serve as home to many ethnic communities.2 Incomes in these areas tend to be lower and poverty incidence tends to be higher than the respective national averages, although there are variations across the national components. Except for Yunnan Province and Guangxi, agriculture contributes a larger proportion of annual production than industry in the northern subregions of NSEC. Moving south along the corridor to lower elevations, population density increases, and the areas progressively become more industrialized, commercialized, and urbanized, with income levels rising commensurately.

There are differences among the national components of NSEC in access to capital and technology, land availability, and supply of trained workers and management skills, which could be used to help expand economic links among NSEC areas. The access of the Lao PDR and Myanmar components of NSEC to capital and technology is acutely limited, partly due to their relative isolation and underdevelopment. Although not as severe, the same is true in the northernmost provinces of Viet Nam. For instance, the food and agricultural processing industry in Viet Nam’s Lao Cai Province has been constrained by the use of outdated technology. Thailand, Yunnan Province, and Guangxi can help in improving the access of less developed areas in NSEC to private capital, to agricultural and industrial technology, and to managerial and entrepreneurial skills.

Rubber cultivation in Louang Namtha Province in the northern Lao PDR under contract with PRC entrepreneurs is a good example of cross-border complementation. This arrangement takes advantage of lower labor costs and land availability on one side of the border, and more advanced entrepreneurship and technology, and greater availability of capital and management skills, on the other. In this case, PRC agricultural scientists have been able to develop a special variety of rubber tree suited to conditions in the northern Lao PDR. There are similar arrangements between Guangxi and northern Viet Nam involving cassava and sugar plantations, and between NSEC areas of Lao PDR and Thailand involving sugarcane and fruits. Although agriculture is prominent in all the northern provinces of NSEC, there are complementarities that could be pursued due to differences in climatic and soil conditions, land availability, and application of technology.

The increase in intra-GMS trade in general and in cross-border trade in particular is expected to lead to greater cross-border investment, complementing trading activities and involving cross-border production, processing, and marketing tie-ups that relieve raw material supply constraints, upgrade technology, and improve capacity utilization. The expansion in extra-GMS trade (GMS trade with the rest of Asia and the world) can also enable enterprises in major NSEC components to link up with regional production networks and supply chains.3

2 For instance, 26 of the PRC’s ethnic groups live in Yunnan Province, representing 38% of the province’s population. There are 35 ethnic groups living in Nanning, with the Zhuang people making up 56.3% of the total population. Many ethnic communities also live in the Lao PDR and Myanmar components of NSEC, as well as in the northernmost provinces of Thailand.

3 The arrangement involving the PRC, Thailand, and Viet Nam in the production and assembly of Canon product components is a good example of links in the production and supply chain. Technology-intensive parts of Canon products are manufactured in the PRC and Thailand, assembled in Viet Nam, and subsequently shipped back for distribution in or export from the PRC and Thailand.

Development Potential, Constraints, and Risks 9

Considering relative factor endowments and complementarities of NSEC subregions, the sectors and subsectors offer good opportunities for investment in the context of NSEC development:

• Agriculture and agro-industry, including food processing and contract farming;

• Resource-based industries, including the processing of mineral and forest products, and energy-related industries;

• Light manufacturing industries, such as clothing, garments, footwear, paper, accessories, and consumer products;

• Construction materials, including cement, iron, and steel;

• Agricultural machinery and equipment;

• Technology-intensive industries, such as automotive parts, electronics, and electronic components;

• Service-based industries, such as tourism and logistics; and

• Cottage industries linked to tourism and involving the participation of local communities.

These sectors and subsectors are relevant to all the NSEC routes. However, each route could specialize on certain ones. For instance, the Western Subcorridor of NSEC could emphasize trade, tourism, power, logistics, and technology-intensive industries. The Central Subcorridor could focus on agriculture, agro-industry, and labor-intensive industries, while the Eastern Subcorridor could capitalize on agriculture, agro-industry, mining, tourism, trade, and logistics.

Impediments and Constraints

The realization of NSEC’s full potential will require that certain impediments and constraints be overcome to improve the corridor’s competitiveness and enable the integration of economic activities. The lack of hardware is only one part of the challenge. Improvements in physical connectivity in the corridor would not lead to increased mobility of people, goods, services, and information across borders if they are not accompanied by supporting software4 that addresses bottlenecks involving policies, rules and regulations, and systems and procedures. Lack of sustained direction and coordination of various NSEC initiatives at different levels of government and across countries also tend to hold back NSEC’s transformation into a full-fledged economic corridor.

The major impediments and constraints to NSEC development are discussed below. Because they are closely interrelated, they must be dealt with together.

4 The term “software” or nonphysical infrastructure, when used together with “hardware” or physical infrastructure, refers to the policies, agreements, frameworks, rules, and regulations governing the efficient use of the hardware (e.g., the Cross-Border Transport Agreement and its annexes and protocols). The term also refers to activities aimed at developing nonphysical assets (e.g., education, capacity and institution building, and management and control systems).


• Physical infrastructure and facilities. As improvement of physical infrastructure in NSEC has progressed well, this is now a lesser constraint. However, problems remain in some NSEC components, such as the severe shortage of rail capacity between Hekou and Hai Phong, poor road conditions in the mountainous areas between Lao Cai and Ha Noi, shortage of storage and warehousing facilities, and lack of information technology equipment and communications facilities at many of the border checkpoints.

• Logistics. The lack and high cost of logistics are hindering the growth of trade in NSEC. The logistics industry needs further improvement in Yunnan Province and Guangxi, and further development in Viet Nam. The industry is still largely undeveloped in the Lao PDR and Myanmar. The cost of logistics along NSEC, not only in monetary terms but also time and reliability, is still relatively high and is a disincentive for transporting goods along the corridor.

• Policies, regulations, procedures, and standards. The weakest links in the corridor are at the border checkpoints, because they are the biggest impediment to the efficient movement of people and goods along the corridor. Policies, regulations, and procedures for cross-border movement of goods and vehicles, including those for transit cargo, are cumbersome, unclear, and sometimes variable. Transparency is also an issue in varying degrees. There are also gaps in existing laws, which hinder such trade facilitation measures as the “one-stop” or “single-window” inspection.

• Human resources. Lack of awareness, knowledge, and skills in transport, trade, and investment facilitation by local officials is hindering the growth of trade and investment in NSEC. Logistics service providers also lack capacity for providing services in line with international standards. The low skills base in the Lao PDR and Myanmar components and, to a certain extent, the Viet Nam component of NSEC, is constraining their development. Capacity for the utilization of information and communications technology (ICT) applications is also generally limited, particularly at the local level.

• Institutional factors. Weak coordination among central and local agencies involved in transport, trade, and investment facilitation is a major issue. This has contributed to problems and delays in implementing agreements that have already been adopted and ratified, including those in the CBTA and in the ASEAN framework. There are also no effective institutional mechanisms and arrangements in place that could ensure effective and sustained implementation of NSEC initiatives. The involvement of local authorities and communities in corridor development in many NSEC areas is inadequate. Mechanisms to promote and support private sector participation in NSEC development are deficient and so far not very effective.

• Information. Lack of information on NSEC programs and projects exacerbates these impediments and constraints. For instance, part of the reason for the lack of coordination among concerned government agencies is that there is no sufficient information across different agencies on various aspects of NSEC development, including its concept, objectives, and more specifically, ongoing and planned activities. The private sector also is generally still at a loss on what NSEC is trying to achieve, what opportunities

Development Potential, Constraints, and Risks 11

are open to it, and what rules would be applied to enable it to participate in NSEC development.

• “Internal” factors. Some matters involving the “internal affairs” of individual NSEC countries (e.g., social, economic, and political issues) may hinder cooperation among neighboring countries, thus slowing down the development of NSEC.

Threats and Risks

Although the development of NSEC is expected to benefit the local population through increased trade and investment, greater income-generating opportunities, reduced poverty, and a better quality of life, there are threats and risks that could have undesirable consequences for NSEC and the people living in the corridor and surrounding areas. The strategy for NSEC development needs to recognize and proactively address these threats and risks.

From a broad perspective, a major risk in the Western Subcorridor of NSEC is that its Lao PDR and Myanmar components may become only transit subcorridors, with much of the new economic activities taking place north and south of them, but very little in between. The same situation could arise in the Lao Cai and Yen Bai sections of the Central Subcorridor. Therefore, the relatively disadvantaged components of NSEC must be fully integrated and thus able to benefit from the development of the corridor.

The potential social and environmental impacts that corridor development has to deal with include the following (Mekong Institute 2006b).

Social Concerns

• Displacement of local communities and ethnic minorities. Many subregional infrastructure projects require the relocation and resettlement of local inhabitants, causing changes in their economic, social, and cultural milieu. The impact of such displacement could be particularly severe on marginalized groups, such as small, remote rural communities and ethnic minorities. While resettlement and compensation schemes usually complement major infrastructure projects, they need to be better planned and implemented.

• Spread of communicable diseases. The increased mobility of people arising from improvements in physical connectivity could lead to the spread of communicable diseases, such as HIV/AIDS and avian flu. Reports show the emergence of HIV/AIDS “hot spots” along GMS economic corridors following the increased number of itinerant populations such as workers, drivers, and tourists in once isolated rural communities.

• Trafficking of women and children and illegal trade. Improved mobility and access may exacerbate the trafficking of women and children in border areas. Activities involving illegal trade in goods and wildlife could also increase.


• Increased land prices. Land prices around road construction sites tend to rise due to speculation and expected increase in demand. This makes small landowners vulnerable, who may be prematurely enticed into selling their properties or who may be dispossessed of them, particularly in areas where land rights are not properly defined or enforced.

• Increased incidence of accidents. Road construction and expansion along the corridor could result in more accidents that could cause the loss of life and community assets such as cows and water buffaloes, and damage to property. Traffic enforcement in local communities and road safety education need substantial strengthening.

Environmental Concerns

• Deforestation and loss of biodiversity. Large subregional infrastructure projects and increased mobility of people and goods may foster the rapid exploitation of natural resources along the corridor. For example, road upgrading and expansion could lead to deforestation and loss of biodiversity, as it may facilitate logging and transporting of timber along the corridor. Land clearing for industrial and commercial purposes due to increased demand and economic opportunities could also result in deforestation and biodiversity loss.

• Environmental degradation. Expanding industrial and economic activities along the corridor could lead to pollution and waste disposal issues, and failure in ecosystem service functions such as carbon sequestration, water flow regulation, and nutrient dispersal. Effective approaches are needed to maintain the quality of ecosystems in NSEC, including measures to ensure that major investments in transport, power, and tourism are pursued sustainably.

Strategic Framework for the Development of the North–South Economic Corridor

Development Vision

The long-term vision of NSEC is that of a dynamic, progressive, and well-integrated economic corridor, serving as a locomotive for economic and social development along the north–south axis of the GMS, able to attract domestic and foreign investment, functioning as a major gateway for ASEAN–PRC trade, and contributing to employment and income growth, as well as to poverty reduction in the GMS. Its key characteristic would be a highly efficient, multimodal transport and logistics system that allows the seamless movement of people, goods, and services along the corridor. It is envisaged that NSEC development will be balanced and sustainable, with the less developed components deriving commensurate benefits, the interests of vulnerable groups adequately protected, and environmental concerns effectively addressed.

Goals, Objectives, and Strategic Priorities

The goal of NSEC development is to reduce income disparities, increase employment opportunities, generate higher income, and improve the living conditions of people in the corridor and surrounding areas. To realize this goal, the more immediate objectives of NSEC development are to (i) ensure that NSEC development is economically, socially, and environmentally sustainable; (ii) enhance the competitiveness of the corridor by reducing the cost of transport and of doing business, and facilitating the start-up and operation of business ventures in the corridor; and (iii) make the most of underlying comparative advantages and complementarities among NSEC components, specifically by promoting NSEC areas as tourist and investment destinations and production bases. Along these lines, the following strategic priorities of NSEC will be pursued.

Mainstream measures to deal with social and environmental concerns in NSEC development

Key measures addressing social concerns include

• Cooperating in the control and improvement of surveillance, public awareness, and response to epidemics stemming from transboundary animal diseases;

• Cooperating in HIV/AIDS prevention and control;


• Formulating and implementing special programs for vulnerable and marginalized groups, including mechanisms for obtaining and incorporating their views in the decision-making process;

• Cooperating to address concerns involving trafficking of women and children; and

• Implementation of measures to ensure traffic safety along NSEC routes.

On environmental concerns, the key measures are

• Conducting a strategic environmental assessment of NSEC using Geographic Information System tools, among others, and consideration of its findings and recommendations in preparing and updating the NSEC Strategy and Action Plan;

• Ensuring that investments in transport, hydropower, and tourism are pursued sustainably;

• Developing frameworks and approaches for strengthening the management and protection of natural resources in NSEC areas, especially within protected areas and environmental hot spots in NSEC; and

• Promoting the use of environmentally friendly technologies and approaches in agriculture, industry, and tourism development in NSEC areas.

Strengthen physical infrastructure and facilities needed for the integration of economic activities in the corridor

Key measures include

• Improving major transport links in the corridor to further reduce travel time and increase carrying capacity, safety, and reliability;

• Upgrading other road infrastructure to link and support priority rural, agricultural, agro-industrial, and tourism projects in the corridor;

• Encouraging multimodalism in transport development to best serve future transport and trade flows and address associated environmental impacts along the corridor;

• Upgrading infrastructure in border areas, including border checkpoints and facilities; and

• Addressing deficiencies in other infrastructure requirements such as water, power, and telecommunications.

Facilitate cross-border transport and trade


• Facilitating road transport in the corridor through the implementation of various provisions of the Cross-Border Transport Agreement (CBTA) (for example, exchange of traffic rights and facilitation of frontier-crossing formalities);

Strategic Framework for the Development of the North–South Economic Corridor 15

• Simplifying, standardizing, and harmonizing customs, immigration, and quarantine procedures and documents as envisaged under the CBTA and the Strategic Framework for Action on Trade Facilitation and Investment (SFA-TFI), including adoption of single-stop, single-window inspection;

• Conducting information and training programs to improve the awareness, knowledge, and skills of local and border officials in transport and trade facilitation;

• Increasing use of information and communications technology in transporting and clearing cargo;

• Increasing use of risk management techniques in cargo clearance;

• Establishing logistics centers, common wholesale markets, trading centers, and inland container depots in strategically located areas in the corridor; and

• Adopting suitable arrangements for financial settlement covering cross-border trade.

Promote and facilitate investment in agriculture, agro-industry, natural resource-based industries, manufacturing, tourism, and logistics; and development of industries in the corridor and surrounding areas


General

• Conducting investment forums to disseminate and promote NSEC business opportunities;

• Collecting, compiling, and disseminating economic and business information on NSEC, including a prospectus on business opportunities in the key industries in the corridor;

• Compiling and disseminating policies, rules, regulations, procedures, and documentation requirements covering investments in NSEC areas to increase transparency and expedite compliance;

• Implementing measures to facilitate the approval of business licenses and other permits, including the setting-up of one-stop centers for approving investment applications;

• Adopting measures to improve the mobility of businesspeople in the corridor; and

• Establishing special economic zones in border areas and other strategic locations in the corridor, and improving coordination in setting up such zones to take advantage of complementarities and to strengthen links among them.

Agriculture and Agro-Industry

• Promoting investment in the production, processing, and marketing of agricultural products in the corridor, including contract farming;


• Promoting cooperation in agricultural research and development to help upgrade technology and increase productivity; and

• Promoting environmental management and sustainable practices in forestry and upland agriculture.

Natural Resource–Based Industries and Manufacturing

• Promoting investment and complementation in the production and processing of mineral and forestry products;

• Preparing and disseminating investment opportunities in NSEC areas in natural resource–based industries and manufacturing; and

• Implementing promotional measures and policy support for developing small and medium-sized enterprises in NSEC areas.

Tourism

• Conducting joint tourism promotion and marketing programs focused on key NSEC tourist attractions;

• Improving and developing tourist products and facilities in key tourist destinations in the corridor;

• Promoting cooperation among tourist organizations in the corridor in skills training for the tourism industry and in setting of standards for facilities and services; and

• Improving infrastructure to support tourism development, including access roads, power, water, and other utilities.

Logistics

• Promoting the logistics industry through deregulation and increased foreign participation, where possible and applicable, including cross-border investments in logistics-related services;

• Conducting information campaigns in national components of NSEC with less developed logistics services to increase awareness and knowledge of logistics concepts, operations, and development; and

• Establishing an association of logistics companies in NSEC countries.

Address human resource constraints in the public and private sectors


• Conducting workshops and training programs to strengthen awareness, knowledge, skills, and management capacity of local officials in transport, trade, and investment facilitation, especially for those at border checkpoints;

• Conducting skills development programs, particularly in the less developed areas of the corridor such as those in the Lao PDR and Myanmar;


• Promoting cooperative human resource development programs among educational and training institutions located in NSEC and surrounding areas; and

• Expanding capacity for the use and application of information and communications technology for trade, investment, and other economic transactions in the corridor.

Establish and enhance institutional mechanisms for planning, coordinating, and implementing NSEC initiatives, and for expanding public–private partnership


• Establishing effective institutional arrangements for coordinating and implementing NSEC initiatives at the central and local levels, including those in border provinces;

• Strengthening capacity of local institutions and agencies to support NSEC development, including the organization of a network of research institutions that could help in developing and refining strategies and approaches;

• Encouraging twinning arrangements between border towns to help facilitate resolution of trade issues and exchange of information on trade and investment opportunities;

• Enhancing the involvement of provincial governments and local communities in NSEC activities; and

• Promoting private sector participation in NSEC development by fostering closer and continuing dialogue, and improving coordination between the public and private sectors.

Stages, Phasing, and Spatial Focus of North–South Economic Corridor Development

Stages and Phasing of Development

The development of NSEC will be pursued in three stages. The first stage is the establishment and improvement of transport links within and among NSEC countries. The objective of physically linking previously unconnected areas along NSEC has already been achieved, and the remaining task is the improvement and expansion of the existing links. This means that NSEC is already functioning as a transport corridor. The second stage is the transformation of the transport corridor into a “logistics corridor,” which not only physically links the different NSEC components, but also integrates and harmonizes the corridor’s policy, regulatory, and institutional framework. This would facilitate both the efficient movement of people and goods, and the provision of related services such as storage, warehousing, trucking, insurance, and freight management. The final stage is the transformation of the corridor into a full-fledged economic corridor, along which goods and services flow freely and


efficiently to processing centers (in the corridor) for value-adding activities or for export through international gateways. The integration of trade, investment, and other economic activities at this stage is expected to contribute to value addition, job creation, and poverty reduction in the corridor and surrounding areas.

Where each stage ends and where the next stage begins cannot be well defined, as the progression from one stage to another involves considerable overlaps. Moreover, because the state of development of each national component and each NSEC route is uneven, the time frame may differ among the three NSEC routes. Nevertheless, the sequencing of corridor development in this manner could guide the prioritization of activities at each stage and the identification of actions that need to be pursued in the short, medium, and long term for each of the three NSEC routes. As NSEC is now in the second stage of corridor development, trade and transport facilitation, and logistics development in line with international standards will need to be a major focus of interventions in the next few years. Success in these efforts will be essential to transforming NSEC into a logistics corridor and eventually into a full-fledged economic corridor. At the same time, emphasis on improving physical infrastructure will have to continue in response to the increase in demand accompanying further economic integration.

The phased approach can be translated into specific timelines for transforming NSEC into a full-fledged economic corridor. The first time slice covering 2008–2010 will require (i) completion of ongoing projects for the improvement of various sections of NSEC’s routes and modernization of cross-border facilities, (ii) further progress in the pilot implementation of the CBTA and trade facilitation measures under the SFA-TFI at selected border crossing points, (iii) initiation of activities linking the different modes of transport in the corridor, (iv) initiation of cooperation and preparation of a business plan to develop the logistics industry in the NSEC countries, and (v) initiation of efforts to coordinate the planning and establishment of special economic zones along NSEC. The second time slice covering 2011–2012 will involve (i) continuing improvements and modernization of transport and cross-border facilities, (ii) expansion of the implementation of the CBTA and trade facilitation measures in all the border-crossing points of NSEC, (iii) continuing cooperation to develop the logistics industry and logistics services in NSEC countries, and (iv) coordinated efforts in establishing special economic zones and industry clusters along the three NSEC routes. These time frames roughly coincide with the start of the implementation of the ASEAN–PRC free trade agreement.

Spatial Development Strategy

In spatial development, emphasis will be given to the following specific geographic and commercial nodes around which economic activities are expected to cluster:

• Gateway node: Hai Phong, Fangcheng

• Border nodes (towns on two sides of the border): Mohan–Boten, Jinghong–Mengla, Houayxay–Chiang Khong, Tachilek–Mae Sai; Hekou–Lao Cai; Pingxiang–Dong Dang; and Dongxing–Mong Cai

• Interchange node (intersection between NSEC and East–West Economic Corridor): Tak and Phitsanulok; and


• Other nodes: Chiang Rai, Chiang Mai, Lampang, Kamphaeng Phet, Phayao, Phrae, Uttaradit, and Nakhon Sawan in Thailand; Jinghong and Yuxi in Yunnan Province; Yen Bai, Phu Tho, and Bac Giang in Viet Nam; and Nanning and Chongzuo in Guangxi.

It is envisaged that the development of these nodes will radiate to the surrounding areas and to the areas around the main axis or “backbone” of the corridor. The presence of major growth and regional centers—Bangkok, Ha Noi, Kunming, and Nanning—in NSEC’s three routes is expected to help in driving this process. Considering that the biggest constraints to the further development of NSEC are at the border checkpoints, interventions in the short and medium term will be centered on the border nodes along NSEC. Such interventions will include both hardware and software aspects of economic corridor development. Special programs will also be necessary to enable the least-developed areas in NSEC to benefit commensurately from corridor development.

Action Plan for the Development of the North–South Economic Corridor

The strategic thrusts discussed above are translated into an Action Plan for NSEC Development covering 2008–2012 (Part II), which coincides with the remaining period of the Ten-Year GMS Strategic Framework. The Action Plan is aimed at guiding the programming and implementation of priority NSEC programs and projects, the monitoring and evaluation of progress, and the identification of areas that need attention and follow-up action.

The Action Plan shows the specific programs and projects that are needed to operationalize each of the strategic priorities of NSEC development. It indicates the following information for individual programs and projects:

(i) the result or output expected,

(ii) indicators of progress and performance,

(iii) agency or body responsible for implementation,

(iv) time frame or target date for completion, and

(v) status.

It covers measures that are being implemented or are expected to be initiated in 2008–2012. It includes initiatives that are short term (completed within 2 years), medium term (completed within 5 years), and long term (completed beyond 5 years). As the NSEC routes have similarities as well as differences, the Action Plan contains measures that are common to all routes and applicable only to specific routes. The NSEC components of GMS-wide programs and projects are included in the Action Plan in relevant cases.

Implementing the Strategy and Action Plan

Organizational Framework

The institutional arrangements for implementing strategies and action plans for the Greater Mekong Subregion (GMS) economic corridor development consist of measures to be pursued within the existing GMS organizational structure, and new mechanisms that complement the current institutional arrangements. Such new mechanisms include the Economic Corridors Forum (ECF), a Governors Forum to be constituted within the ECF, and those that can be adopted by the GMS Business Forum (GMS-BF) to support economic corridor development. The organizational framework incorporating the new mechanisms is shown in Figure 2.

Arrangements within the Existing Organizational StructureThe GMS Senior Officials’ Meeting (SOM) has been coordinating all areas of cooperation under the GMS Program, including economic corridor development on behalf of the GMS ministers. The SOM could strengthen its oversight role in economic corridor development by emphasizing the promotion and coordination of this work. For example, matters involving the development of priority GMS economic corridors could be on the regular agenda of the SOM.5 The GMS working groups could also sharpen their focus on GMS economic corridor development. Except for subregional infrastructure projects, which have to be location-specific, the work programs and agenda of GMS working groups have tended to deal mainly with GMS-wide sectoral issues. GMS working groups are expected to give more emphasis to promoting the development of the North–South Economic Corridor (NSEC), East–West Economic Corridor (EWEC), and Southern Economic Corridor (SEC) in their respective work programs and agendas.

Complementary Mechanisms and Arrangements

Economic Corridors ForumTo complement current mechanisms and arrangements, the ECF was established in accordance with Article 4 of the Memorandum of Understanding “Toward Sustainable and Balanced Development of the Greater Mekong Subregion North–South Economic Corridor and Enhanced Organizational Effectiveness for Developing Economic Corridors” signed by the GMS ministers on 31 March 2008 in Vientiane, Lao People’s Democratic Republic (PDR). The ECF, covering NSEC, EWEC, and SEC, will serve as the main advocate and promoter of economic corridor development in the GMS. It will raise the profile and increase awareness of the needs and priorities of economic corridor development and enhance collaboration among areas along GMS

5 The GMS ministers could also provide a special focus on economic corridor development by having a separate agenda item on the subject during their meetings.


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Implementing the Strategy and Action Plan 23

economic corridors and among GMS forums and working groups. It will promote coordination, networking, and facilitation of initiatives to develop economic corridors. More specifically, the ECF will

(i) Provide a platform for strengthening cooperation among areas in EWEC, NSEC, and SEC and among the GMS forums and working groups;

(ii) Serve as a venue for networking and sharing of information and views among central and local officials, businesspeople, and international agencies on strategies, approaches, programs, and projects to accelerate economic corridor development;

(iii) Highlight concerns, approaches, initiatives, and priorities in the transformation of transport corridors into economic corridors;

(iv) Discuss the implementation of strategies and action plans for economic corridor development, identify gaps in implementing such strategies and action plans, and propose actions to resolve implementation issues;

(v) Help increase the involvement of local authorities and communities, encourage and support the Governors Forum, and expand the participation of the private sector in economic corridor development;

(vi) Bring issues to the attention of higher authorities that they need to resolve; and

(vii) Assist in mobilizing technical and financial resources for economic corridor development.

The ECF will be a standing body dealing with economic corridor development within the GMS organizational framework. It will recommend measures to the GMS Ministerial Conference to promote economic corridor development. The GMS Ministerial Conference will remain the highest decision-making and coordinating body under the GMS Economic Cooperation Program after the Leaders’ Summit. Initiatives and measures discussed during ECF meetings will be considered by the GMS Ministerial Meeting, Senior Officials’ Meeting, and forums and working groups, with appropriate actions being taken by the concerned ministry or agency in the GMS countries in accordance with agreements reached among them.

A Governors Forum, which will coordinate the governors of the provinces along the GMS economic corridors, will be constituted within the ECF. The Governors Forum will complement the ECF in promoting economic corridor development in the GMS. Its main purpose is to raise awareness among, increase participation of, and secure commitment from the governors (or their equivalent) of the provinces along the GMS economic corridors. The Governors Forum will facilitate cooperation among these officials in the pursuit of economic corridor development. More specifically, the Governors Forum will

(i) Provide a platform for networking among the governors (or their equivalent) of the provinces along EWEC, NSEC, and SEC;

(ii) Serve as a venue for exchange of information and sharing of experience on strategies, approaches, and measures to promote economic corridor development;


(iii) Highlight issues and concerns in the development of economic corridors and discuss possible means of addressing such issues and concerns;

(iv) Consider possible actions to resolve issues that arise in the implementation of strategies and action plans for economic corridor development;

(v) Bring to the attention of the ECF issues that need central resolution;

(vi) Assist in resolving issues that arise in implementing approved cross-border initiatives in the respective areas;

(vii) Promote private sector participation in cross-border development; and

(viii) Discuss opportunities for cooperation among provinces along the GMS economic corridors to promote economic corridor development.

The terms of reference of the ECF and the Governors Forum are attached as Appendix 2.1 and 2.2, respectively. These are based on the recommendations of a GMS task force, and were endorsed during the inaugural meeting of the ECF on 6 June 2008 in Kunming, Yunnan Province, People’s Republic of China (PRC).6

NSEC Chapter in the GMS Business ForumTo promote private sector participation in GMS economic corridor development, economic corridor “chapters” would be established under the wing of the GMS-BF.7 In NSEC, for example, this would consist of provincial chambers of commerce and industry of the concerned NSEC provinces.8 This proposed NSEC chapter of the GMS-BF would foster closer relations and cooperation among private sector organizations and business people in NSEC, promote their participation in NSEC projects, and represent the business community in official meetings of the GMS focusing on NSEC matters. It would also advocate for policies, programs, and projects that support private sector participation in NSEC development activities.

Financing

The implementation of this NSEC Strategy and Action Plan will require roughly $5 billion over 2008–2012 or an average of $1 billion per year, excluding the financial requirements of private sector commercial and industrial projects. As of the end of December 2006, financing of $6.9 billion had been mobilized for priority GMS projects (ADB 2007b). Of this amount, an estimated $2.8 billion represents expenditures on NSEC projects. The latter translates to an annual average of $400,000–$500,000 for NSEC initiatives in the last 6–7 years (2001–2007). These figures suggest that a doubling of effort to raise funds for NSEC development will be necessary in the next 5 years.

6 The Task Force Meeting was held on 5 June 2008, also in Kunming, to discuss the proposed institutional arrangements for promoting economic corridor development in the GMS.

7 The GMS-BF has organized two ad hoc committees to deal with specific issues concerning EWEC development.

8 The Chiang Rai Chamber of Commerce and Industry in Thailand has met with its counterparts in Yunnan Province, PRC; Lao PDR; and Myanmar to promote private sector participation and cooperation in the development of areas along NSEC.


A large part of the financial requirements for NSEC covers the cost of prefeasibility and feasibility studies, as well as detailed design and construction of physical infrastructure and facilities. The other cost components include those for skills development; capacity building; institutional development and strengthening; environmental management; and policy, regulatory, and procedural reforms needed to facilitate the movement of people and goods, and promote investment in the corridor. These financial requirements do not include the costs of agricultural and industrial ventures that are commercial in character, as no estimates have been made of these costs. The private sector would be better able to identify and develop such ventures.

The major sources of finance for GMS projects have traditionally been the participating governments; multilateral development finance institutions such as the Asian Development Bank (ADB) and the World Bank; and bilateral development agencies such as those from Australia, France, Germany, Japan, Netherlands, New Zealand, and Sweden. Many United Nations specialized agencies have also been important sources of assistance involving technical cooperation. The PRC and Thailand, and more recently Viet Nam, have started providing financial support to some GMS initiatives in the last few years in the spirit of south–south cooperation. However, these financial resources are substantially short of requirements. Accordingly, future efforts should not only increase financing from traditional sources but also mobilize resources from nontraditional sources, especially the private sector. At the same time, greater efforts are needed to achieve closer coordination and integration of NSEC programs and projects with related initiatives such as those under the Association of Southeast Asian Nations (ASEAN), ASEAN–Mekong Basin Cooperation Program, Ayeyawady–Chao Phraya–Mekong Economic Cooperation Strategy, Japan–Mekong Cooperation Program, United Nations Development Programme, United Nations Economic and Social Commission for Asia and the Pacific, and other GMS development partners.

Private sector financing has been used in some GMS power and transport projects. However, there is still a significant unmet need for private sector participation in GMS infrastructure projects through build–operate–transfer, build–transfer–operate, and build-own-operate schemes. Private sector entities are still hesitant to enter into these arrangements in the GMS because of what they perceive as major risks in recouping their investment. This is especially true in countries that are in transition to market-based systems, as the legal framework for the protection of investors is not yet fully in place. More efforts are needed to promote private sector participation in infrastructure projects in NSEC, such as the establishment of frameworks and approaches to make infrastructure ventures more attractive to the private sector. These include measures to offset or mitigate the commercial and sovereign risks faced by investors in these undertakings.9 Issuing clear guidelines and adopting transparent procedures will be necessary. Achieving a more conducive business environment will also be important.

Private sector investors need to tap various sources to finance their projects. For relatively small commercial and industrial projects, traditional bank lending may

9 A regional guarantee facility has been proposed to promote private sector investments in the GMS. Envisioned as a mechanism for reducing country risks, this proposed facility would issue guarantees and risk mitigation services to investors, contractors, exporters, and traders operating in the GMS. The proposal is still under consideration by the GMS Subregional Investment Working Group.


be able to meet their requirements, although special facilities may be needed for financing small and medium-sized enterprises.10 For larger projects that characterize build–operate–transfer–type arrangements, private investors would have also to tap other sources of financing. Some possible ways of raising funds for these projects include (i) corporate bond issues; (ii) debt and/or equity financing from ADB’s private sector window or the International Finance Corporation, the private sector arm of the World Bank; (iii) cofinancing arrangements between commercial banks and ADB and the World Bank; (iv) funding from bilateral development agencies, such as the Japan Bank for International Cooperation, which is engaged in both public and private sector lending; and (v) credits from industrial-country export credit agencies, which are increasingly financing transactions without the need for government counterguarantees.

The financing strategy for NSEC development needs to include the following activities: (i) preparing an investment promotion package for NSEC in the form of a prospectus indicating, among others, investment opportunities and advice on how to pursue these opportunities (to be uploaded on the GMS website or in a dedicated NSEC website with hyperlinks to the former); (ii) conducting road shows separately or together with those for the GMS Program; (iii) holding seminars to disseminate possible financing modalities and sources and discuss them with the private sector; and (iv) mobilizing donor support for NSEC initiatives during GMS-sponsored donor coordination meetings.

Monitoring and Evaluation

The GMS sectoral forums and working groups will be tasked with the monitoring of the implementation of strategies and action plans for NSEC, EWEC, and SEC development. For NSEC, the arrangements will be as follows:

(i) the proposed Strategy and Action Plan for NSEC development is first endorsed and adopted by NSEC countries, and implementation of the action plan is initiated;

(ii) each GMS forum and working group subsequently includes the relevant component of the NSEC action plan in its work program (for example, the Subregional Transport Forum would take care of the transport component of the action plan, and the Working Group on Tourism would extract the tourism component of the action plan);11

(iii) progress in implementing the NSEC action plan in respective areas of cooperation is reported during meetings of the GMS forums and working groups; and

10 Two proposals to assist small and medium enterprises in this regard are being considered by the GMS-BF, namely, (i) establishing a preshipment export finance guarantee organization, and (ii) establishing a shippers’ performance guarantee organization.

11 This process would be interactive, with the initiatives on NSEC, EWEC, and SEC identified by the GMS ministers, senior officials, and the ECF (top–down), and those by the GMS forums and working groups (bottom–up) forming part of the strategy and action plans for these economic corridors.


(iv) monitoring reports on specific areas of cooperation in the NSEC action plan are synthesized by the GMS Secretariat and submitted to the SOM and ECF.

Implementation of the NSEC Strategy and Action Plan will be reviewed periodically and adjusted as appropriate and necessary. The results of the strategic environmental assessment of NSEC will be taken into account in such reviews and revisions. Monitoring and evaluation of the Strategy and Action Plan will involve tracking not only the progress in delivering outputs, such as kilometers of roads improved or number of individuals trained, but also progress in achieving desired results, such as growth in trade and investment activities. Reporting on the first set of indicators is fairly straightforward, as these are compiled as part of project progress reports.

Getting data on the second type is more difficult, and is beset by problems such as lack of timely, consistent, and comprehensive statistics on cross-border trade, transit trade, domestic and foreign investment activities, commodity flows, and poverty incidence in subnational areas. Part of the Action Plan involves a proposal for cooperation in designing and implementing a system for the collection of statistics covering trade, investment, tourism, and other indicators that could assist NSEC countries in monitoring the progress and impact of NSEC initiatives.

Critical Success Factors

Lessons from experience elsewhere show that certain factors are essential to ensure success in economic corridor development.12 Those that are most relevant to NSEC are as follows: • Strong political commitment at all levels. While high-level national

commitment provides the mandate and push for economic corridor development, similar focus and dedication are needed at lower levels of policy and decision making.

• Participation of stakeholders. Broad-based support not only ensures smooth implementation of programs and projects, but also promotes needed policy and regulatory reform measures.

• Conduct of human resource development programs. This is imperative for NSEC development, considering the low skills in many NSEC areas in both the public and private sectors.

• Close monitoring, and effective and timely response. Progress toward the objectives of NSEC development needs to be tracked periodically to address bottlenecks and quickly adjust to changing needs and priorities.

• Sufficient and sustained funding support. This will ensure that the momentum in transforming NSEC from a transport corridor to a logistics corridor and eventually to an economic corridor will be maintained.

• Effective institutional mechanisms and arrangements. Strong direction is needed to ensure coordinated and sustained efforts.

12 The experience in several initiatives taken by the European Union to develop transport and logistics corridors is reviewed in Banomyong (2007).

Part II: Action Plan for North–South Economic Corridor Development 2008–2012


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an

d E

nvi

ron

men

tal C

on

cern

s in

NSE

C D

evel

op

men

t

Mea

sure

s, P

rog

ram

s, o

r Pr

oje

cts

Exp

ecte

d O

utp

ut

Pro

gre

ss a

nd

/or

Perf

orm

ance

In

dic

ato

rs

Imp

lem

enti

ng

A

gen

cies

an

d/o

r B

od

ies

Tim

e Fr

ame

and

/or

Tar

get

Dat

eSt

atu

s an

d/o

r

Rem

arks

1.1

Envi

ron

men

tal

Co

nce

rns

1.1.

1 D

evel

op f

ram

ewor

k an

d ap

proa

ches

for

st

reng

then

ing

man

agem

ent

and

prot

ecti

on o

f na

tura

l re

sour

ces

in N

SEC

are

as

to e

nsur

e su

stai

nabl

e de

velo

pmen

t of

the

cor

rido

r

Effe

ctiv

e en

viro

nmen

tal a

nd

natu

ral r

esou

rce

man

agem

ent

prac

tice

s an

d ap

proa

ches

thr

ough

co

oper

atio

n in

NSE

C

area

s

Agr

icul

ture

, na

tura

l res

ourc

es,

and

envi

ronm

ent

min

istr

ies

of

NSE

C c

ount

ries

; lo

cal a

utho

riti

es

of N

SEC

are

as;

Wor

king

Gro

up

on E

nvir

onm

ent

(WG

E); E

nvir

onm

ent

Ope

rati

ons

Cen

ter

(EO

C)

2008

–201

2

Stra

tegi

c En

viro

nmen

tal

Ass

essm

ent

(SEA

) of

NSE

C•

SEA

cov

erin

g N

SEC

ar

eas

com

plet

ed

and

cons

ider

ed in

th

e up

date

of

NSE

C

Stra

tegy

and

A

ctio

n Pl

an

WG

E; E

OC

O

ngoi

ng; S

EA

focu

sed

on G

olde

n Q

uadr

angl

e an

d ea

ster

n an

d w

este

rn

port

ions

of

Rout

e N

o. 3

Biod

iver

sity

Con

serv

atio

n C

orri

dor

Init

iati

ve (

BCC

I) Pi

lot

Proj

ects

•Pi

lot

proj

ects

und

er

BCC

I cov

erin

g N

SEC

ar

eas

impl

emen

ted

Agr

icul

ture

, na

tura

l res

ourc

es,

and

envi

ronm

ent

min

istr

ies

of N

SEC

co

untr

ies;

loca

l au

thor

itie

s of

NSE

C

area

s; W

GE;

EO

C

2008

–201

2

Envi

ronm

enta

l pro

tect

ion

in G

olde

n Q

uadr

angl

e•

Envi

ronm

enta

l pr

otec

tion

mea

sure

s in

the

Gol

den

Qua

dran

gle

esta

blis

hed

and

inst

itut

iona

lized

Tour

ism

, nat

ural

re

sour

ces,

and

en

viro

nmen

t m

inis

trie

s, a

nd lo

cal

auth

orit

ies

of G

olde

n Q

uadr

angl

e ar

eas;

W

GE;

EO

C

2008

–201

2A

lso

aim

ed a

t pr

otec

ting

at-

risk

gr

oups

like

eth

nic

com

mun

itie

s,

wom

en, a

nd c

hild

ren

from

the

neg

ativ

e im

pact

of

tour

ism

cont

inue

d on

nex

t pa

ge


Mea

sure

s, P

rog

ram

s, o

r Pr

oje

cts

Exp

ecte

d O

utp

ut

Pro

gre

ss a

nd

/or

Perf

orm

ance

In

dic

ato

rs

Imp

lem

enti

ng

A

gen

cies

an

d/o

r B

od

ies

Tim

e Fr

ame

and

/or

Tar

get

Dat

eSt

atu

s an

d/o

r

Rem

arks

Envi

ronm

enta

l pro

tect

ion

in G

uang

xi–N

orth

ern

Vie

t N

am B

orde

rlan

ds

Tour

ism

Zon

e

•En

viro

nmen

tal

prot

ecti

on m

easu

res

in G

uang

xi–

Nor

ther

n V

iet

Nam

Bo

rder

land

s To

uris

m

Zone

est

ablis

hed

and

inst

itut

iona

lized

Nat

iona

l Tou

rism

O

rgan

izat

ion

of t

he

PRC

(th

roug

h th

e G

uang

xi T

ouri

sm

Adm

inis

trat

ion)

an

d th

e V

iet

Nam

N

atio

nal T

ouri

sm

Org

aniz

atio

n

2008

–201

2Pr

opos

ed

1.1.

2 Pr

omot

ion

of

use

of e

nvir

onm

enta

lly

frie

ndly

tec

hnol

ogie

s an

d ap

proa

ches

in a

gric

ultu

re,

indu

stry

, and

tou

rism

in

NSE

C a

reas

Envi

ronm

enta

lly

frie

ndly

tec

hnol

ogie

s ap

plie

d in

ag

ricu

ltur

e, in

dust

ry,

and

tour

ism

in N

SEC

ar

eas

Envi

ronm

enta

lly

frie

ndly

tec

hnol

ogie

s pr

omot

ed in

pr

opos

ed in

dust

rial

, ag

ricu

ltur

al, a

nd

tour

ism

pro

ject

s in

N

SEC

are

as

Agr

icul

ture

, ind

ustr

y,

and

tour

ism

m

inis

trie

s, a

nd lo

cal

auth

orit

ies

of N

SEC

co

untr

ies;

WG

E; E

OC

2008

–201

2Pr

opos

ed

1.1.

3 Pr

omot

ion

of

rene

wab

le e

nerg

y in

NSE

C

area

s

Incr

ease

d us

e of

re

new

able

ene

rgy

sour

ces

in N

SEC

are

as

Rene

wab

le e

nerg

y pr

ojec

ts p

acka

ged

and

impl

emen

ted

in

NSE

C a

reas

Ener

gy a

nd

agri

cult

ure

min

istr

ies

of N

SEC

cou

ntri

es

2008

–201

2Pr

opos

ed

1.2

Soci

al C

on

cern

s

1.2.

1 H

IV/A

IDS

prev

enti

on

and

cont

rol

HIV

/AID

S vu

lner

abili

ty

and

risk

red

ucti

on a

mon

g et

hnic

min

orit

y gr

oups

th

roug

h co

mm

unic

atio

ns

stra

tegi

es

•Re

duce

d vu

lner

abili

ty

to r

isk

of H

IV/A

IDS

amon

g se

lect

ed

min

orit

y gr

oups

in

NSE

C a

reas

Radi

o dr

amas

de

velo

ped

and

broa

dcas

t in

eth

nic

lang

uage

s an

d ef

fect

iven

ess

of H

IV/

AID

S co

mm

unic

atio

n st

rate

gies

mon

itor

ed

and

eval

uate

d

Min

istr

y of

In

form

atio

n an

d C

ultu

re (

the

Lao

PDR)

, Gov

ernm

ent

Publ

ic R

elat

ions

O

ffic

e (T

haila

nd),

an

d Yu

nnan

Peo

ple’

s Ra

dio

(the

PRC

)

2005

–200

8O

ngoi

ng; p

roje

ct a

lso

cove

rs C

ambo

dia

1. M

ains

trea

m M

easu

res

to D

eal w

ith

Soci

al a

nd E

nvir

onm

enta

l Con

cern

s in

NSE

C D

evel

opm

ent

(con

tinu

ed)

cont

inue

d on

nex

t pa

ge


Mea

sure

s, P

rog

ram

s, o

r Pr

oje

cts

Exp

ecte

d O

utp

ut

Pro

gre

ss a

nd

/or

Perf

orm

ance

In

dic

ato

rs

Imp

lem

enti

ng

A

gen

cies

an

d/o

r B

od

ies

Tim

e Fr

ame

and

/or

Tar

get

Dat

eSt

atu

s an

d/o

r

Rem

arks

1.2.

2 C

omm

unic

able

D

isea

se C

ontr

ol

Stre

ngth

enin

g m

alar

ia

cont

rol f

or e

thni

c m

inor

itie

s

•Re

duce

d in

cide

nce

of m

alar

ia a

mon

g et

hnic

gro

ups

in

mal

aria

-pro

ne

loca

tion

s in

NSE

C

Aff

orda

ble,

ac

cept

able

, and

ef

fect

ive

stra

tegi

es

deve

lope

d fo

r m

alar

ia

cont

rol a

Toward Sustainable and Balanced Development: Strategy and ......Unemployment figures for Lao Cai,...

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