Transport and Trade Facilitation in the Greater Mekong Subregion - Time to Shift Gears

Date: December 2008
Type: Evaluation Reports
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Evaluation; Industry and trade; Regional cooperation and integration; Transport and ICT
Series: Sector Assistance Program Evaluation

Description

Launched in 1992, the Greater Mekong Subregion (GMS) program has focused on transport and trade facilitation initiatives in its endeavor to enhance connectivity and improve competitiveness across international borders. ADB funding for the transport sector within the GMS program has reached $3.3 billion by December 2008. ADB's participation in the GMS program has ranged from provision of financing for physical infrastructure and for "software" such as the development of cross-border agreements and trade facilitation. This evaluation assesses the performance of ADB’s assistance to identify issues and areas where ADB and the GMS countries could work together more effectively to improve the development effectiveness of their partnership.

Summary of findings

The improvement of the GMS roads has resulted in significant savings in vehicle operating costs and reduced travel time. Border-crossing time in Cambodia, Lao People’s Democratic Republic (Lao PDR), and Viet Nam has also been reduced. Although several benefits are apparent from completed projects, two main issues hamper the full delivery of benefits—first, with the full implementation of the Cross-Border Trade Agreement (CBTA) pending, and second, missing infrastructure links have reduced the effectiveness of the completed projects. As a result of the road improvement, national traffic has increased across the corridors, indicating that national level benefits have been high. However, the international traffic has been slow to grow, partly due to the absence of an agreement to facilitate cross-border movement of vehicles.

The combined impact of ADB assistance for the transport and trade facilitation sectors is visible at various levels. At the project level, ADB assistance has resulted in increased domestic economic activity, with new industries and special economic zones developing along the road. At the corridor level, passenger fares have decreased reflecting lower costs. At the national level, the impact on small-sized economies-Lao PDR and Cambodia-has been higher, since a larger proportion of their trade uses the border points on the Southern Corridor and the East-West Corridor. The impact on larger economies such as Viet Nam is relatively less, since it has several other trade points including seaports.

The importance given to developing transport and logistics services with the neighboring countries is consistent across the GMS countries. ADB's strategies have matched up with this emphasis. While the stress on physical connectivity has been adequate, the related "software" comprising harmonization of regulations, procedures, and standards has been slow to develop. Although ADB identified industrial, agricultural, and other economic activities to transform the transport corridors into economic corridors, ADB's strategies have not considered the bigger picture of how this connectivity will be used by the countries to increase their industrial and agricultural production.

ADB has limited funding resources, and mechanisms need to be structured to channel more funds into Lao PDR and Cambodia as compared with the current levels of Asian Development Fund grants.

The GMS transport and trade facilitation program has created a demonstration effect in that it is being replicated in other subregions in Asia. On the institutional side, the GMS Strategic Framework as well as country strategies continue to depend on national institutions for planning and implementing transport projects. The overall attitude toward institutional strengthening within the GMS program is tilted toward addressing national constraints rather than developing regional arrangements.

Overall assessment

Several positive factors support the "successful" rating for GMS' transport and trade facilitation assistance: First, ADB has successfully provided a lead role in pushing through multilateral dialogue among the GMS countries. Second, there has been an appropriate mix of lending and nonlending assistance to support and sustain the dialogue. Third, the selection and implementation of physical infrastructure improvements have been appropriate to the needs at the national level as well as the subregional level. Finally, the focus on cross-border issues and the diligence in preparing the CBTA are appropriate.

Issues

The transport and trade facilitation sectors of the GMS program could be fine tuned taking into consideration the experience of the last decade. The core issues that need to be tackled are (i) reach a consensus on how the transport corridors can be converted into economic corridors, and (ii) ratify and implement the CBTA without delays. Factors that need to be considered to address these core issues are

  • further enhance synergies by providing a better balance of national and regional projects
  • encourage cofinancing to counter rising demands for funds
  • carry out specific actions to counter social and environmental issues
  • develop multimodality in corridor development
  • focus on nonphysical barriers to trade
  • mobilize private sector participation in operations and maintenance

Key lessons

  • For the benefits of the GMS projects to spread to the subregional level, trade facilitation should be expedited.
  • Subregional projects have enabled cooperation among the countries by improving the efficiency of transport and creating a favorable climate for dialogue and exchange of information.
  • The creation of national transport facilitation committees in each GMS country is a positive step but needs to be accompanied with a more inclusive functioning with their counterparts in other sectors.
  • Support for policy reforms is needed to enable private sector participation.
  • ADB needs to focus on areas where it has an advantage in terms of in-house expertise and should mobilize other development partners to lead in other sectors.
  • The Transport Sector Strategy, 2006-2015 should be improved by recognizing the importance of social and environmental repercussions of regional transport projects.
  • ADB can lead the way in developing a specific results-based monitoring framework within the GMS transport sector strategy to measure the transformation of transport corridors into economic corridors.

Recommendations

  • ADB should provide assistance to fill gaps in transport infrastructure and implement the CBTA with an agreed timetable and monitoring mechanisms.
  • ADB should facilitate development of regional institutions that address cross-border issues.
  • To focus on the bigger picture, ADB should encourage partnerships between the GMS program and other regional cooperation initiatives outside Asia and derive lessons from them.
  • ADB should mobilize alternate forms of funding, either from the private sector or from other development partners-bilateral and multilateral.