Greater Mekong Subregion: East-West Corridor Project (1727-LAO[SF] and 1728-VIE[SF])

Background

The East-West Corridor (EWC) Project is part of the wider East-West Economic Corridor linking Da Nang in Viet Nam and Mawlamyaing in Myanmar-covering Lao People's Democratic Republic (Lao PDR), Myanmar, Thailand, and Viet Nam. As a flagship project of the Greater Mekong Subregion (GMS) Program, it was designed to improve National Road 9 linking landlocked areas in northeast Thailand to the Viet Nam coast via Lao PDR. It is the second cross-border road project in the Program and is in line with ADB's thrust for regional cooperation in the transport sector.

Summary of Findings

Relevance. The Project is "highly relevant" to development needs at the regional and national levels. As a regional road, it addressed a strategic need to strengthen links between Lao PDR, Thailand, and Viet Nam. The all-weather road aimed to expand the market for transit and bilateral trade. It also interconnects national transport networks to generate trade and efficiency benefits. It was appropriately designed to support economic centers and to complement poverty reduction (via a rural road component in Lao PDR).

Effectiveness. Despite implementation problems, delays in ratification of the key Cross-border Transport Agreement (CBTA), and slow trade growth, the Project achieved its main outputs and outcomes. The Project was useful in developing an efficient national and regional transport system and in simplifying custom procedures aimed at strengthening bilateral trade and regional cooperation. The Project was "effective" in improving road transport efficiency between Dong Ha (Viet Nam) and Kaysone Phomvihane (Lao PDR). Border facilities provided by the Project are likely to be maintained and continue to contribute to transport facilitation and enhanced trade. Despite this, the trade facilitation component is judged "less effective" in mitigating nonphysical barriers to cross-border movement. Majority of the traffic using the route in both countries is national, i.e., origin and destination being in the same country. In landlocked Lao PDR, the number of vehicles is low but there is a relatively higher share of international traffic. Most goods passing through the project road comprise bilateral trade. These indicate that the regional benefits are not visible yet. The Lao Bao-Dansavanh border crossing was chosen for pilot implementation of the CBTA in 2005. This seems to have contributed to a minor increase in cross-border traffic, which remains below potential. It is expected that with the implementation of the remaining phases of the CBTA, regional impacts will become stronger. Overall, the Project as a whole and its two country components are rated "effective."

Efficiency. The Project is economically "efficient." The economic internal rate of return for the Lao PDR component is re-estimated at 13%, while that for the Viet Nam side is 16%. These are generally in line with appraisal estimates of 16% for both. Implementation efficiency was marred by delays in part due to implementation issues related to the construction of the main corridor and inclusion of additional works.

Sustainability. Allocations for maintenance from the central budget remain lower than requirements. The issue of road maintenance in Lao PDR is being addressed through a road maintenance fund and the beneficiary communities. In Viet Nam, the allocations from the central budget have been increasing gradually over the years. Given efforts made at focusing on maintenance allocations in both countries, the Project is rated "likely to sustain" realized benefits.

Overall, the Project is "successful." The attached advisory technical assistance (for the Lao PDR) is also "successful." Project impacts are "moderate" in respect to regional impacts but "significant" for local socioeconomic change (i.e., improved access to markets, employment opportunities, and social services, and enhanced consumer choices). The rural road component enhanced mobility among local communities. Resettlement and environmental issues were satisfactorily addressed, and no pending issues are reported. An indirect negative impact of the Project, typical of road corridor development in the GMS, is the increased risk of human and wildlife trafficking.

There is little evidence of EWC's transformation from a transport corridor into an economic corridor. Full realization of corridor-level benefits (i.e., economic activities, tourism, and trade facilitation) is limited by institutional constraints. In the case of Lao PDR, this is partly explained by inadequate complementary investments and slow private sector growth. A key lesson here, within the sub-regional context, is the need to properly plan the transformation process. As implemented, the project road provides a platform to push forward the development process along this strategic GMS east-west alignment.

ADB performance is "partly satisfactory". Borrower and Executing Agency performance in both countries was "satisfactory. Overall completion was delayed by 4 years in Lao PDR and by 3 years in Viet Nam. The completion of the main corridor was behind by 15 months in the Lao PDR, and 18 months in Viet Nam. Besides delays in loan effectiveness and procurement, the Project experienced contractor problems which caused further implementation delays. This reflected poorly on contractor performance and provides an area for improvement for both ADB and the executing agencies. The Project also witnessed substantial loan savings in both countries due to lower bid costs for civil contracts. These savings were used to finance additional works. While the inclusion of the additional works was generally seen as appropriate, these works could have benefited from a better justification at the project completion to check their economic viability.

Issues emanating from the Project are:

• the delay in implementation of the CBTA has impeded the growth of cross-border traffic
• complementary investments and capacity development are needed in the Lao PDR to transform the EWC into an economic corridor
• road improvement has resulted in an increase in the severity of accidents affecting road safety

Lessons Identified

• The pace of the economic development along the corridors depends on the complementary interventions requiring policy and institutional changes that enable better opportunities for the private sector.
• Multimodal planning is important for enhancing the effectiveness of transport corridors.
• ADB should use loan savings prudently by carrying out appropriate economic due diligence at approval and at completion.

Recommendations

• ADB should work closely with the governments to enable full ratification and implementation of the CBTA.
• ADB should work with the governments on parallel interventions that enable development of industries, agriculture, and production in general.
• ADB should add value by assisting the Lao PDR and Viet Nam governments in developing road maintenance regimes based on needs, achieve a balanced distribution of public funds, identify alternative financing sources including the private sector, and improve cost recovery.