DESCRIPTION The proposed Sector Development Program (SDP) Skills and Knowledge for Inclusive Economic Growth is the first intervention to support the government in a phased approach to progressively modernize the technical and vocational education and training (TVET) system over the coming 10 years. To improve the quality and relevance of TVET provision in the long run 15 broad policy areas have been identified to be addressed. A combination of policy and investment support is proposed: the policy-based loan (PBL) will provide support to the Ministry of Labor Invalids and Social Affairs (MOLISA) to address the first set of policy priority areas towards strengthening the policy framework and modernizing organization and management of TVET provision and financing across ministries. Subsequent interventions will address remaining policy actions. Complementing organizational and management reforms at the policy level, the project loan will provide resources to upgrade selected training institutions under the Ministry of Industry and Trade (MOIT) and establish a model to demonstrate innovative approaches to launch demand-driven TVET programs in two economic growth centers by pooling efforts of training providers, local industries and sector associations. Successful pilot approaches will be replicated in other regions. Possible succeeding interventions will provide further targeted assistance to improve TVET provision under other line ministries such as Ministry of Education and Training (MOET), Ministry of Agriculture and Rural Development, and Ministry of Construction. Labor market dynamics. Viet Nam's economy grew by 6.0% in 2014. The industry sector is the major driver of growth which increased by 7.1%. In 2014, the industry sector contributed 38.5% to the GDP and employed around 21% of total labor force. The service sector is the largest contributor to the GDP (43.4%) and employs about 32% of the labor force. Although around 45% of the labor force is engaged in the agriculture sector, its GDP share is relatively low (18.2%). It is estimated that about half of the labor force is involved in informal sector activities. Demographic trends suggest that the labor force will continue to grow by about one million people annually until 2020. The labor market structure has recently changed. Around one million workers shifted from agriculture to industry and service sectors each year. This shift has contributed to increases in overall productivity. However, it seems unlikely that Viet Nam can further increase the contribution of productivity growth that has resulted from migration from farm to factory. More efforts are required to increase overall productivity of the industry and service sectors. However, business communities, particularly in the industry sector, consider lack of qualified personnel with advanced skills as a major challenge for growth and enhancing productivity and competitiveness. PROJECT RATIONALE AND LINKAGE TO COUNTRY/REGIONAL STRATEGY Sector policy framework. According to the current policy framework MOLISA is being tasked with coordinating the TVET provision and set standards. However, a practical and comprehensive mechanism to harmonize TVET delivery at the national level is not in place yet. TVET provision is fragmented among a number of line ministries. Given the diversity of the current TVET provision, additional efforts are required to develop feasible and coordinated strategies towards achieving policy targets, harmonize existing procedures and regulations and agree upon roles and responsibilities among training providers and the industry. In general, comprehensive and updated TVET statistics, which would be useful to inform evidence-based policy and investment planning, are currently not easily available. TVET financing. A comprehensive overview on the public budget allocation for TVET, with detailed breakdown by line ministries and specific institutions is not available, which is complicated in part by the fact that TVET spending is fragmented across a number of line ministries with each having its own independent budget. Since resources for TVET expansion are scarce, future challenges are to increase the effectiveness of utilizing available resources, improve expenditure efficiency in TVET delivery at the system level as well as the institution levels, and promote innovative approaches of public-private-partnerships. TVET provision. MOLISA is the major public TVET provider in Viet Nam. Currently MOLISA operates 1,347 vocational institutions with about 1.5 million students enrolled. MOET is the second largest TVET provider operating/guiding 295 public and private professional secondary schools, which have enrolled around 420,000 students. MOIT runs 49 institutions with about 350,000 students. Some TVET colleges under MOIT are well connected with local companies whereby companies are involved in course development, provide internship-programs for students and teachers and participate in exams as assessors. In addition to MOLISA, MOET, and MOIT, there are other line ministries and private TVET institutions that are operating TVET programs. A key issue of TVET is the low level enterprise involvement, which results in poor relevance of training courses. Limited capabilities of teachers/trainers to adopt modern teaching techniques integrating theoretical content with practical skills training are another challenge. Obsolete and inadequate equipment and workshops further hamper quality teaching-learning at many TVET institutions. Inequities remain in access to skills training in rural areas. Considering the limited formal employment opportunities, many graduates will seek jobs or self-employment in the informal sector, thus TVET programs need to consider entrepreneurial and multi-skilled approaches. The current system performs poorly in terms of providing skills training for adults. Workers, farmers, and adults engaged in the informal sector, particularly in rural areas, lack access to skills training that would enhance their employment and income opportunities. Currently, no national skills development strategy is in place to address adult training and retraining needs. CONSULTING SERVICES The TA will mobilize 15 person-months of international consultant inputs, and 25 person-months of national consultant inputs. ADB will engage these consultants through a firm using quality- and cost-based selection procedures (90:10 quality: cost ratio) and in accordance with ADB's Guidelines on the Use of Consultants (2013, as amended from time to time). Workshops, training and surveys will be managed by the consultants.

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