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Provincial Competitiveness Index - Setting the standard

In a corner of the Dong Thap Provincial People’s Committee’s premises in the Mekong Delta are some simple stone chairs surrounded by trees and a sign saying “Ca phe doanh nhan”, which means “Entrepreneurs’ café”. 

Every morning, provincial leaders meet enterprise representatives to hear about any problems in their business and investment activities. 

Chairman Nguyen Van Duong came up with the idea, saying that via meetings and other communications channels he and his team collect feedback from enterprises and then meet them at the café the next morning. 

Many issues of concern among enterprises have been quickly resolved at the 30 sq m café. 

Dong Thap and other provinces throughout Vietnam are stepping up efforts to improve their investment environment and create favorable conditions for enterprises as part of introducing the constructive government model called for by Prime Minister Nguyen Xuan Phuc. 

Progress in the reform of administrative procedures and the investment climate were revealed in the Provincial Competitiveness Index 2016 (PCI 2016) released by the Vietnam Chamber of Commerce and Industry (VCCI) and the US Agency for International Development (USAID) on March 14. 

Positive changes 

Provincial Competitiveness Index - Setting the standard

Dong Thap province again ranked in the Top 3 leading provinces in the PCI 2016. 

Along with its “Entrepreneurs’ café”, it also created programs such as “Office Smile” and “People’s Voice Friday”, and also plans to cut 30 per cent of provincial meetings to have more time to meet local people and enterprises. 

From such efforts, the number of newly-registered enterprises and new projects increased sharply last year. 

There were over 55 domestic and foreign business delegations and international organizations visiting the province to seek cooperation and investment opportunities. 

Total registered capital reached VND3.4 trillion ($149.6 million), a remarkable increase compared to 2015’s VND1.5 trillion ($66 million). 

In the five most-recent rankings, the province led the way once and was second twice. 

Da Nang topped the rankings in 2016 for the seventh time, with 70 points out of 100. Mr. Nguyen Xuan Anh, Secretary of the Da Nang City Party Committee, told local media that the result is evidence of its continued efforts to reform its business climate. 

He emphasized, however, that the central city needs further efforts in the years to come. 

“We are not satisfied with the results achieved over the years and our score falls short of our expectations, so we must work harder,” he said. 

The clearest proof of the improvements in Da Nang’s investment environment is found in real estate. 

According to CBRE Vietnam, the city’s real estate market saw unprecedented investment attraction last year. 

More than 5,570 condotel apartments were added to supply and nearly 4,000 apartments were sold. 

The figures make Da Nang in the hottest location in the resort real estate segment. 

This year, with favorable factors in its investment environment and its upcoming hosting of the APEC Economic Leader’s Week 2017 (AELW 2017) later in the year, profits in its real estate sector are expected to increase 25 per cent year-on-year. 

Being at the top, according to Mr. Anh, also puts pressure on Da Nang to prove it is worthy. 

Efforts from other localities are also required for Da Nang to constantly improve its business climate. 

According to Mr. Anh, keeping faith with businesses is the key factor helping the city attract investors and keep them happy. 

But there remain many areas where the city has not achieved the results it wishes, such as in equal competition, business support, and management capacity. 

Northern Quang Ninh province followed Da Nang in the PCI 2016, rising from third place in 2015, with 65.6 points. 

Five indexes - business support, labor training, legal institutions, market entry, and time to complete administrative procedures - were said by the local business community to have improved considerably. 

“This came from the province’s constant efforts to improve its environmental climate and increase competitive capacity,” said Mr. Nguyen Duc Long, Chairman of the Quang Ninh Provincial People’s Committee. 

The PCI 2016 also showed many signs of improvement in the business environment. Nearly half of domestic enterprises plan to expand their production and business scale over the next two years. 

Similarly, more than half of foreign-invested enterprises intend to increase their scale of operations; the highest level since 2010. 

Over the past year, 65 per cent of private enterprises reported profits, the highest in five years, according to the PCI report. 

Over the past 12 years, the average capital at enterprises has risen to its highest level, of VND18.1 billion ($796,400), double the 2006 figure of VND7.5 billion ($330,000). 

The percentage of firms that hired more workers increased from 12 per cent in 2015 to 13 per cent in 2016. 

The level of optimism and confidence in the business community regarding their prospects is steadily recovering, with 48 per cent of respondents saying they planned to scale up their operations over the next two years, virtually the same as last year. 

The efforts of its cities and provinces have helped Vietnam become more attractive in the eyes of foreign investors and international organizations. 

The World Bank’s 2016 business environment assessment noted that Vietnam rose nine places (from 91st to 82nd out of 190 countries) and increased in five indexes; the biggest improvement since 2008. 

According to the Ministry of Planning and Investment, although Vietnam’s business environment has improved in most indicators, it has not yet reached the average rate of the ASEAN 4 (Singapore, Malaysia, Thailand, and the Philippines), and some indicators haven’t reached the average in the ASEAN 6 (Singapore, Malaysia, Thailand, Brunei, the Philippines, and Indonesia).

Shortcomings linger

The PCI 2016 also revealed many shortcomings, especially the increase in informal charges. Some 66 per cent of respondents say they have to offer bribes or pay informal fees to public officials. 

The survey, of over 10,000 enterprises, revealed that informal charges in the 2014-2016 period saw no signs of abating compared with the 2006 baseline. 

The proportion of firms saying they had to regularly pay these informal charges was 12-15 percentage points higher than in 2008-2013. 

“Some 9-11 per cent of enterprises in the 2014-2016 surveys claimed that these informal charges represent more than 10 per cent of their total revenue, well above the 6-8 per cent in the preceding five-year period,” said Mr. Dau Anh Tuan, Director of VCCI’s Legal Department.

Moreover, it was common for businesses to experience harassment while completing administrative procedures. 

This indicator fell significantly from 65 per cent in 2013-2014 to 58 per cent in 2016, but remained higher than in 2006-2012. 

The index score for the time taken to complete regulatory compliance hit a record low last year. 

For three consecutive years (2014-2016), one in every three enterprises had to spend more than 10 per cent of its time on complying with administrative procedures, a record high. 

However, the most important thing is effectiveness and transparency in the fees enterprises must pay. 

According to Mr. Mac Quoc Anh, Secretary of the Hanoi Small and Medium Enterprise Association, most enterprises understand that informal charges exist in every country, especially developing countries. 

“Many enterprises accept rising service costs but seek transparency and effectiveness,” he said. 

Access to land was also a major concern for enterprises. The land access index has begun to decline after continuous increases in 2008-2013. 

Surveyed enterprises indicated that the risk of land revocation was at its highest, at 1.73 points. 

Among enterprises that have had their land use rights revoked, only 25 per cent received satisfactory compensation. 

Bolstering FDI attraction

The changes and shortcomings identified in the PCI reports both motivate cities and provinces to accelerate their reform efforts. 

Mr. Su Ngoc Anh, Director of the Ho Chi Minh City Department of Planning and Investment, said it introduced an online investment registration program last October. 

The program aims at saving time for foreign investors, with the result of applications announced within seven working days rather than the previous 15. 

The change has resolved some of the obstacles most foreign investors complain about when investing in Vietnam. 

While Ho Chi Minh City focuses on improving its investment registration program, Quang Ninh’s Investment Promotion Agency (IPA) has proven successful in creating favorable conditions for investors. 

According to Mr. Long, foreign investors waste 250 days finalizing licensing procedures, so the province decided to establish the IPA, under the People’s Committee. 

The IPA is responsible for coordinating relevant agencies, departments and localities in supporting investors and enterprises. 

“The province has actively followed its long-term strategic development,” Mr. Long said. 

“We have welcomed strategic investors and invited leading consultants such as McKinsey and BCG from the US and Nikken Sekkei and Nippon Koie from Japan to re-plan our strategic development goals to 2020 and vision to 2030.” 

Northern Bac Ninh province, meanwhile, is trying to become the leading province in FDI attraction. According to Mr. Nguyen Tu Quynh, Chairman of the Provincial People’s Committee, its leaders pay great attention to improving the investment environment through administrative procedure reform and policies on land clearance. 

With limited investment attraction in the past, the Khanh Hoa Provincial People’s Committee has set clear strategies to attract foreign investment projects. 

A representative from the south-central province said local authorities will build infrastructure and focus resources on developing three key economic areas and speed up urbanization. 

The province will pay particular attention to building resettlement areas and socioeconomic infrastructure in line with modernization and will also develop human resource through training programs and opening more universities to supply professional employees to foreign companies.

Each city and province has detailed strategies suitable to their own characteristics to attract foreign projects, according to Mr. Long. 

Quang Ninh has only been successful because the government introduce support policies and it should give more rights to local authorities in local administrative affairs. 

This is an urgent requirement in cities and provinces attracting significant numbers of domestic and international investors.

VN Economic Times