Reform Must Be Substantive

9:47:35 AM | 23/1/2020

The year 2019 has elapsed with a lot of positive remarks. The economy maintained high growth momentum, with gross domestic product (GDP) expanding 7.02% in the year, higher than the expected target, the economic scale was enlarged, with growth quality highly appreciated. The business investment environment was further improved, shown by more new companies established and more foreign investment inflowed. The road ahead is, however, still rough as the instable world economy will make it hard for the Vietnam’s economy to hold its momentum without having more reforms for business community development. Dr. Vu Tien Loc, President & Chairman of Vietnam Chamber of Commerce and Industry (VCCI), Chairman of ASEAN Business and Investment Summit (ASEAN-BIS), and Chairman of ASEAN Chamber of Commerce and Industry (ASEAN-CCI), shared with Vietnam Business Forum Magazine in this regard.

Do you think the government's goal of having at least one million active businesses by 2020 is within reach?

The report on “Implementation of the Government’s Resolution 02/2019 and Resolution 35/2016 - A View from Business” released by the Vietnam Chamber of Commerce and Industry (VCCI) shows that the Vietnamese business community expanded by 17.3% per year from 2015 to 2018. If this growth is maintained, Vietnam will have 984,000 enterprises by December 31, 2020, fulfilling 98.4% of the target. Thus, it can be seen that the target of one million businesses may be reachable soon but all localities must work hard together to fulfil the task in 2020.

To date, Bac Giang province has the highest commitment. It targets to expand its business community by 341% in five years, from 2,043 to 9,000 businesses. In 2018, the province had 5,451 enterprises, representing a growth of 167%, and if this growth is continued, it will have 10,486 businesses by 2020, an increase of 413% over 2015, fulfilling 117% of the commitment. This is the best performer in the country, with an average annual growth of 39%.

Dong Nai province is the second best performer by business growth in the country, averaging 32% a year in the 2015 - 2018 period. The locality has pledged to increase its enterprises from 9,188 to 25,000, or an expansion of 172% in five years. If this growth is continued, Dong Nai will have 36,968 companies by 2020, surpassing Hai Phong City and Da Nang City to become the fourth largest business community in the country just after Ho Chi Minh City, Hanoi and Binh Duong.

Vinh Phuc province also made a very high level of commitment, increasing its business population from 2,893 to 10,000. The locality is also one of the best performers in the country, expanding 30% a year, and expected to have 10,860 companies by 2020.

In addition, some other provinces and cities have very fast business growth, such as Bac Ninh (30% per year), Hai Phong (30%), Hung Yen (29%), Lang Son (27%), Thai Nguyen (26%), Khanh Hoa (27%), Binh Duong (28%), Binh Phuoc (26%) and Bac Lieu (27%).

However, some localities still have low business growth rates, for example Kon Tum (9%), Phu Yen (8%), Quang Tri (8%) and Dien Bien (6%). They will face difficulty in achieving their business development targets.

This goal is not simple at all and it requires a lot of effort from central agencies and localities to be achieved. In 2020, we need to be much stronger reform measures, not only in market entry but also in business support, in order to achieve the enterprise target as stated in Resolution 35. In particular, the Resolution of the 5th Meeting of the Central Party Committee (12th term) sets the goal that Vietnam will have more than 1.5 million businesses by 2025 and at least 2 million businesses by 2030.

You once said, “As long as we are satisfied with average institutions, we cannot overcome the middle-income trap, we must take strong institutional reforms to achieve ‘diamond institutions’, built on transparency, stability and solidity like diamond. By doing so, Vietnam's business environment is conducive to business activities”. So, what should be done to achieve this goal?

Institutional ‘vehicle’ with lots of wheels and articulations like the institutional system will smoothen development if these wheels fit together. However, the reality is not so.

Resolution 02 of 2019 and Resolution 35 of 2016 of the Government have specific goals, notably the target of having one million businesses and entering the ASEAN-4 Group in terms of competitiveness. Therefore, it is necessary to put Vietnam's reform path into the global race for competitiveness, improve the business environment, and climb at least 42 more steps to enter the ASEAN-4 Group. This will be a very arduous journey.

So far, reform is uneven across sectors. Some continue to have positive changes in both policymaking and enforcement while others lack considerable improvement over the years. Good reformers include tax, customs and credit access. Business registration and access to electricity continue to be improved and recognized by businesses.

Nevertheless, even pioneering, groundbreaking areas are still far behind from the world. For example, tax administrative procedures take 384 hours while it is only 173 hours in Asia-Pacific. Many areas have almost no improvement over the years. For example, property registration (land and land-attached property registration) in Vietnam has no reforms in the past 13 years (according to the World Bank (WB)’s Doing Business Report 2019). Corporate bankruptcy, investor protection and import and export procedures have no positive changes, according to businesses.

Without breakthrough solutions, it is likely that the goal of having at least one million active businesses by 2020 as stated in Resolution 35/2016/NQ-CP on enterprise development will not be achieved.

Vietnam Science, Technology White Book 2019

The project themed “Vietnam Economic Competitiveness: Facts, issues and solutions", coded KX.04.11/16-20, is directed by Dr. Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI). The Enterprise Development Institute, under VCCI, is the responsible agency.

The project has made important contributions to realizing the objectives of Program KX.04/16-20: Providing theoretical and practical arguments to timely serve the leadership and direction of the Party Central Executive Committee, the Politburo and the Secretariat of the 12th Party Committee, and serve as documents submitted to the 13th National Party Congress. The research results of the project have also been applied in practical operations of the National Assembly, the Government, the business community and VCCI, and have actively helped improve the business environment and economic competitiveness of Vietnam.

The research results have also been represented to various international conferences by the author to help enhance Vietnam's position and prestige. With its outstanding results, including scientific content and application outcomes, the project has been classified as excellent by the National Evaluation Council.

The request for substantive changes was made by the Prime Minister right from the beginning of 2018, when ministries and central agencies announced their plans to reduce by at least 50% business conditions and specialized inspection procedures. However, in a separate working report released recently, VCCI had to mention quite a lot of undone jobs. Could you please give more details?

Most ministries have issued decrees on reducing business and investment conditions within their jurisdiction. Business and investment conditions reduced and simplified by many ministries even exceed the plan of 50% announced in 2018.

In other legal documents, the process of formation and appraisal has also been focused more to control the introduction of new conditional business investment sectors and business investment conditions.

In 2019, some ministries continued to issue decrees to slash business investment conditions within their jurisdiction. To date, the Ministry of Industry and Trade, the Ministry of Health and the Ministry of Agriculture and Rural Development have issued draft decrees on reducing or reviewing conditions. But, many others seemed not to want to continue this task because they did it in 2018 already.

However, it is notable that, if 58% of businesses had to apply for conditional business licenses in 2017, the figure fell to 48% in 2018. The rate of companies complaining that they had difficulty applying for a business license also decreased from 42% to 34%. Nevertheless, 48% was still a high rate because, if multiplied by more than 714,000 enterprises currently, nearly 350,000 companies still needed to apply for sublicenses.

Let alone, many business investment conditions are unreasonable, untransparent and unfeasible. However, legislatively, it is difficult to further abolish and simplify regulations on business conditions at the decree level but at the law level. Laws need to be amended, including Appendix 4 of the Law on Investment and laws on specialized management.

Promoting an improved business environment is not only the responsibility of authorities but also of the business. For you, what do Vietnamese enterprises need to do to foster this?

Enterprises cannot improve their competitiveness or cannot operate transparently if the business environment is not really transparent when authorities are not serious enough about reforms.

But, for their parts, companies are to comply with business standards to be competitive in all conditions. The very competitiveness determines how businesses contribute to the economy. At the same time, they need to improve management capacity, labor productivity, scientific and technological application. This is particularly important to small and medium-sized enterprises (SMEs).

Opportunities are always for those with innovative business ideas, breakthrough directions, creativity, quality, good governance, regulatory compliance rather than those seeking short-term interests.

Thank you very much!

Vietnam remains one of the most attractive investment destinations

Ms. Dato’ Shariffah Norhana Syed Mustaffa, Ambassador of Malaysia to Vietnam

We are entering the new year of 2020. How fast time flies. It has been an eventful 2019 for Malaysia and Vietnam. In 2019, we had visits from top leaders of Malaysia to Vietnam that began with the Minister of Foreign Affairs of Malaysia’s visit in May, followed by the Prime Minister of Malaysia’s official visit in August. The bond of friendship between Malaysia and Vietnam has strengthened over the years and I am confident that it will grow stronger, given the many bilateral and regional initiatives both sides are pursuing.

In the area of trade and investment, I believe that both sides could bring up the total trade figure to US$15 billion by 2020 as targeted. Vietnam remains one of the most attractive destinations for foreign investors. With a thriving economy, the amount of foreign direct investment flowing into the Vietnam market has been constantly increasing in recent years. Malaysian investors are also keen for future collaboration with Vietnamese counterparts in areas of high potential, such as oil and gas, wastewater treatment, food industry (halal sector), textiles, urban and rural development, renewable energy, industry 4.0 and agro-forestry-fishery industry.

In terms of people-to-people connections, Vietnam remains an attractive source market for the tourism industry both in terms of tourist arrivals, as well as foreign exchange contribution. Tourism Malaysia recorded a 3.32% increase of Vietnamese tourist arrivals in the third quarter of 2019 (123,079), compared to the same period in 2018 (119,128). Meanwhile, the Vietnam National Administration of Tourism (VNAT) recorded an increase of 5.56% of Malaysian tourist arrivals in the first nine months of 2019 (50,471) as compared to the same period in 2018 (47,812).

AmCham wishes to join hands with VCCI to create a positive trade, investment environment
Ms. Mary Tarnowka, Executive Director of AmCham Vietnam in HCM City

AmCham Vietnam-HCMC celebrated its 25th year anniversary in 2019. Our member companies have contributed significantly to the transformation and growth of Vietnam’s economy. We remain committed to partnering with Vietnam in the next 25 years and beyond to strengthen the private sector, ensure sustainable economic and social development, and promote prosperity and an improved quality of life for the people of both the United States and Vietnam.

AmCham welcomes steps the Vietnamese government has taken to promote a positive business environment. We encourage continued efforts to promote a fair, transparent, predictable, and streamlined regulatory ecosystem that values innovation. Developing an enabling regulatory ecosystem that unlocks the full potential of the digital economy, together with physical infrastructure to promote sustainable economic growth and a globally competitive workforce, will help Vietnam attract, retain, and grow high quality trade and investment, including by AmCham member companies.

AmCham welcomes partnership with VCCI to create a positive environment for trade and investment in Vietnam, and promote a regulatory system that enables sustainable economic growth and innovation. We are investing in and invested in the future. We look forward to partnering with VCCI to develop a bankable Public Private Partnership law and Power Purchase Agreement terms aligned with global norms to enable private sector investment in infrastructure. We would welcome cooperation to encourage adoption of OECD guidelines on transfer pricing and enable advance pricing agreements to facilitate business planning. We seek to partner with VCCI to promote policies that support modern innovative healthcare to improve the quality of life of people here in Vietnam and develop Vietnam’s potential for medical tourism. VCCI’s leadership will be important to promote a free and open digital economy, a key factor in driving economic growth and innovation in the Industrial Revolution 4.0. Finally, we look forward to partnering with VCCI in 2020 to celebrate the 25th anniversary of diplomatic relations between the United States and Vietnam, and supporting Vietnam’s leadership as ASEAN Chair.

Collaboration and partnership are keywords to facilitate relations
Mr. Takeo Nakajima – Chief Representative of JETRO Hanoi

Japanese investment in Vietnam is more diversified than before. More SMEs come to Vietnam. While manufacturing is the largest sector in terms of value, we see more non-manufacturing sectors investing in Vietnam, such as IT, business service, retail, wholesale, human resources and construction.

Japanese firms, however, still face problems in doing business in Vietnam: unclear regulations, permitting process, commercial transactions and import/export rules.
Besides regulations, recently, we see hiring and securing people is the biggest challenge for Japanese companies according to JETRO surveys. By the same token, labor costs, which increase significantly every year, become a big challenge. Although the government may have limited power and authority to solve the issue, the issues should not be left on the discussion table.

Regarding the purpose of the investment, recently companies are more interested in the Vietnamese market, which is reflecting the growing domestic BtoC and BtoB markets.
From this observation, I believe Japanese companies need reliable partners in Vietnam. Collaboration and partnership are the keywords to facilitate relations between the two countries, particularly in the digital era. There are many areas in which VCCI and JETRO could cooperate.

Information exchange channels needed to boost business expansion
Mr. Kim Heung Soo, Chairman of KOCHAM

I believe all of Vietnam’s socio-economic achievements are the result of the Vietnamese government's constant efforts for administrative reform and improvement, as well as the steady efforts of the economic units in Vietnam.

In particular, in November 2019, National Assembly of Vietnam passed the amendment of the Labor Law, which decided to keep the current working hours that many companies worried the time to be shortened. This is an example of how the Vietnamese government has always listened to corporate voices in a macro perspective for economic development.

In addition, I would like to express my sincere gratitude to the Vietnamese government for providing various dialogues for FDI companies. In 2019, the Vietnamese government and government agencies have been trying to communicate with FDI companies to improve the business environment in Vietnam through many kinds of Seminars and Dialogues, including the VBF. The government holds “Labor Law Seminar” and “National Customs Dialogue” every year with KOCHAM to share information regarding the establishment and modification of various corporate legal systems with FDI companies, and to collect and reflect the opinions of companies directly. And also, the government helps to resolve the difficulties of the companies regarding the national tax and customs issues, which were raised by KOCHAM’s official letter to the Vietnamese government and agencies.

However, the lack of e-government systems and the ambiguity in some legal systems and interpretations and applications of the laws are causing much confusion. Additionally, the lower labor productivity and the labor shortages compared to other ASEAN countries are the issues that the Vietnamese government should reform in order to improve the business environment of enterprises.

For the cooperation with VCCI in regard to fostering business connectivity, firstly, we propose activating the information exchange between the two countries’ corporates. Recently, there are so many Korean companies that want to do business with Vietnamese companies or Vietnamese companies that want to make a business relationship with Korean companies. With this trend, it is expected that if both organizations establish channels to exchange information about the companies, it would be very helpful for business exchange and expansion between the companies in both countries.

Secondly, we suggest expanding mutual participation opportunities to join networking events for the two countries’ companies. I know that KOCHAM and VCCI are encouraging friendship and networking among member companies through many networking events. If we try to provide opportunities to participate in these events for more companies and to cooperate more actively to promote them, I believe that it would greatly contribute to the formation of more natural business networking between Korean and Vietnamese companies.