Hurdles against Businesses Need to Be Cleared

2:06:05 PM | 29/4/2020

The Provincial Competitiveness Index (PCI), a measure of economic governance quality designed to promote business development, has shown an important shift of thinking in Vietnam. However, to improve PCI, localities need to solve many bottlenecks.

Small businesses are respected

Developed by the Vietnam Chamber of Commerce and Industry (VCCI) and the United States Agency for International Development (USAID) and piloted in 2005, PCI assesses provincial administration quality from the perspective of private enterprises, not only an important source of reference information for investors to make investment decisions, but also an expression of the satisfaction of private enterprises with administrative procedures, administration quality and government operations from provincial to grassroots levels.

With this index, businesses who receive public administrative services will have the right and responsibility to assess service quality. This is an effort to empower private micro, small and medium-sized enterprises in Vietnam.

Business strategy consultant Do Thanh Nam said, thanks to PCI's independent transport channel, businesses can easily report problems they encounter in doing business in the locality and reflect their difficulties to government agencies.

Besides, PCI provides information to provincial/municipal leaders to capture objective reflection from the business community. Then, they will feel pressure and impetus to push for stronger and more appropriate reforms. Elected bodies such as the National Assembly and Provincial People’s Council may use PCI survey results for their effective monitoring and questioning activities.

Previously, localities only focused on increasing policies on tax incentives and land or advertising geographic strengths, infrastructure and labor resources. Nowadays, with detailed analysis of the PCI reports, they must look back to pay more attention to administration quality and advantages of administrative procedures - factors that directly affect business development.

Mr. Nam also said that, with PCI, private SMEs are respected instead of being disregarded as previously. They can express their opinions, supervise the operation of local governments at all levels. Dong Thap, Lao Cai, Binh Duong and Quang Ninh are highly appreciated by domestic private enterprises although their geographical position is not favorable or their infrastructure is less developed than many other localities. PCI reports have promoted learning and sharing of good experiences among localities across the country.

Unofficial costs remain a bottleneck

A matter of concern in PCI 2018 was ‘petty corruption’ - unofficial costs borne by businesses for quicker application and delivery of administrative procedures. This indicator fell to the lowest level in five years; however, 54.8% of enterprises said that they still had to pay this type of informal cost. According to the report, ‘serious corruption’ - the facilitation cost paid to speed up land procedures - showed a slight decrease but up to 30.8% of businesses had to pay it.

Especially, the business environment is more equal than last year, but still 32.4% of respondents said that “the province's preference for State-owned corporations makes it difficult for them to do business” and 55% said that this act is a hindrance to recipients themselves.

Mr. Dau Anh Tuan, Director of the VCCI Legal Department, said that local governments need to pay more attention to small businesses, with practical programs such as supporting capital access, land access, customer and partner search. This group of business is the future of Vietnam's economy and they are facing difficulties.

PCI 2019 Index Announced Online

On May 5, 2020 in Hanoi, the Vietnam Chamber of Commerce and Industry (VCCI) in collaboration with the United States Agency for International Development (USAID) announces the Provincial Competitiveness Index (PCI) 2019. Due to the Covid- 19 pandemic, the announcement will be made online at www.pcivietnam.vn and www.vcci.com.vn.

This 15th edition is based on feedback from nearly 12,500 businesses in Vietnam, including about 11,000 private enterprises in 63 provinces and cities and over 1,500 foreign-invested enterprises (FDI) in 21 localities in Vietnam. This is a random sampling, scientifically conducted according to the world's high standards. The PCI survey can be considered the largest, most elaborate annual business survey in Vietnam that illustrates the perception of the business community about the business environment in Vietnam.

Especially, for the first time, the PCI report analyzes automation and digitalization trends in manufacturing and service delivery of Vietnamese businesses and forecasts the impact of this trend on labor and employment in the future.

He questioned: “Localities have successfully carried out relatively easy reforms, such as simplifying business registration, investment licensing procedures but they are fraught with difficulty in handling bigger reforms relating to land and cross-sector cooperation. Are they tied to institutional framework? Is institutional ceiling constraining them and hindering them? Do they need stronger breakthrough or stronger initiatives? These are important questions.”

Needless to say, the Provincial Competitiveness Index (PCI) provides a lot of useful information for localities to understand their strengths and weaknesses to make timely improvement. Although they have different situations, most provinces and cities are stuck in some common bottlenecks. For example, many businesses still have to pay informal charges to officials, inspectors. Larger reforms related to land and coordination among related sectors are still tough and slow. In addition, post-registration is still a burden for enterprises.

In the coming years, each locality needs to capitalize on the PCI analysis to apply appropriate and timely solutions to their actual situations to solve existing problems, thus building a transparent public administrative operating system, creating favorable conditions for businesses to develop and attract investment, and contributing to social security and economic development.

10 main PCI benefits

1. Creating motivation for improvement: The greatest impact of PCI is to help municipal/provincial governments improve the quality of economic management to create a favorable environment for the business community.

2. Changing the mindset: As a measurement of governance quality, PCI helps change the mindset of provinces and cities: It is necessary to focus on administration quality reform - an important activity that needs to be prioritized for continuous implementation.

3. Providing evidence-based information: The PCI annual survey provides a lot of information about the local business environment, which is an important basis for investors and investment promotion agencies to use for investment and business decisions.

4. Promoting dialogues: PCI is the voice of businesses on their local issues. PCI information will promote government-business dialogues.

5. Empowering businesses: PCI is the strong voice of private enterprises on important issues in the business environment that the government needs to change.

6. Effective channel helps reduce harassment in resolving administrative procedures for businesses: From business feedback, PCI helps identify harassment in resolving administrative procedures in each specific area, with many indicators that can be monitored over time, to send them to provincial or municipal government for solutions.

7. Enhancing transparency: PCI reports and data are publicly posted and updated on the PCI website, accessible to investors and other entities to study and assess the business environment in all provinces and cities across the country.

8. Communicating reform ideas: PCI encourages and spreads reform models in Vietnam from successful localities to many other ones. Typical recent replication models include the single-window mechanism in investment procedures at the provincial level, Department and District Competitiveness Index (DDCI) and business coffee talks.

9. Promoting the use of empirical evidence in policy formulation and enforcement: With PCI, Vietnamese provinces and cities have become familiar with how to develop, monitor and evaluate evidence-based policy effects. PCI survey data have been widely cited in provincial policy reports and documents.

10. Orientating public investment: From PCI survey results, especially the information on the quality of administrative procedures, many localities have more incentives and appropriate public investment approaches like thoroughly applying information technology, building websites or software for business transactions.

By Giang Tu, Vietnam Business Forum