Last updated: Thursday, March 23, 2017
PCI 2016: Positive Improvement in Business Environment, Local GovernancePosted: Tuesday, March 14, 2017
On March 14, the Vietnam Chamber of Commerce and Industry (VCCI) and the U.S. Agency for International Development (USAID) jointly launched the annual Provincial Competitiveness Index Report 2016 (PCI 2016).
Adressing the event, Dr Vu Tien Loc, VCCI President confirmed: “The PCI report represents the collective voice of Vietnamese private enterprises. Promoting private enterprises, especially micro, small and medium enterprises, is the mission and responsibility of VCCI given by the Party, the Government, and the business community. Creating more good jobs is an important responsibility of the private sector. This is the motivation for the country's development, and the key to addressing development issues, not only economically, but also politically and socially.”
The PCI report is designed to assess the ease of doing business, economic governance, and administrative reform efforts by the provincial and city governments in Vietnam in order to promote the development of the private sector. The PCI Report 2016 is the 12th iteration of the report and is based on responses from 11,600 enterprises, including more than 10,000 domestic private enterprises from 63 cities and provinces and nearly 1,600 foreign invested enterprises in 14 provinces in Vietnam.
“This report is vital to investors and businesses that are looking to invest in Vietnam,” said US Ambassador Ted Osius. “The US Government is proud to have partnered with VCCI for the last 12 years to do the hard work and analytics necessary to produce this report. Competition helps us improve performance as we strengthen our trade relations and promote economic growth and prosperity.”
This year, Da Nang once again topped the rankings for the fourth consecutive year with a score of 70, marking the seventh time the city has held the top position since the first PCI report. Followed are Quang Ninh (65.60 points) and Dong Thap (65.75 points), which have switched places from last year, ranking 2nd and 3rd respectively. This year Binh Duong (63.57 points) and Vinh Long (62.76 points) have climbed back up to the Excellent tier and were joined by returning Lao Cai (63.49 points). Finally, the governance reform efforts in such provinces as Thai Nguyen, Ho Chi Minh City, Vinh Phuc and Quang Nam also received positive assessments by domestic enterprises.
The PCI 2016 report witnessed impressive reform efforts in many provinces in the bottom group. The gap between the top and bottom groups narrowed to 17 points, the lowest level recorded in the past 12 years. In addition, there was a pronounced improvement in the scores of all five centrally-run cities. In particular, Ha Noi and Hai Phong showed strong improvements to score over 60 points for the first time ever, reaching the High tier with rankings of 14th and 21st, respectively. Can Tho had a score of 61.14 points (ranked 11th) and returned to the High tier after two consecutive years in the Mid – High group.
In general, the economic governance quality of provinces and cities in Vietnam continued to show positive improvements compared with 2015, which can be seen in the areas of proactive leadership, informal charges, labor training, policy bias, and business registration. However, the areas of administrative procedures, land access and legal environment remain major obstacles for many domestic firms.
Many positive signs of the business environment in Vietnam were recorded in the PCI 2016 survey. Over the past year, 65 percent of private enterprises reported profits, the highest level in five years. The average capital size of enterprises has risen to the highest level ever recorded in the survey at VND18.1 billion ($797,000), twice the level recorded in 2006 (VND7.5 billion, or about $330,000). The percentage of firms that hired more workers also increased from 12 percent in 2015 to 13 percent in 2016. Optimism about the prospects for growth remains high with 48 percent firms seeking to expand their operations over the next two years.
The survey of 1,550 foreign invested enterprises (FIEs) revealed similar positive results. In 2016, 11 percent of FIEs increased their investments in existing operations and 63 percent added new employees to their payrolls. The number of jobs that FIEs have created was the highest increase in the past five years. More than half of the firms in the survey mentioned that they plan to expand the scale of their operations, the highest level since 2010. The legal environment was perceived by foreign firms as more friendly with a decrease in the entry costs and petty corruption. However, many investors remain concerned about the policy bias in favor of state-owned enterprises (SOEs). They also encountered difficulty acquiring information about key legal and planning documents that affect their businesses. In addition, the enterprises noted that post-registration regulations in Vietnam still need to be simplified in order to reduce the burden of compliance costs for businesses.
The PCI 2016 report includes a special chapter to document the firms’ perceptions of environmental issues. The survey results indicate that 50 percent of foreign enterprises and 45 percent of domestic enterprises believe that environmental health is important and they are willing to pay reasonable costs to support environmental regulations in this area. They are also willing to accept additional regulations to avoid damaging pollution. A substantial portion of the business community benefits from a green Vietnam and is supportive of efforts to keep it that way.