Last updated: Monday, April 24, 2017
Inspiration and Pressure from PCIPosted: Monday, March 27, 2017
“The annual Provincial Competitiveness Index (PCI) not only inspires but also urges local governments to reform their business environment,” said Dr Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI) at the PCI 2016 launching ceremony in Hanoi.
Innovative reform from local and grassroots governments
Dr Loc said PCI is a tool that urges provinces and cities to improve their business and investment environment. Besides, enterprises increasingly play their role as partners and customers of local governments.
“The path of reform is the last straw to bring the Vietnamese economy to the trajectory of development and PCI is to lay a small stepping stone to the path of reform in Vietnam. The very private business community and local governments are the real actors of this reform programme. PCI has become a great inspiration and a perfect pressure for reform from the grassroots,” he said.
From a set of recommended indicators voluntarily applied to reform agenda, PCI and its perfection requirements are now included in government resolutions as mandatory requirements to all localities. PCI has been recognised for its practical and important effects on local reforms.
Dr Loc said that the PCI 2016 Report showed positive improvements of Vietnam's business environment. Nearly half of domestic enterprises and more than half of foreign-invested enterprises planned to expand their business operations in the next two years, the highest ratios since 2010. This was indeed encouraging in the context of the volatile world in the past year which potentially destabilised the economy of Vietnam.
“Prime Minister Nguyen Xuan Phuc with the intention of building an enabling government, a start-up nation and powerful integration efforts is creating new impetuses for reforms in Vietnam. At the same time, drastic reforms from the central government are inspiring local and grassroots reforms,” he added.
Danang still tops the list
With a well-established administrative service platform, Danang has been widely called the “most liveable city in Vietnam” for many years and continued to lead the PCI 2016 rankings. This was the fourth straight year and the seventh leadership in 12-year PCI rankings history.
The PCI 2016 rankings saw the interchange of Quang Ninh and Dong Thap provinces. Accordingly, Quang Ninh overtook Dong Thap to stay at No. 2 in the rankings, the highest position in 12 years. This success came from the recognition of the business community for its active deployment of reform initiatives. The province also has an electronic scoring system that enables citizens to give marks to civil servants at the service.
The biggest surprise was the impressive return of Binh Duong to the Top 5 group after many years in the good group. Vinh Long, Thai Nguyen, Ho Chi Minh City, Vinh Phuc and Quang Nam were also in the Top 10 group.
Remarkably, five centrally run cities saw substantial advances in rankings. Hanoi and Hai Phong scored over 60 points for the first time and entered the group of well-governed localities, respectively ranked 14th and 21st. Can Tho City garnered 61.14 points, ranked 11th out of 63 provinces and cities in Vietnam. With huge efforts, 81 per cent witness progress in PCI in the year.
Three indicators that assess the dynamism of local government since 2006 positively marked up. Companies in average provinces and cities agree ib the statement that “The provincial government is active and creative in addressing emerging issues” rose from 47 per cent in 2011 to 57 per cent in 2016. At present, 70.5 per cent of companies in average province and cities said “The province is flexible within regulatory frameworks to create a favourable business environment,”10 per cent higher than the old record in 2011. The percentage of respondents saying “the provincial government has a positive attitude toward the private sector” advanced by more than 9 percentage points to 44 per cent.
Business sense of environmental issues
This was the first year that PCI surveyed business views on environmental impacts. The survey result showed that a majority of enterprises (50 per cent of FDI companies and 45 per cent of local companies) believed that environmental protection is important and they are willing to pay a reasonable fee for it and apply more regulations to prevent pollution, especially companies engaged in agriculture, fisheries, finance and services.
In addition, manufacturing companies also suffered from environmental pollution. The survey result also showed that a large number of businesses had made concerted efforts to prevent environmental pollution within their businesses by applying internal regulations and environmental protection training programmes for workers. 75 per cent of FDI companies and 73 per cent of private companies are now applying “green policies” (reducing pollution by using materials and energy in the most economical and efficient way) within their own business. A high percentage of enterprises said they complied with high environmental standards and stood willing to make efforts to protect the environment although they know that this would lead to higher costs. In the wake of the Formosa environmental crisis, businesses seemed to agree higher and accepted obligations of enforcing environmental regulations launched by local governments though that will increase cost and liability burdens on them (95 per cent of FDI companies and 91 per cent of domestic companies).
VCCI President Loc said sharing, learning and applying good practices to raise operational quality are very active all over the country, shaping a more interesting race to improve PCI than ever. The gap between PCI top-placed localities - star reformers - with bottom-placed ones was narrowed dramatically in 2016, suggesting that the PCI “chorus” was chorused better and reform momentums were already in place.
“The destination of PCI is not just rankings but shown activities, approaches taken to reform and good practices shared and disseminated,” said Dr Loc.
Mr Dau Anh Tuan, Director of VCCI Legal Department
PCI surveys in 2006 - 2016 saw the biggest improvements in market entry, labour training, dynamism and business support services.
In terms of market entry, a company needed an average of 20 days to register a business establishment in 2006 but it took only seven days in 2016, a record low in the 12-year PCI surveys. The rate of companies that had to wait more than a month to officially start business operation dropped by half, from 26 per cent to 13 per cent.
For labour training, after a decline in 2008, the degree of satisfaction with labour training quality gradually looked up. In 2016, 47 per cent of respondents in average provinces were satisfied with the quality of local general education, compared with 35 per cent in 2008. At the same time, 33 per cent said they were satisfied with the quality of vocational training, compared with 19.8 per cent in 2008.
For dynamism, three indicators used to assess the dynamics of a local government saw positive developments since 2006. The rate of companies in median province agreed with the statement “The provincial government is active and creative in addressing emerging issues” rose from 47 per cent in 2011 to 57 per cent in 2016. At present, 70.5 per cent of businesses in average provinces said “The province is flexible under the law to create a favourable business environment", 10 per cent higher than the record low in 2011. The rate of companies that said “The provincial government has a positive attitude toward the private sector” added by more than 9 percentage points (44 per cent) compared with the record low in 2015.
Regarding business support services, timeline change analyses showed that business support services such as market information search, legal advice and partner search gradually improved both in quality and quantity. However, legal advice, trade promotion and technology services still needed incentive policies to engage the private sector more in this market.
Mr Ted Osius, Ambassador of the United States to Vietnam
PCI report is important to investors and businesses interested in looking for investment opportunities in Vietnam.
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.
This year's PCI report showed that many localities in Vietnam which did not have high rankings in previous reports improved, thus narrowing the gap between the highest ranked and lowest ranked localities. Foreign companies found market entry cost fell significantly and attributed this to the Law on Enterprises 2014 and the Law on Investment 2014. Localities are increasingly creative in promoting the strong business environment. They have actively approached the business community to find innovative solutions to existing reform challenges.
Mr Nguyen Xuan Anh, Secretary of Danang Party Committee
Whether being on the top or not, Danang always tried the best for a better business environment. We simply think that we need to try our best and the success of businesses is the success of the Party and the government of Danang City. Moreover, on the 100-point PCI scale, Danang only reached 70 points, meaning that there will be many reforms to be done in the coming time. We are not content with the results Danang achieved in the past few years and we will have to try harder because the score did not come up with our expectations. Danang needs to be open and transparent to make sure that all businesses are treated equally and fairly. The city will further reform administrative services and access to land among others to better support enterprises. The Prime Minister assigned Danang to have 40,000 - 50,000 companies by 2020. At present, the city has 19,000 active businesses and we have to make a greater effort.