Both Domestic and FDI Enterprises Share Strong Optimism

11:10:07 AM | 4/3/2019

“In 2018, the PCI core survey questions reached an all-time high since we began the exercise in 2005. The report noted several optimistic insights and positive developments in the business environment,” said Mr. Michael Greene, Vietnam Mission Director of the U. S. Agency for International Development (USAID), regarding the new findings of the PCI 2018 report. Lan Anh reports.

In this 14th edition PCI report launched by VCCI and USAID, how would you assess the level of improvement in local governance quality over the years?

PCI scores have continued to improve over time. In 2018, the PCI index for core survey questions reached an all-time high since we began the exercise in 2005. In fact, all but one of Vietnam’s 63 provinces have advanced over the years we have been tracking the index. The gap between the best and worst performing provinces in both the annual PCI and core PCI rankings has continued to narrow. Some of the governance sub-indices that showed strong improvements include policy biases and administrative reforms, while there are modest improvements in access to land, law and order, and proactive leadership.

In what areas do you think local governance has not improved much, and why?

The PCI report measures the ease of doing business for the private sector in 10 areas, including: entry cost for new firms, land access, transparency, time costs of regulatory compliance, informal charges (bribes), proactivity of provincial leadership, policy bias, business support services, labor training and legal institutions. We have found that the leading provinces have already implemented changes in easy-to-reform areas such as business registration, but have had difficulty implementing initiatives that accelerate reforms. Some reforms require difficult changes such as legal institutions, where issues like strengthening investor protections or modifying bankruptcy procedures require more work.

Is there a big difference in opinions expressed by FDI and local private enterprises about the business environment in provinces?

There are some differences depending on the issue, but overall, both domestic and FDI enterprises share strong optimism this year. While 49 percent of domestic firms plan to increase the size of their operations, 56 percent of FDI firms plans to do so. Both types of firms have noted progress in reducing corruption. FDI firms tend to emphasize the shortage of skilled workers, as I’ve mentioned in the previous answer.

To improve governance quality, how do the provinces/cities at the bottom of the rankings need to change?

The provinces could try to emulate some of the best practices of the top reforming provinces. We have found over the years that provinces that have led the way in business reform have important traits in common, despite their differences in geography and economic conditions. First, their provincial leaders have made competitiveness a policy priority and have dedicated resources to achieve it. Second, successful provinces have developed innovative approaches to complement central government plans and regulations. Third, these provinces actively worked with the business community, which proved to be extremely capable and influential. Finally, successful provinces have engaged mass media in their reform efforts so that businesses and provincial officials remain informed of progress and challenges.

Why have Vietnamese enterprises not yet become deeply involved in global value chains?

There are several reasons that we have identified, both with the PCI project as well as our new activity called USAID Linkages for Small and Medium Enterprises. First, there is a lack of awareness, primarily related to local SMEs’ understanding of foreign firm needs. In general, there is a need to provide consistently high quality goods that are provided in a timely manner. To do this, they may need help in different areas such as reaching international standards (such as ISO 9000), improving human resources, and increasing their access to finance and physical capital.

Thank you very much!