Recommendations for Development

11:14:50 AM | 6/28/2019

“There is dire need for further reducing post-registration procedural burdens for businesses. The PCI Survey 2018 showed that 16% of companies surveyed said that they have to wait for more than one month to have all other necessary documents beside the business registration certificate to begin official operation. This indicator has shown signs of increasing in the last five years.”

This is the first of 10 recommendations that Dr. Vu Tien Loc, Co-Chair of the Vietnam Business Forum Consortium, President of the Vietnam Chamber of Commerce and Industry (VCCI), made at the 2019 Mid-term Vietnam Business Forum held in Hanoi.

Dr. Loc said that the Vietnamese business community appreciates the recent efforts of the Government for creating an increasingly favorable business environment for them.

In particular, the business community highly appreciates recent initiatives and efforts to promote innovation and market expansion, such as accelerating global integration by advocating the EU - Vietnam Free Trade Agreement (EVFTA). The pact opens a top-class expressway to lead Vietnam's economy to one of the largest global markets, to the source of world technology, to a professional and efficient administration system. The widening of high-quality trade and investment flows will be an opportunity to help Europe have more jobs and help Vietnam take off.

However, according to Dr. Loc, the domestic business environment still has bottlenecks that require more efforts of the Government, central and local authorities to be addressed.

Following this proposal, he added that, it is necessary to reform administrative procedures and focus on a number of key areas to develop quickly. Feedback by domestic enterprises through the VCCI survey showed that some areas of administrative procedures are still troublesome, particularly land (30%), tax (28%) and social insurance (25%). For foreign direct investment (FDI) enterprises, what annoys them include import and export procedures (28%), social insurance (26%), taxes (25%), investment registration (24%) and fire prevention (22%). These fields need more attention of authorities at all levels in the coming time. Especially, it is necessary to immediately fix overlapping and unreasonable legal provisions related to land, planning, investment, construction and environment.

However, while laws cannot be amended right now, it is necessary to have consistent and uniform instructions for localities and enterprises to prevent each locality and agency from interpreting in different ways. It is important to soon enact the Law on Public–Private Partnership to open this source of capital, have appropriate regulations to ensure that domestic private enterprises have the opportunity to join important public-private partnership projects such as North-South High-speed Railway and Long Thanh Airport.

Third, information transparency should be enhanced for businesses. According to Dr. Loc, their access to information has not improved significantly over time. The share of enterprises that find it difficult to access some types of local information is quite high, for example public procurement plan (60%), maps and land use planning (58%), sector planning (54%), and new infrastructure construction plan (54%). Only 55% of respondents said they could access information on provincial public procurement packages. Therefore, up to 69% said relationship is a must to get provincial documents.

Fourth, sustainable development requires inclusive development. So, it is necessary to have suitable solutions for micro and small businesses. Most respondents who expected to scale down or close down their business belong to small and micro groups. This proves that there is a significant share of enterprises struggling to maintain operations because they are unable to adapt to market fluctuations or because competition becomes more severe when Vietnam enters more deeply into the global economy.

It is time to assess the effectiveness of the Law on Small and Medium Enterprises Support in practice. At the same time, it is also time to amend the Law on Enterprises to include a registered business household as a type of business.

Fifth, businesses should be facilitated to access capital. The PCI Survey shows that 37% of domestic enterprises face hardships in accessing capital, most of them micro, small or medium businesses and newly established. Major reasons for this are not having security assets (86%), not meeting lending conditions (63%), not meeting loan procedures (44%) or adverse credit conditions for this sort of businesses from banks (40%).

Sixth, the Labor Code should be revised to increase overtime working hours to 400 hours, not to apply the progressive payment system to overtime work for employees, and increase the minimum wage at a reasonable level. Vietnam should improve the quality of human resources to meet increasing demands of businesses. The PCI 2018 Survey showed that the share of private enterprises fraught over skilled personnel recruitment is relatively high. Therefore, reform of the education system is a requirement now.

Seventh, it is important to ensure the stability and reliability of the business environment. Over the past time, many foreign investors expressed concerns about fast-changing legal regulations and high legal risks in Vietnam. For example, many European, South Korean, Japanese and even Vietnamese investors are concerned about their disqualification for entitlement to the Vietnamese Government's preferential investment policy for prioritized supporting industrial products licensed before January 1, 2015. Although there is already a clear legal basis constructed by laws and decrees (such as Revised Tax Law 71/2014/QH13, Investment Law 67/2014/QH13, Decree 111/2015/ND-CP), the inappropriate and inconsistent application of these legal documents engendered negative effects on supporting industries and negatively impacted the investment and business environment in Vietnam.

Eighth, the judicial system needs reforming to ensure security and peace of mind for businesses. We recommend that the Government actively coordinate with the Supreme People's Court and relevant judicial agencies to further enhance judicial reforms and guarantee quick, transparent and effective dispute hearing procedures.

Ninth, the business community should be more effectively informed of trade agreements that Vietnam entered. Vietnam recently joined many international trade agreements, expecting to provide more opportunities for market expansion for domestic enterprises. However, the 2018 PCI Survey showed that the share of Vietnamese enterprises which comprehend these agreements is low. Obviously, it is very difficult for them to take advantage of opportunities from international integration when they do not know anything about important agreements that the Government of Vietnam has made great efforts to negotiate and evaluate in the past time.

Tenth, Vietnam should promote new business models such as circular economy and sharing economy, encourage the application of corporate sustainability index; support enterprises to build an international standard management system; introduce appropriate technical standards to orient investment options for new-generation projects that employ high technology, generate high added value and ensure environmental friendliness.

The Government’s itinerary is very successful when it shifts from untangling and removing difficulties for enterprises to enabling, leading and supporting them. The Vietnamese business community is also shifting from complaining to recommending and carrying out innovative programs. We need two to tango for the new development of the Vietnamese economy.