Exceptionally Strong Reforms Needed to Have “Diamond Institution”

10:58:24 AM | 24/12/2019

“Institutional reform needs exceptional strength to achieve the ‘diamond institution’; the institution must be pure, transparent, steady and solid as diamond,” said Dr. Vu Tien Loc, President of the Vietnam Chamber of Commerce and Industry (VCCI), at the Launching Workshop on Report on the Implementation of Government Resolution 02 and 35- A View from Business, held in Hanoi on December 17.

Key to institutional reform

After numerous efforts of authorities, localities and businesses from 2014 to 2018, Vietnam climbed 30 places on global competitiveness rankings. However, its competitiveness is still average globally and has yet to enter the Top 4 of ASEAN.

Dr. Vu Tien Loc, President of VCCI, said that Resolution 02 of 2019 and Resolution 35 of 2016 of the Government feature the notable goal of having one million businesses in the race for competitiveness. Resolution 35 regards private businesses as the driving force of economic development. This is also an important direction where the private sector must account 48% of the gross domestic product (GDP) by 2020. It is not difficult for the private sector to achieve this goal. However, the goal of having one million businesses and Top 4 ASEAN competitiveness by 2020 is a hard target.

He placed particular emphasis on the need to bring Vietnam's reform journey into the global race for competitiveness and improve the business environment: “The institutional vehicle has a lot of wheels and joints. The institutional system will develop smoothly if these wheels match. However, in reality, the current legal system is both open and frictional.”

Dr. Loc pointed out one bottleneck of institutional reform - the delay in administrative procedure reform. Tax, customs and credit are among areas with strong reforms. However, they are still far behind the world level although have achieved much progress.

Local efforts are also varied. Changes in the Provincial Competitiveness Index (PCI) are different from locality to locality, with the progress seen to be faster in the Mekong Delta and slower in the northern mountainous region. Business growth is also uneven among localities. More than 40% of companies said that they had to go many times to get administrative procedures done. 58% said they encountered harassment when conducting administrative procedures. Inspection is still heavy, he noted.

According to the VCCI President, the phrase “gold forest and silver sea” in the past refers to resources for economic development. To suit the current development goals, we not only need the “gold forest and silver sea” but also the “diamond institution”.

Uneven reforms

Mr. Dau Anh Tuan, Director of VCCI Legal Department, Director of Enhancing Business Voices in Economic Restructuring Project, said, reforms are uneven from field to field. Some sectors continue to witness positive progress in both policy formulation and enforcement while others have not improved significantly over the years.

The above comments are matching the World Bank’s remarks on doing business in Vietnam in a series of reports. Specifically, among 13 Doing Business reports from 2009 to 2020, Vietnam had 33 recognized reforms. Doing Business 2016 and Doing Business 2018 had the most reforms, with five each year.

In the last two years, the number of recorded reforms decreased to only three in Doing Business 2019 and two in Doing Business 2020. Tax payment and credit access had most recognized reforms, with eight in each field. This year, Doing Business 2020 continues to recognize Vietnam's single reform in tax payment and access to credit. Particularly in the field of property registration (land and land-attached property registration) in Vietnam, there has been no reform in the last 13 years, according to Doing Business reports.

According to the survey, business registration and access to electricity continued to be highly appreciated by businesses. These areas will have further improvements in recent years, recognized by businesses. Corporate bankruptcy, investor protection and import-export procedures have not been improved significantly, as seen by businesses.

On the topic of administrative cost, according to a survey by VCCI, 74.7% of businesses said that public servants work effectively in 2018, higher 58% in 2016, he said. At the same time, in 2018, 56.9% said that administrative procedures are simple, up from 49.5% in 2016.

Other indicators of administrative cost in 2018 such as the friendliness of government officials, repeated visits by businesses to get their seals and signatures, fees and charges also tended to be more positive than 2016.

Mr. Tuan added that, up to 58.2% complained about bureaucratic harassment in settlement of administrative procedures for businesses. However, while the rate of companies saying informal charges are acceptable increased over 2017, the rate of companies paying additional informal costs also decreased. This showed a positive trend in controlling corruption and petty corruption.

Huong Ly

Vietnam needs to climb at least 42 more places to enter the Top 4 ASEAN. The country will not be able to overcome the middle income trap if it is still satisfied with average institutions.

Dr. Vu Tien Loc