Business Environment for Private Sector Tends to Be Fairer

11:14:44 AM | 3/4/2019

This statement was affirmed by VCCI President Vu Tien Loc at the Announcement Ceremony of the Annual Report on the Provincial Competitiveness Index - PCI 2018. The event was organized by the Vietnam Chamber of Commerce and Industry (VCCI) in cooperation with the United States Agency for International Development (USAID) in Hanoi on March 28, 2019.

Highest in 14 years

Dr. Loc said, “We have gotten familiar with this vision and message: The private sector is an important driving force, the private economy is key to sustainable and autonomous economic development. We must be dedicated to developing the private economy. But, 14 years ago when we first launched the PCI report, it was a totally strange thing.”

PCI is the voice of the private sector, their sentiment and confidence in the business environment and the quality of economic governance of the provincial government. It is a barometer of reforms, a measure of government efforts, and an institution at the local level - one of the three breakthroughs for growth: Institution, infrastructure and human resources.
U.S. Ambassador to Vietnam Daniel J. Kritenbrink said, this year, the PCI reached an all-time high since beginning the exercise in 2005. The PCI report has become a highly respected and impactful report that improves transparency and promotes economic reforms, robust investment, trade and economic growth.

This year, the PCI 2018 survey received feedback from 12,000 businesses, including nearly 11,000 domestic private companies in all 63 provinces and cities, and over 1,500 foreign direct investment (FDI) enterprises operating in 20 localities across the country.

In the PCI 2018 ranking, Quang Ninh secured the top place a second straight year, scoring 70.36 points on a scale of 100, thanks to its initiatives and efforts in administrative reform.
After many consecutive years in the Top 3, Da Nang City ceded the runner-up position to Dong Thap (70.19 points), followed by Long An (68.09 points) and Ben Tre (67.67 points).

The other best performers in 2018 included Vinh Long, Binh Duong, Quang Nam, Hanoi and Ho Chi Minh City. Dak Nong stood at the bottom of the PCI ranking 2018 (58.16 points).

Progress in many fields

The PCI 2018 survey showed that some aspects of the business environment fared better than in 2017. Informal costs were further reduced, the business environment for private businesses tended to be more equitable and administrative reforms were clearly changing.

However, the survey also showed a rising share of businesses facing operating hardships, most of which are small and micro private units. In this process, the role of provincial governments is increasingly important.

Notably, according to Dr. Loc, PCI 2018 improved significantly over previous years. The median province achieved a PCI score of 61.76 points, the highest since the gauge was launched more than a decade ago.

The rising median score and the converging trend of PCI scores among following provinces and cities with leaders demonstrated a more pervasive and inclusive power of efforts to reform and improve local economic governance capacity.

“Remarkable trends in 2018 are lowering unofficial costs, especially for petty corruption, which has decreased markedly from the previous period. The business environment also becomes more equal. Preferences for State-owned enterprises and FDI enterprises over domestic private enterprises have decreased significantly. Provincial authorities have generally become more active and creative. Administrative reforms have made progress. In particular, overlapping inspection has reduced substantially over previous years. These illustrated that administrative reform and anti-corruption efforts have taken effect,” said Dr. Loc.

Business optimism and confidence remained relatively high. 49.3% of enterprises surveyed said they would expand their operations; 42.4% would maintain their current scale; and only 8.3% would scale down or close their operations. Notably, up to 56% of FDI respondents would expand their operations.

The overall picture of the business environment is positive but there are still many points of concern. According to VCCI President Loc, while informal charges remained high they were already shrunk. 58% of domestic businesses were still harassed. 54% still had to pay facilitation costs. The business environment is more equal but it is still rough. Up to 40% of respondents said that provinces still gave priority and favor to SOEs and FDI enterprises rather than the private sector. The market entry was still tough. Business post-registration procedures remained a burden. As many as 30% of respondents faced difficulty in applying for business eligibility certificates and standard compliance licenses and other required documents. Administrative procedures remained most troublesome, particularly in land, tax, social insurance, market management and transportation areas. Transparency, also according to business reflections, was little improved. The quality of human resources and business support services was not high. Private enterprises, especially micro, small and medium ones, still encountered hardships.

The PCI 2018 report also spared a chapter to assess Vietnamese private enterprises’ integration into global value chains. The results showed that they had limited access to global value chains. The absence of effective mechanisms to ensure contract enforcement was blamed as one of major hindrances to this process. Vietnam will need groundbreaking innovations in this aspect.

According to the report, upcoming solutions include spreading information and guidance for local enterprises on domestic legal regulations and existing international commitments on dispute settlement. Friendly and easy guidelines should be developed for businesses on how to employ commercial arbitration. Vietnam needs to consider building an effective dispute settlement mechanism as a pillar in a series of solutions for better competitiveness, such as improving infrastructure quality, human resources, regulatory system and governance quality.

To further develop the private sector, addressing the above institutional and policy bottlenecks is still top priority on the agenda of the Government and all-level administrative agencies.

Anh Mai