PCI 2017: A race between provinces

Fierce competition

Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry (VCCI), said the average PCI in 2017 is the highest it has been since the ranking’s inception in 2005, and almost all provinces have increased their score.

Promoting reforms has yielded positive results. Five direct-controlled municipalities, including Hanoi, Ho Chi Minh City, Da Nang, Hai Phong and Can Tho, have significantly improved their operations and are among the top 15. Provinces at the bottom of the list have also created breakthroughs, narrowing the gap with provinces and cities at the top.

In the early years, many localities explicitly asked to exclude them from the survey. However, now all 63 provinces and cities view the PCI as a reliable indicator to evaluate economic governance by local government. In particular, 13 provinces and cities have included improvement of their PCI in their annual targets.

Vu Tien Loc said the PCI has become the driving force in helping promote reforms and improve business environment. Many localities regard a drop in their PCI rankings as a concern.

With active support of many international experts and organizations, especially the US Agency for International Development (USAID), the PCI report has been very influential in promoting transparency and good economic governance in Vietnam.

“One notable finding in this year’s PCI is the high level of confidence expressed by both local and foreign-invested companies,” said Michael Greene, mission director of USAID, which has been collaborating with VCCI to conduct the PCI study for over ten years.

“Both international and domestic investors look at a range of factors when deciding where to invest to expand their businesses. They look at everything from political stability and geographic location to the well-trained work force available. They also look at infrastructure, particular locations, and the legal system. These are all factors that are reflected in the PCI,” he said.

More efforts needed

The 2017 PCI reflects significant improvements. Unofficial costs, for example, appear to be declining, while the business environment is more equitable and time to complete administrative procedures is shorter than specified in regulations. About 52 percent of the PCI 2017 respondents in the domestic survey said they planned to increase the size of their operations over the next two years, the highest level since 2011. Only eight percent said they planned to scale down or close their operations . In addition, the share of foreign-invested enterprises that plan to expand their business in Vietnam rose to 60 percent, a level unseen since 2010.

However, the transparency of the business environment remains low, while dispute resolution between businesses is ineffective. In addition, the quality of provincial workers does not always meet employers’ needs.

The government has formulated policies encouraging the development of the private sector. But the sector continues to face many government-created hurdles, including regulations, licenses and certificates.

Although corruption in the private sector appears to be declining, 59 percent of firms still reported paying bribes in 2017. In addition, the rate of firms paying over 10 percent of their revenues in informal charges stood at 9.8 percent in 2017. Moreover, 28 percent of the respondents believe local bureaucrats are ineffective.

A reduction of at least 30-50 percent of business conditions and administrative procedures poses a major challenge to institutional reform at the central level. To achieve the goal, the government needs to strongly decentralize and place more confidence in localities and businesses.