Notes from the Field

From Vietnam: Economic Competitiveness in the Provinces

July 23, 2008

On a recent afternoon in Hanoi, I found myself sitting in a crowded conference room sipping tea and munching snacks with a young team of researchers, sifting through stacks of completed surveys looking for small coding errors in the data. Anyone watching would have been hard pressed to imagine we were putting together one of the most highly-anticipated economic policy reports of the year, but that is exactly what we were doing.

The Vietnam Provincial Competitiveness Index (PCI) rigorously assesses and ranks all 64 Vietnamese provinces on a broad range of characteristics of their economic governance. First developed in 2005 by The Asia Foundation and its local partner, the Vietnam Chamber of Commerce and Industry (VCCI) — under the USAID-funded Vietnam Competitiveness Initiative (VNCI) ” the goal of the PCI is to create a tool to measure year-to-year changes in standards of economic governance in Vietnam’s provinces from the perspective of private sector development. The overall rationale for this tool is the powerful idea that the quality of economic governance impacts private sector development, independent of initial endowments such as location, infrastructure, and human resources. Therefore, good economic governance practices explain why some provinces out-perform others in spite of having similar initial endowments.

The PCI is a composite index, based on a 100-point scale that scores the economic governance of each province. The composite index is composed of ten sub-indices that capture the key elements of the local business environment that can be influenced by provincial laws, regulations, and officials. Each of these sub-indices is broken down into a series of indicators. The data required to capture these indicators involves surveying businesses about their perceptions of the provincial business environment and collecting “hard data” from published sources. The indicators are then scored and aggregated to create composite scores for each province. The composite scores are then ranked to create the full composite index.

In Vietnam, the PCI provides useful information to policy-makers, business leaders, and citizens and as a result this information has created demand for an improved business environment within the private sector, while providing provincial leaders with information about best local practices as they seek to improve economic policies.

According to 2007 estimates, the PCI has been cited in more that 400 Vietnamese media reports. In 2005, Vietnam Television ranked it among the ten most important economic events to occur that year and in 2006 it was even featured on the well-know television game show Ring the Golden Bell.

The PCI’s widespread attention has created demand among provincial officials for customized workshops to learn more about their own scores and how they can improve them. For example, following a workshop in February 2008, the People’s Committee of Kien Giang created a report with an analysis of each of its sub-index rankings as well as detailed action plan outlining reforms that needed to undertaken by specific provincial departments. Kien Giang’s efforts highlight many provinces’ interest and commitment to use the PCI as a tool to develop provincial roadmaps for reform.

By all accounts, the PCI will continue to be important in Vietnam. In recent years, the country has grown an average of 8% per annum and has held the promise of becoming Asia’s next tiger. But this year Vietnam is facing serious economic challenges including surging inflation, tumbling housing prices and fears of bank failures (sound familiar?). Thus, it is more important than ever that would-be small and medium size entrepreneurs operate in a policy environment that allows them to thrive. The PCI provides the information necessary for policy-makers to the make smart governance decisions necessary to weather the current economic storm.

Nina Merchant is the Assistant Director of Economic Programs at The Asia Foundation. She can be reached at nmerchant@asiafound.org.

One comment on this post:

  1. [...] a blog entry written by The Asia Foundation’s Assistant Director of Economic Programs as she and a team of researchers culled the report’s data earlier this [...]

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