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The Asia Foundation and Partners Launch the 2008 Vietnam Provincial Competitiveness Index

Fourth Iteration of National Survey Measures Role of Economic Governance in Vietnam’s Private Sector Development

For the fourth consecutive year, The Asia Foundation and its partners today released the 2008 Provincial Competitiveness Index (PCI) report. The 2008 PCI survey is the largest and most comprehensive assessment and ranking of the performance of provincial governments based on the views expressed by over 7,820 domestic entrepreneurs and managers from firms across Vietnam’s 64 provinces. Every year, this highly anticipated survey gauges the impact of economic and administrative reforms at both the provincial and national levels and guides the decisions of Vietnam’s policymakers, business leaders, and entrepreneurs.

Hanoi, December 11, 2008 — Developed and implemented by The Asia Foundation and the Vietnam Chamber of Commerce and Industry, with funding from the United States Agency for International Development’s Vietnam Competitiveness Initiative (VNCI), the 2008 PCI results can be compared to benchmark data contained in reports from 2005, 2006, and 2007 to measure progress, as well as identify areas still in need of improvement. Based on the perceptions and the experience of Vietnamese businesses, the PCI survey examines local efforts to improve business-friendliness on a total of 10 dimensions, such as access to land and information, transaction costs related to inspections and registration waiting periods, transparency, and improve labor training and legal institutions.

Two new features were added to the PCI report this year: an Infrastructure Index and an Information and Communications Technology (ICT) sub-index. The Infrastructure Index addresses the growing interest in evaluating Vietnam’s infrastructure and its impact on the country’s international competitive advantage. It ranks the country province by province, in the following ways: 1) industrial zone quality and capacity; 2) transportation costs; 3) telecommunications and energy costs and stability; and 4) major infrastructure, such as ports and airports. The report underscores why it is critical that policymakers find the right balance between the redistribution of wealth across all provinces and growth-inducing infrastructure investments in areas that have the fastest population growth and largest share of economic output.

The Information and Communications Technology sub-index measures the level of infrastructure necessary for ICT growth, the number of household and business computer users and internet subscribers in each province, and it calculates overall domestic and international bandwidth, as well as broadband services. In Vietnam, annual growth in ICT penetration is estimated at 8 percent. Notably, 27 percent of the PCI respondents recorded active email addresses on their survey forms, and major urban areas like Hanoi and Ho Chi Minh City had over 60 percent of firms using email addresses as their primary contact information. The ICT sub-index is based on data gathered by the Office of the Steering Committee for National Information Technology Readiness of the Ministry of Information and Communications.

Other significant findings in the 2008 PCI report compared to past PCI report findings include:

  • Da Nang province emerged as the new top performer. Da Nang achieved the best score this year over Binh Duong, which has held the top ranking three years in a row. Both provinces remain in the Excellent tier and their final scores (72.18 and 71.76) are statistically indistinguishable.
  • Findings show that, despite the strong stability in PCI rankings over time, 2008 scores are generally lower across every level of the PCI rankings. The median province received a score about 2.4 points lower than in 2007, dropping from 55.6 to 53.2. Median scores remain higher than in 2006 (52.41), but the impressive governance improvements experienced between 2006 and 2007 have reversed somewhat.
  • Two sub-indices, Labor and Private Sector Development, show dramatic declines and affected the overall PCI scores significantly. As the possible cause, the report’s authors point to evidence of actual deterioration in public service delivery, and/or increasing firm expectations that have not been met by proportionate improvements in the quality of government services.
  • Waiting periods for business registration and other formalities of business entry are at historic lows. In the median province, registration now takes only 12.5 days and fewer than 6 percent of respondents waited more than three months to finish all business entry procedures.
  • Property rights are at historic highs. This year, 81 percent of PCI respondents in the median province have formal Land Use Rights Certificates, up from 75 percent in 2007 and 55 percent in 2006.
  • Usage of Provincial Economic Courts to resolve business disputes has nearly doubled in the past year. The number of total cases filed more than doubled between 2006 and 2007, from 2,445 to 5,198, while the number of cases filed by private entrepreneurs grew by 130 percent in 2007 compared with 2006. This trend indicates that entrepreneurs have greater faith in legal institutions and also may reflect improvement in contract and other commercial laws in Vietnam over the past six years, due in part to the Bilateral Trade Agreement (BTA) with the United States.

Despite some important improvements, there are sobering findings. The continuing burden of cumbersome regulatory procedures unnecessarily raises firms’ costs and cuts into their bottom lines, while the lack of real progress on informal charges substantially raises the risks of entrepreneurial activity. The continuing reform efforts of the government are essential to remove administrative burdens and reduce these costs and risks. Notable efforts include the Prime Minister’s Master Plan on Administrative Procedures Simplification in all aspects of State Administration from 2007 to 2010 (Project 30), the National Strategy on Combating and Preventing Corruption to 2020, and Civil Service Reform through the adoption of a new Law on Public Officials and Civil Servants.

Over the past four years, the PCI surveys have become an important tool used by government leaders, academics, financial analysts, entrepreneurs, and the media as a way of understanding how leadership can influence economic performance, as well as guide provinces on how to increase economic competitiveness. Together, these landmark reports have consistently demonstrated direct links between good economic governance, positive investment, and economic growth.

The Asia Foundation established an office in Hanoi in 2000. Its economic programs in Vietnam focus on improving the environment for private sector development and economic growth, particularly provincial economic competitiveness. The Foundation and the Vietnam Chamber of Commerce and Industry pioneered research carried out between 2002 and 2004 to identify factors that set high-performing provinces apart. This work informed the subsequent development of the Provincial Competitiveness Index.

Read or download the full report and learn more about the Foundation’s economic programs in Vietnam.

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