Level playing field key for business sector

Simon Andrews

The expansion of Vietnam’s private sector, especially small- and medium- sized enterprises is also positive. But there remains a lot of work to be done to make Vietnam’s business conditions more favourable.

Simon Andrews, IFC Regional Manager for Vietnam, Cambodia, Laos and Thailand, talks with VIR about the issues and how the IFC plans to assist Vietnam to achieve the goals.

The recent regulatory and public administrative reforms effort in Vietnam, marked by the Project 30 and the resulting Resolution 25, are creating a more efficient and effective business environment in Vietnam.

Early results from the Project 30’s first reform package have already made their mark on Vietnam’s global ranking in the World Bank Group’s Doing Business 2011, with Vietnam improving 10 places in the ease of doing business. This sends a positive message to international investors that Vietnam is an attractive investment destination.

The Project 30’s first reform package has removed a number of costly bottlenecks stemming from unnecessary procedures. These procedures have either been eliminated or streamlined, like the consolidation of the business registration and tax code into one procedure that enables most businesses to print their own invoices instead of having to obtain them from tax agencies.

It is an ambitious and far-reaching initiative to reduce administrative procedures for businesses by 30 per cent and improve the investment climate. The scope of the Project 30, with its levels of reform and cooperation between different levels of government, ministries, agencies, and the private sector, is unprecedented in Vietnam.

Streamlined administrative procedures will make it easier for everyone to do business in Vietnam

Furthermore, the government’s adoption of the Standard Cost Model (SCM), which quantifies administrative burdens faced by businesses, is an important development in the regulatory reform process in Vietnam. The SCM has proved to be a powerful tool in communicating reforms, setting targets, and monitoring and evaluating reform progress and impact.

The focus now should be on implementation and with proper implementation of the first reform package, the annual impact from using the SCM is estimated at around VND6 trillion ($300 million).

Most important now is the need for active monitoring of the procedure implementation process and impact assessment to ensure the momentum of reform is maintained.

Our experience in other countries shows that to make regulatory reform successful it requires a strong and high level commitment from all stakeholders, extensive participation of business community, clear measurement of positive benefits and a comprehensive communication strategy to articulate new regulations and associated benefits and costs savings.

IFC is working actively in the Project’s Advisory Council which is an integral part of the reform process. The council’s major responsibility is to represent the business sector, academic institutions and citizens to participate in consultation to the Prime Minister’s Special Task Force (STF) to ensure effective implementation of objectives and tasks as set by the administrative procedure reform.

Our aim on the Project’s Advisory Council has been to draw on our global experience in regulatory reform and strong relationships with the business community through the Vietnam Business Forum channel. It is important that we represent these relationships and their views of the business environment to the council and the government.

It is important to strengthen the role of the Advisory Council, so that it can stand as an official and effective channel for businesses to participate in the government’s regulatory reform process after the Project 30 closes.

We have been able to introduce global best practice methods for reviewing and analysing the administrative procedures and we are encouraged to see the government’s adoption of the SCM to measure administrative burdens of regulations.

Having been widely used in the Organization of Economic Cooperation and Development (OECD) countries and customised to fit the Vietnamese context, it quantifies the benefits of removing or simplifying business licences in monetary terms. We also advocated process mapping as an effective tool to analyse the different steps of an administrative procedure. Together, these two tools have made it easier to justify removing or simplifying administrative procedures and business licences.

We also promote the application of a Regulatory Impact Assessment (RIA) tool, which helps regulators improve decision-making when drafting regulations and conducting regulatory analyses.

Beside the promotion in administrative reform, it has remained necessary to make Vietnam’s business environment more competitive with a level playing field for all players of the economy, especially small- and- medium- sized enterprises (SMEs) in Vietnam.

SMEs have emerged as a dynamic force in the Vietnamese economy. They constitute a significantly large portion of registered enterprises in Vietnam and are recognised for their productivity, innovations, economic efficiency, employment and income generation at low cost.

The private sector has been a key driver of growth in Vietnam, but to broaden the base of growth and create opportunities for all, focus on regulatory reform to encourage the growth of SMEs will be important.

Vietnamese SMEs are still facing considerable difficulties, including access to capital, land, production costs, tax policies, lack of information, skilled human resources and market challenges.

Improving access to finance for SMEs has been a strategic focus of IFC work in Vietnam for the past few years. IFC has partnered with both financial regulators and individual banks in Vietnam to help improve financial infrastructure and develop various SME lending products to make more resources of credit available to SMEs.

IFC has been working with the State Bank and commercial banks to develop a legal framework for a private credit bureau and to set up the first private credit bureau in Vietnam. We are also helping the Ministry of Justice develop a legal framework for collateral registry and to build up a web-based collateral registry system to support bank lending activities.

We have provided Vietnamese banks with long-term capital to underpin their growth, as well as capital and advice to help banks develop new areas of lending in SME lending and, more recently, in energy efficiency financing – a relatively new lending area in Vietnam – which will also increase the availability of lending for SMEs to improve the efficiency of their operations and reduce energy consumption.

A level playing field also means that state-owned enterprises (SOEs) will have to operate and compete equally with private and foreign invested enterprises. The state sector continues to play a leading role in the Vietnamese economy, accounting for 35 per cent of GDP as of 2009.

Over the past years the National Steering Committee for Enterprise Reform and Development under the prime ministerial leadership working together with people’s committees and line ministries have been developing a comprehensive programme for SOE reforms with a focus on the equitisation aiming at reducing losses and improving competitiveness.