Vietnam PCI 2011 launched

followed by Mekong Delta’s Long An province, according to results released today at a ceremony in Hanoi.

These provinces invested considerably to improve governance, leading to gradual improvements in their PCI scores over time. Other strong performers include Ha Tinh and Binh Phuoc, which have risen to the top 10 after the creation of local legislation and task forces aimed specifically at targeting areas for improvement in their PCI scores.

With the support of the U.S. Agency for International Development (USAID) and jointly implemented by the Vietnam Chamber of Commerce and Industry (VCCI) and the USAID’s Vietnam Competitiveness Initiative (USAID/VNCI) since 2005, the PCI is the most comprehensive annual survey of local firms in Vietnam about provincial business environment in Vietnam.

The PCI 2011 surveyed almost 7,000 Vietnamese businesses across all 63 cities and provinces. It reflects perceptions of provincial government performance regarding ease of doing business, economic governance, and administrative reform efforts that support private sector development.

“The PCI has provided valuable feedback from businesses to guide provincial reforms to attract more domestic and foreign investment and promote economic development,” said U.S.

Ambassador David B. Shear. “As Vietnam and the United States negotiate the Trans Pacific Partnership to further expand trade and investment, Vietnam can increase the positive benefits from such trade agreements by implementing institutional and market reforms at both central and local levels to achieve the full advantages of economic integration in the global economy.”

Overall, the past year showed a slight improvement in provincial governance. The weighted 2011 PCI score for a median province is over 59 point, about one point higher than in 2009 and 2010.

The improvement in scores reflects continued commitment to reform in economic governance by most provinces. However, responses were not uniformly positive. Firms registered increased dissatisfaction with: 1) the inability of provincial land compensation prices to keep up with market prices; 2) massive declines in the assessment of pro-activity and attitude of local leaders toward private business; and 3) more limited use and satisfaction with the supply and quality of business support services.

The index is based on provinces’ economic governance for private sector development, with key indicators on business entry costs, land access and security of business premises, transparency, labor training, time spent on administrative procedures, quality of provincial leadership in solving problems for enterprises and other issues critical for businesses.

“In the context of economic difficulties, positive business perceptions about provincial governance is a bright signal in the 2011 PCI report,” noted Dr. Vu Tien Loc, Chairman of VCCI. “We do hope that from this important message sent by the business community, the central and local governments will continue efforts to improve the business climate and enhance the competitiveness of Vietnam’s economy.”

The PCI research team travels each year to over 20 provinces to participate in Provincial Diagnostics which analyze the provinces’ strengths and weaknesses in economic governance, as well as providing a set of best practices from the top provinces which help improve performance. Many donor agencies use the PCI to monitor progress in their provincial projects to improve economic reform. Investors also use the index when evaluating the investment climate, making decisions about new business ventures and their locations.

In addition to the index, the PCI team also surveyed nearly 2,000 foreign invested enterprises (FIEs) in 61 provinces, providing the largest sample of the current profile of foreign direct investment in the country, and helping identify the challenges for building a competitive economy with dynamic growth of both foreign and domestic enterprises.

Key findings from the FIE survey revealed that although FIEs had increased revenues in 2011, there is greater pessimism for the next two years due to economic challenges. In addition, firms reported that they continue to select Vietnam for its labor cost advantage and political stability, but heavily discount other governance factors.

These results reflect the type of investor Vietnam has attracted thus far. Low-cost manufacturing primarily seeks cost savings through labor and tax incentives, while higher value added investors require enforcement of intellectual property rights and contracts, less corruption, and higher quality labor.

Corporate partners for the PCI 2011 include the American Chamber of Commerce and the European Chamber of Commerce, who emphasize the importance of the PCI in improving economic governance to benefit the business community.