Where is environmental governance in FDI attraction?

April 08, 2024 | 09:45
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While Vietnam and businesses are moving towards sustainability, hubs of environmental concerns remain in attractive investment destinations, requiring a change in order to become competitive.
Where is environmental governance in FDI attraction?

Having been working on the Vietnam Provincial Governance and Public Administration Performance Index (PAPI) for eight of its 15 years, research team member Dr. Paul Schuler was thrilled to be present at the last week’s launch in Hanoi of the 2023 results, talking about some improvements in certain dimensions while still outlining concerns.

“It is superb that the Vietnamese government is using this as a tool to improve governance and has allowed this index to continue,” he told VIR. “In general, most research on these different indexes indicates that when governance improves, we tend to see more foreign investors wanting to put money into different provinces.”

“However, citizens are seeing challenges in the environment. This is going to put pressure on businesses to grow in a more environmentally friendly manner. But we do not measure explicitly the degree to which the local governments require businesses to comply with environmental regulations. That is more related to other indexes that look specifically at businesses,” he added.

Environmental governance is one among the dimensions that the PAPI 2023 focuses on. Similarly found in previous years, the 2023 results strongly suggest that hubs of environmental concern remain in the Red River Delta and Southeast regions, where more industrial provinces are located, and the Central Highlands.

Among 16 localities in the low quartile, six are from the Red River Delta and four each are from the Southeast and Central Highlands.

Worse still, all localities scored below 4.3 points on the 1-10 point scale in 2023, below the national highest score of 4.73 points in 2021. Eight localities made significant improvements over the past three years, while 26 others scored lower in 2023 than 2021.

In addition, around 80 per cent of respondents in all cities and provinces agreed that their local businesses did not have to offer additional money to local authorities to bypass environmental regulations. The proportion of agreements increased in 24 cities and provinces, higher than in 2022, but still declined in 35 localities compared to 2021.

The largest on-year drops in the percentage of respondents who believed their local governments did not accept bribes to avoid green regulations (by more than 18 per cent) were seen in Haiphong, Phu Tho, Quang Binh, Thai Binh, and Thanh Hoa.

The PAPI Research Team blamed the perceived lack of local governments’ commitment to environmental protection and the poor quality of domestic water sources as reasons for low provincial scores.

Research team member Dr. Dang Hoang Giang told VIR, “The findings prove that several cities and provinces have yet paid due attention to environment government. This is a big concern. If cities and provinces do not change this, it will negatively affect the country’s effort to implement the net-zero commitments.”

Dr. Duong Trung Y, vice president of the Ho Chi Minh National Academy of Politics noted that, in the common effort of Vietnam to build a constructive and action-oriented government, it is witnessing a strong increase in the role and impact of assessments from individuals and businesses on the operation of the local state apparatus.

“Objective indicators such as PAPI, the Provincial Competitiveness Index, or the Public Administration Reform Index are not only important basis to evaluate the effectiveness of public service performance of ministries and local agencies, but also provide important suggestions for Vietnam to continue improving the country’s development policy, implementing the national digital transformation strategy, building a people-centric and enabling state, and leaving no-one behind,” he noted.

Moreover, foreign-invested enterprises now head to sustainable development in alignment with the green growth strategy in Vietnam. As shown in a March survey conducted by Decision Lab, about 60 per cent of businesses have a board-level governance structure for sustainability and almost 60 per cent have defined environmental, social, and governance targets. And a similar rate of businesses also indicated that they have budget allocated for such initiatives.

Dr. Y also commented that although green growth and sustainable development have become a trend in Vietnam and globally, not all businesses and investors consider environmental governance as a key factor for making business and decisions.

“We now still see a lot of financiers prioritise transportation, infrastructure, and energy and others when they choose an investment destination. Possibly, in the future, their priorities may change, so cities and provinces should pay more attention to the environmental governance to be competitive.”

As shown in PAPI 2023, while seeing the above on-year drop, many cities and provinces are still attractive to foreign investors. For instance, Ho Chi Minh City, Dong Nai, Hanoi, Thai Binh, and Haiphong are still among the most attractive destinations for foreign financial backers in Vietnam.

According to statistics from the Ministry of Planning and Investment, Ho Chi Minh City lured $5.85 billion worth of foreign funding in 2023, ranking first, followed by Haiphong, Thai Binh, and Quang Ninh.

In the first quarter of 2024, these localities continue to be on the top 10 list for foreign capital attraction.

Dang Hoang Giang

Vice director Centre for Community Support and Development Studies

PAPI data serves as a dashboard that shows a province’s performance in a holistic manner and highlights gaps from the expected maximum scores. Significant rooms for improvements in all dimensions, even in e-governance that saw remarkable improvements because a large gap remains.

The rich information in PAPI indicators allows provinces to prioritise areas of focus and assign responsibilities to relevant local government agencies to increase citizen satisfaction.

My implication is that information about land use plans and land pricing frames should be disseminated online and offline. Bribe-taking for handling land use rights certificates must be reduced or eliminated. State employment should be better controlled to improve service quality.

Public investment in public hospitals at the district level must increase access to basic but quality public healthcare services. Local government portals and provincial e-service portals need to be more accessible and user-friendly for increased use and for return of public investment.

Seck Yee Chung

Vice chairman Singapore Chamber of Commerce Vietnam

Accelerating e-government is essential to simplify administrative procedures and enhance the competitiveness of Vietnam. Governments are responsible for providing essential services to residents, but may have limited budgets. They need to find ways to eliminate waste and become more efficient.

Technology, especially cloud computing, can be a powerful tool for governments. It can automate processes, save costs, and allow for more innovative services. Cloud computing also makes it easier for different government agencies to work together and share information.

On this basis, we encourage modernising procedures for investors by expanding online portals and e-submissions, allowing more government applications and procedures to be completed online, making the process faster and more convenient. There should be adoption of e-signatures, recognising electronic signatures as valid for official documents. Promoting the use of email for official communication between businesses and government authorities must be carried out too, as well as reducing reliance on paper.

While some procedures, like company registration, are already available online, many processes involving foreign investment still require in-person meetings and physical submissions.

By offering online options for these procedures, Vietnam can attract more foreign capital and partners. By implementing these proposed changes, Vietnam can create a more attractive and enabling legal framework that fosters foreign investment and creates a win-win situation for both foreign investors and the Vietnamese economy.

Deirdre Ní Fhallúin

Ambassador of Ireland to Vietnam

It is clear from the survey findings that poverty and hunger remain key issues of concern for citizens, while people are still anxious about the national economic situation and about their own household economic situation.

Now more than ever, it is important that all members of society – especially ethnic minorities and rural communities – benefit from Vietnam’s rapid socioeconomic development, to ensure no-one is left behind.

It is also imperative that these communities are included and can see themselves reflected in their representatives. Ireland welcomes PAPI’s focus on women, people with disabilities, and the LGBTI+ community, and is delighted to commit funding for interventions that aim to increase the participation of these groups. Last year, for example, we were delighted to support a workshop focusing on legal frameworks for the rights of transgender people.

All communities should be empowered to participate in decision-making, and this requires transparency. Transparency is key to effective governance, allowing citizens to engage with important public policy issues.

PAPI initiatives have sought to improve access to public administrative services, particularly for people in remote and ethnic minority areas, areas in which Ireland has long been working. Such initiatives have also worked to improve access to land information. There has been real progress here, and there is clearly more work to be done.

Ramla Khalidi

Resident representative in Vietnam, United Nations Development Programme

Launched in 2009, PAPI has evolved into a trusted, citizen-centric tool to support effective, inclusive, and accountable local governance in Vietnam. In so doing, it has sought to contribute to inclusive development in Vietnam.

It has provided a wealth of data on citizen needs and priorities to inform the design and implementation of national policies and laws aimed at better serving the people. And it has been used by the central government to track Vietnam’s progress towards the United Nations’ Sustainable Development Goals.

The results from last year paint quite a mixed picture. While citizens saw progress in some forms of corruption in local administration – and we should celebrate this – other types of corrupt practices are seen to persist.

The issues of greatest concern to respondents in 2023 include poverty, hunger, jobs, and also economic growth. These same population groups are the most anxious about environmental governance and the impact of climate change on their livelihoods.

These concerns suggest that, while the country continues to achieve impressive economic growth, many Vietnamese are worried about their socioeconomic wellbeing.

Understanding which population groups, regions, and communities are not fully benefiting from Vietnam’s fast-paced development is critical.

Rizwan Khan

Managing partner Acclime Vietnam

Vietnam has made notable strides in enhancing its PAPI, which reflects positively on its business environment. The improvements, particularly in e-governance, environmental governance, and public service delivery, have contributed to a more transparent and efficient administrative framework. These advancements are crucial for both local and foreign investors, as they signal a commitment to accountability and ease of doing business.

The government’s efforts to digitise administrative procedures and increase transparency align with investors’ needs for a predictable and stable investment climate. The country’s strategic location, competitive labour costs, and stable GDP growth further bolster its attractiveness.

To further entice foreign investment, Vietnam could focus on enhancing its legal framework to ensure consistency and clarity in regulations. Strengthening intellectual property rights, streamlining investment procedures, and offering targeted incentives in high-tech and sustainable sectors could also be beneficial. Additionally, fostering a skilled workforce through education and training initiatives would address investors’ needs for a capable and innovative labour force.

Continued emphasis on PAPI’s key dimensions, such as public administrative procedures, will be vital. By maintaining the momentum of reforms and addressing investors’ concerns, Vietnam can solidify its position as an appealing destination for investing.

Edmund J.Malesky

Professor of Political Science Duke University

I have a somewhat optimistic view of e-governance progress based compared with previous years. The number of citizens with internet access and owning smartphones is rising. The number of national and provincial e-service portal users between 2022-2023 are significantly increasing. Applicants for public administrative services online report slightly higher levels of satisfaction with services.

I have concerns about limited progress made in engagement of citizens in policymaking and responsiveness to feedback. Half of online service users could not pay for the service via portals or at a one-stop shop. Users’ concerns about personal privacy are prevalent. There are digital divides in access to the internet, smartphones, and especially personal computers between different population groups and geographic locations.

My policy recommendations are that public e-service providers should design and adopt a single-device approach to the online public service portal, so that users can access them from anywhere with their smartphones. Central and local governments need to work towards narrowing the gaps in access to e-government and e-services within gender, age, ethnicity, living area, and residential status.

Traditional one-stop shops could also receive further investment to provide offline and online services for those who do not have smartphones or access to electricity and the internet yet.

Ken Atkinson

Founder and senior board adviser Grant Thornton Vietnam

In terms of key findings, the report highlights a significant decline in transparency in local decision-making in 2023. However, it also notes an improvement in the control of corruption in the public sector. It identifies the top 10 issues of greatest concern for citizens in 2023 and examines trends over time. The report also explores the drivers of internal migration and the effects of climate change-related disasters on migration motivations.

The report concludes with policy implications based on the findings and identifies gaps that need to be addressed towards 2026. It provides a comprehensive analysis of provincial performance and offers recommendations for improving governance and public administration in Vietnam.

Ten of the most concerning issues were identified based on the PAPI research and the perspectives of the surveyed population. For example, the impact of climate changed-related disasters on migration dynamics can be significant. Internal migration in Vietnam is driven by various factors, including economic opportunities, infrastructure, and education. However, climate change-related disasters can have impacts on this by causing economic decline, loss of livelihoods, and degradation of the living environment.

The report also highlights some concerns in the areas of transparency and corruption, which the government is aware of, but perhaps addressing these further could be expedited.

Misha Manoj

General manager TBC-Ball Beverage Can Vietnam Ltd

As a private entity, we sincerely appreciate the efforts of the Vietnamese government for its dedication to fostering citizen engagement through platforms like PAPI. These efforts have significantly shaped policy decisions and elevated public service delivery standards. We are pleased to see the proactive stance taken by the government in creating an environment conducive to feedback and collaboration.

The insights gathered from initiatives like PAPI have been invaluable in understanding the needs of the populace. While challenges persist, we remain optimistic. With the government's commitment and collaborative efforts, we are confident that together, we can overcome these obstacles and continue driving progress in governance and public administration.

Anderson Tan

Director Xprienz Vietnam Co. Ltd.

Since 2007, PAPI has played a pivotal role in improving the local business environment. This positive transformation is evident in Vietnam’s growing appeal to foreign investors. Foreign direct investment (FDI) has surged significantly, reflecting heightened confidence in the Vietnamese market.

However, to sustain this momentum and attract further investments, Vietnam must address challenges related to foreign fund management. The lack of clear regulations surrounding legitimate fund movements can create uncertainty, potentially deterring potential investors. By streamlining these regulations and providing robust assurances, transparency can be enhanced, fostering trust among foreign stakeholders.

To actively encourage FDI inflow, Vietnam should consider several strategic measures, such as streamlining administrative processes for business establishment and operation to save investors valuable time and reduce resource overheads.

Next is enhancing transparency, as providing accessible and concise information on regulations and policies will instil confidence in long-term investment prospects. Clarity regarding legal frameworks and compliance requirements is crucial.

Then comes skilled workforce development. Investing in education and training programmes, particularly in the rapidly evolving financial sectors, will cultivate a talent pool that aligns with the needs of foreign businesses. A skilled workforce is essential for sustainable economic growth.

By diligently addressing these areas and leveraging the positive momentum generated by PAPI, Vietnam can solidify its position as a premier destination for foreign investment. The convergence of regulatory clarity, transparency, and a skilled workforce will undoubtedly contribute to the country’s economic prosperity and global competitiveness.

Carlo Fabrizi

Legal advisor D'Andrea & Partners Legal Counsel

Vietnam has made significant strides in various sectors over the past few years, showcasing remarkable progress and development.

Especially, from the perspective of foreign-backed businesses, significant improvements have been achieved in the digital transformation of administrative procedures.

In fact, the Hanoi Department of Planning and Investment is actively digitising administrative procedures, simplifying the document submission process for foreign-led enterprises. In comparison to previous years, when administrative matters were only handled in-person, today companies in Hanoi can submit and verify certain documents through the department's online portal. Thereby, time and effort required for administrative procedures is significantly reduced.

Furthermore, thanks to timely government policies in various localities, infrastructure is undergoing rapid improvement, with upgrades in transportation routes, inter-regional highways, and other transportation infrastructures, including the highway system that connects Hanoi with eight northern provinces.

This has provided significant support to local foreign-funded businesses, helping to reduce both time and costs, especially within the logistics sector.

However, despite the array of tax incentives provided by Vietnam (for example, the corporate income tax exemption for 2-4 years granted to corporates established in industrial zones), it still requires comprehensive monitoring and evaluation by the government to ensure effectiveness. As a matter of fact, issues such as the overload of the hotline network dedicated to foreign investors or the long queues at the Immigration Department are still present, resulting in difficulties in reaching out to local government officials and relevant staff during operations.

Therefore, the authorities should streamline the application workflow, with guidance from local and international experts, to ensure efficient implementation of the incentive policies and to better assist the newly established entities during those administrative processes that cannot yet be fully performed online.

PAPI displays fruits of anti-corruption drive PAPI displays fruits of anti-corruption drive

Anti-corruption efforts by the Vietnamese government have paid off spectacularly, producing the greatest improvement in a decade and reflecting a strong increase in public confidence.

PAPI index of five centrally-governed cities PAPI index of five centrally-governed cities

The Vietnam Provincial Governance and Public Administration Performance Index (PAPI) is the country’s largest, annual, citizen-centric, nationwide policy monitoring tool. PAPI captures citizens’ experiences and perceptions to benchmark the performance and quality of policy implementation and service delivery of all 63 provincial governments in Vietnam.

By Bich Thuy

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional