April 18, 2015/h3>
– The Provincial Competitiveness Index 2014 (PCI 2014), based on the survey of 9,859 private domestic businesses and 1,491 foreign-invested enterprises (FIEs), reveals the comeback of a positive business environment after two years at a historical nadir. The report also records considerable improvements in five of the 10 sub-indices reflecting economic governance, and points out four setbacks in other sub-indices-two of which are vital, namely informal charges, and proactive and creative provincial leadership in solving problems for enterprises.
Increased business confidence
The PCI 2014 Survey reveals signs of a positive business environment when both domestic enterprises and FIEs showed optimism about business confidence.
The rate of domestic firms planning to increase their operations rose again to reach 10.8% after two years at a historical nadir (6.4% in 2012 and 2013). Inflation-adjusted average investments rose to VND15.1 billion, the highest level in nine years, and twice the amount in 2006. The rate of firms recruiting new employees also almost doubled to 11.5% from the record low levels in the two previous years.
In 2014, up to 46.1% of the respondents expecting to expand their business in the next two years, a considerable increase from the 32.5% mark claiming such plans in 2013. Only 8.3% reported a reduction in the size of their operations or a closure of their business.
Such confidence has also been clearly shown among FIEs as 16.3% said they would enhance operations and 65.1% would employ new staff.
Despite the positive signs, the overall picture of enterprises’ business results remained patchy. Although the rate of domestic firms increasing their investment capital was better than the previous two years, at 10.8%, it was way below the peak when it reached 29.3% in 2009. Worse off, the rate of domestic and foreign enterprises reporting profit continued to fall (60.3% of domestic firms claiming profits) while those that reported losses climbed to 26.4%. That has been the highest rate since 2006. Similarly, the average size of the work force in each domestic enterprise stayed small, at 26.83 employees on average, a drastic plunge from 47.63 persons/enterprises in 2010.
Four setbacks
The PCI 2014 recorded the best performances in low entry costs for business start-up (up 0.95 point), followed by transparency (up 0.42 point), business support services (up 0.43 point), sound labor training (up 0.40 point), and time costs (0.33 point).
However, compared with the previous year, four out of 10 sub-indices of the median province lost points. Of these, three plunged; namely, informal charges (down 1.4 points), proactive and active provincial leadership in solving problems for enterprises (down 1.02 points), and easy access to land and security of business premises (down 1.01 points). Finally, the policy bias area fell almost half a point. Meanwhile, the fair and effective legal procedures for dispute resolution sub-index saw almost no change compared to 2013.
The PCI 2014 also indicated that when assessing declines, businesses in the median province expressed the highest ever pessimism since the first PCI survey took place in 2005.
In 2008, 66% of the respondents in the median province said they usually had to pay extra informal charges to facilitate business activities. In the subsequent polls, this rate declined. However, in 2014, the figure returned to a high level. Up to 10% enterprises claimed they spent more than 10% of revenue on informal charges. Moreover, more firms said they were exposed to harassment in complying with procedures (66% in 2014, up from 41% in 2013). The rate claimed by FIEs was almost the same (60%). However, “the frequency of bribery attempts reported by firms when competing for a government contract showed signs of slowdown. This rate, although it has been the same as 2013 level (55%), remains worryingly high,” reads the PCI 2014.
As per the operational and regulatory efficiency of the provincial government, every year the PCI team observes how the respondents perceive the leadership proactivity based on their level of agreement with such statements as, “When central regulations are unclear, my provincial People’s Committee is creative and clever in solving newly arising problems,” or “There are good initiatives in the province but they are not effectively implemented by provincial departments.” PCI 2014 results show that leadership proactivity stagnated at the same level of 2013 (53%).
In spite of initiatives, enforcement at lower levels, especially the departments, was not really effective. In the PCI 2014, the rate of the respondents saying “yes” to the statement regarding the ineffective implementation of initiatives rose to 77%, the highest level ever recorded in the PCI Survey, which doubled the 2006 level.
Finally, the respondents also expressed more concern over land accessibility. Only 55% of the firms polled have land-use rights certificates. A lack of such a certificate might render corporate business premises more exposed to loss and expropriation. In the worse case, where the land is actually expropriated by the authorities, only one-third of the respondents said they expected fair compensation. The land problem has increasingly become a common trend, adversely affecting enterprises’ business operations. Evidently, the rate of companies claiming no obstacles to land accessibility was at a record low in 2014, at lower than 22%.
Shrinking differences among the provinces
Like in the previous years, the PCI 2014 continued to recognize the improvements of the provinces that are at the lower end of the range while the top-performing tier has little changes. This situation has led to a narrowing gap between the top-notch Danang and the bottom Dien Bien, as little as 16.55 points. The difference among the provinces in the same tiers-excellent, high, mid-high, mid-low, low and very low – has shrunk to one or two points only. In such a context, a province which gained several points might considerably improve its ranking.
Danang, Dong Thap and Lao Cai continued to occupy the PCI 2014 top-three positions. However, it was Tuyen Quang that became a phenomenon. Once at the bottom tier of the PCI during the previous two years, Tuyen Quang increased its score by 6.22 pointed, the highest gain among all the 63 provinces and cities, to climb up 13 notches in the ranking.
Another notable case relates to HCMC. After 10 years in the PCI Survey, HCMC joined the top-five tier, at the fourth place. The improved ranking was the result of efforts to improve the operational efficiency of the governance apparatus, especially in streamlining administrative procedures. In addition, more frequent business-government dialogs aimed to solve enterprises’ problems in the city has bolstered confidence in investment and business expansion.
Among the top-10 provinces with the best governance in 2014 are also Vinh Phuc, Long An, Thai Nguyen, Kien Giang and Bac Ninh. Vinh Phuc, once clinching a slot in the top-10 during 2006-2009, has made its way back to the leading tier since 2013 after a dive between 2010 and 2012. Similarly, Long An has regained its high position which it had lost since 2011.
Thai Nguyen is exceptional. “Making its first appearance in this upper bracket, Thai Nguyen impressed investors and the PCI team with its real transformation not only in attracting foreign investment but also in its persistent implementation of its ‘Three Friendlies’ campaign that focus on environment, business and citizen development,” says the PCI 2014.
The survey also witnesses the comeback of Bac Ninh to the top-10 group of the best governance due to its implementation of the policy on holding the heads of State agencies accountable for supporting and resolving petitions from enterprises, a regulation enforced in 2013.
(By Tan Duc – The Saigon Times)