Danang still on top of PCI 2014 rankings
By Tan Duc – The Saigon Times Daily
HCMC – Danang continued to consolidate its position as the top performer in the 2014 Provincial Competitiveness Index (PCI) owing to its continued effort to improve the business environment.
The central coast city obtained a PCI score of 66.87 based on a survey of 9,859 private domestic businesses and 1,491 foreign-invested enterprises (FIEs) last year. The index is a joint effort between the Vietnam Chamber of Commerce and Industry (VCCI) and the U.S. Agency for International Development (USAID).
“Its success results from the effective implementation of the ‘Year of Enterprise’ program, under which the city government has implemented many practical initiatives to create a favorable environment for business development,” the PCI 2014 report explains why Danang again tops the PCI rankings.
Dong Thap and Lao Cai provinces ranked second and third with PCI scores of 65.28 and 64.67 respectively as “both provinces demonstrate unique innovations.”
“While Dong Thap’s culture of considering enterprises as partners in socioeconomic development is greatly appreciated by local enterprises, Lao Cai created its own district competitiveness index (DCI) governance,” the report says.
The tenth PCI honored HCMC and Quang Ninh Province as among the five best-governed localities in Vietnam last year. The lower half of the top ten provinces and cities are Vinh Phuc, Long An, Thai Nguyen, Kien Giang and Bac Ninh.
The emergence of Tuyen Quang was “a phenomenon” as described in the report thanks to significant changes in its approach to business-government interactions and responsiveness. Once at the bottom tier of the PCI during the previous two years, the northern province raised its score by 6.22 points, the highest gain among all the 63 provinces and cities, to climb up 13 notches in the ranking.
Other notable changes included the PCI score of the median province rose to 58.58 points last year from 57.81 in 2013, and the score gap between the provinces continues to narrow compared to 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 change. The clear evidence was a shrinking gap between the top-notch Danang and the bottom Dien Bien, at a mere 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 position in the PCI 2014 rankings.
Improved business confidence
The PCI 2014 Survey found both domestic enterprises and FIEs are optimistic about the business environment prospects in the years to come.
The proportion of domestic firms planning to expand operations went up to 10.8% after two years at a record low (6.4% in 2012 and 2013). Inflation-adjusted average investments rose to VND15.1 billion, the highest level in nine years, and twice as much in 2006.
Meanwhile, the percentage of enterprises recruiting new employees also almost doubled to 11.5% from the record low levels in the two previous years.
Last year, up to 46.1% of the respondents expected to expand business in the next two years, a considerable increase from the 32.5% 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 in the previous two years, at 10.8%, it was way below the peak when it reached 29.3% in 2009.
The rate of domestic and foreign enterprises reporting profit continued to fall (60.3% of domestic firms claiming profits) while those claiming 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/enterprise in 2010.
Pros and cons
The PCI 2014 unveiled 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 to the previous year, four out of 10 sub-indices of the median province lost points. Of these, informal charges fell by 1.4 points, proactive and active provincial leadership in solving problems for enterprises by 1.02 points, and easy access to land and security of business premises by 1.01 points.
The policy bias area dropped 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, last year the figure returned to a high level.
Up to 10% of 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 the 2013 level (55%), remains worryingly high,” reads the PCI 2014.
Regarding 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%).
Despite 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. In the worst-case scenario, where land is actually taken back 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. This is evident in the percentage of companies claiming no obstacles to land accessibility at a record low in 2014, at lower than 22%.