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With the advent of the policy of renovation (doimoi) in 1986, Vietnam has been able to achieve aconsistently high level of GDP growth in the pastdecade (8.4 percent in 2005) and effectivelyaddress the problem of poverty. Much of thisexplosive economic growth is a direct result of thegovernment’s practical economic reforms toencourage private sector growth. Since the imple-mentation of the Enterprise Law in 2000,Vietnam has registered more than 120,000 formalprivate companies, six times the number regis-tered in the nine years before the law’s enactment.Yet, the benefits of Vietnam’s rapid economicgrowth have not been spread evenly across thecountry. Private sector activity remains concen-trated in a handful of the nation’s 64 provinces –those whose leaders have established a regulatoryenvironment that encourages intelligent risk-taking by private entrepreneurs. In response, TheAsia Foundation’s economic programs in Vietnamhave focused on improving the environment forprivate sector competitiveness and economicgrowth, as the country continues its ongoingdecentralization process.
PROVINCIAL ECONOMIC GOVERNANCE
The Asia Foundation and the Vietnam Chamberof Commerce and Industry (VCCI) have workedtogether since the early 1990s to promote inter-national economic integration and businessdevelopment in Vietnam, especially the growthof small and medium enterprises (SMEs).Building on the success of an earlier project thatconducted a series of monthly business forumsin Hanoi and Ho Chi Minh City from 2000 to
2002, the Foundation and VCCI shifted focus toexamine ways that improved provincial gover-nance can further encourage broad-based privatesector growth.
Initiated in 2002, the project, titled “SpreadingBest Practices of Provincial Economic Governancein Vietnam,” sought to address the problem ofwhy economic success and the ability to attractprivate sector investment remained concentratedin only a handful of provinces. The project set outto understand what the high performingprovinces were doing right to achieve a businessenvironment conducive to private sector perfor-mance, and to pass these lessons onto the under-performing provinces. The first component ofthe project identified the key determinants ofeconomic governance and also developed a gov-ernance index for 14 non-metropolitan provincesbased on more than 400 enterprises. The indexfocused on provincial performance on registra-tion, land, inspections, integrated planning, transparency, transaction costs in time andmoney, and provincial attitude and proactivitytoward the private sector. The second componentof the project examined economic governancecase studies to draw out lessons for both provincialauthorities and businesses to use in the process of finding optimal economic solutions.
PROVINCIAL COMPETITIVENESS INDEX
The economic governance above provided thebasis for the subsequent development of theProvincial Competitiveness Index (PCI) by TheAsia Foundation as the main partner with DAI in
VIETNAM’S ECONOMICDEVELOPMENT
The Asia Foundation
established an
office in Hanoi
in 2000.
VIETNAM
The Provincial
Competitiveness Index
provides an assessment
and ranking of
provincial governments’
performance, capacity,
and willingness to
development business-
friendly environments.
The Foundation and
the Vietnam Chamber
of Commerce and
Industry work
together to promote
international economic
integration and
business development
in Vietnam, especially
the growth
of small and
medium enterprises.
PRIVATE SECTOR GROWTH, PROVINCIAL COMPETITIVENESS, AND BEST PRACTICES IN ECONOMIC GOVERNANCE
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VIETNAM#10-03 Prime Center53 Quang Trung StreetHanoi, VietnamTel: +84 (4) 3943-3263Fax: +84 (4) [email protected]
www.asiafoundation.org
The Asia Foundation is
a private, non-profit,
non-governmental
organization working
to advance mutual
interests in the United
States and the Asia-
Pacific region. It is
funded by contributions
from corporations,
foundations, individu-
als, and governmental
organizations in the
U.S., Europe, and Asia,
and an annual appro-
priation from the U.S.
Congress. Through its
programs, the
Foundation builds
leadership, improves
policies, and strengthens
institutions to foster
greater openness and
shared prosperity in the
Asia-Pacific region.
the USAID-funded Vietnam CompetitivenessInitiative (VNCI). Implemented by theFoundation in 2005 in partnership with theVCCI, the PCI extended the initial work from 14to 42 provinces (including Hanoi and Ho ChiMinh City) that account for approximately 90percent of economic activity in Vietnam. Usingthe same survey instrument developed by theFoundation and VCCI earlier and incorporatingthe previous data on 14 provinces, the PCIranked provinces based on nine economic gover-nance indicators: business entry costs; access toland; transparency and access to information; timecosts of regulatory compliance; informal charges;implementation and consistency of policies; statesector bias; proactivity of provincial leadership;and private sector development policies.
The survey showed that initial endowments (suchas human resources, infrastructure, and geographicadvantages) are not enough to account for whythe private sector flourishes in some provinces butnot in others. The attitudes of local officials andthe policies they adopt are key determinants ofsuccess or failure. For example, private sectorinvestment is stronger in provinces that keepbusiness registration and paperwork requirementsto a minimum, facilitate access to land, and havetransparent rules and procedures. The more suc-cessful provinces do not tilt the playing field infavor of Vietnam’s state-owned firms, whichdespite their relative inefficiency, continue todominate the economy even as the nation’s smallbut dynamic private sector quickly expands.
The release of the PCI generated enormous mediainterest, which included newspaper features, tele-vision reports, and a nationwide cover story in theSaigon Economic Times. Officials immediatelyresponded to the PCI results by contacting VNCIfor advice and guidance on ways to improve their
performance. VNCI staff and researchers visited anumber of provinces, holding workshops toencourage local officials to minimize red tape andmaximize transparency. In Ha Tay province, thelowest-ranked province in the PCI, officialspromptly carried out an evaluation of regulationsand procedures that hinder the local businessenvironment and subsequently approved a rangeof reforms and initiatives intended to rectify theproblems uncovered. The Foundation and VCCIwill produce a second PCI in 2006.
SELECTED POLICY STUDIES
Under the VNCI project, The Asia Foundation isalso working with international and local expertsto conduct a series of policy studies intended toshed light on key niche market areas that haveremained mostly unexplored, in order to buildupon the rich information coming out of the PCI research. This work will include studies ontelecom reform; business licensing procedures;domestic transport costs; efforts to promote thesoftware and technology sectors; and provincial-level lending, which may be inefficiently steeringinvestment opportunities away from Vietnam’sincreasingly effective joint stock banks.
BUSINESS-MEDIA RELATIONS
Recognizing that the media plays an importantrole in the country’s economic development,under the VNCI project The Asia Foundationcollaborated with local partners to convenemedia-business workshops in 2005. The work-shops, organized in Hanoi by the Hanoi Unionsof Associations of Industry and Commerce and inHo Chi Minh City by the Young Business PeopleAssociation, brought members of the media andthe business sector together to discuss the currentstate of business-media relationship and the impactthe media can have on the business environment.
3/06
Many programs of The Asia Foundation in Vietnam have been carried out with support from the U.S. Agency for International Development, the U.S. State
Department’s Bureau for East Asia Pacific Affairs, the World Bank, the Henry Luce Foundation, and many other public and private sources.
