The central coastal city of Da Nang has cemented its spot as the easiest place to do business in Vietnam, securing top spot for the fourth consecutive year on the latest Provincial Competitiveness Index (PCI).
The annual PCI 2016 report was released by the Vietnam Chamber of Commerce and Industry (VCCI) and the U.S. Agency for International Development (USAID) in Hanoi on Tuesday.
The PCI report is designed to assess the ease of doing business, economic governance, and administrative reform efforts by the provincial and city governments in Vietnam in order to promote the development of the private sector.
PCI 2016 is the 12th iteration of the report and is based on responses from 11,600 enterprises, including more than 10,000 domestic private enterprises from 63 cities and provinces and nearly 1,600 foreign invested enterprises in 14 provinces of Vietnam.
Da Nang again topped this year’s rankings with a score of 70, marking it the seventh time the city has taken the top position since the first PCI report.
The central city is followed by the northern province of Quang Ninh (65.60 points) and the southern province of Dong Thap (65.75 points), which have switched places from last year, ranked second and third respectively.
Ho Chi Minh City dropped two notches to the eighth place (61.72 points) but remained in the Excellent tier, while Hanoi entered this category for the first time, jumping 10 places to 14th.
Multiple positive signs of the business environment in Vietnam were recorded in the PCI 2016 survey.
Over the past year, 65 percent of private enterprises reported profits, the highest level in five years.
The average size of private enterprises rose to the highest level ever recorded in the survey at VND18.1 billion (US$797,000), which is twice the level recorded in 2006, VND7.5 billion ($330,000).
The percentage of firms that hired more workers also increased from 12 percent in 2015 to 13 percent in 2016. Optimism about the prospect of growth remains high with 48 percent of firms looking to expand their operations over the next two years.
In general, the economic governance of provinces and cities in Vietnam continued to show positive improvements, evidenced in the areas of proactive leadership, informal charges, labor training, policy bias, and business registration.
As for the 1,550 foreign invested enterprises surveyed in the report, 11 percent of them increased their investment in existing operations and 63 percent added new employees to their payrolls.
More than half of the firms in the survey mentioned that they plan to expand the scale of their operations, which is the highest percentage since 2010.
The legal environment was perceived by foreign firms as more friendly with a decrease in entry costs and petty corruption.
Despite the positive news, many domestic firms responding to the survey said that in areas such as administrative procedure, land access and the legal environment generally remain major obstacles, while foreign investors remain concerned about policy bias in favor of state-owned enterprises.
The biggest obstacle for both domestic and foreign companies is the informal charges they have to pay to do business in Vietnam.
Dau Anh Tuan, general director of VCCI's legal department, admitted that 66 percent of businesses in Vietnam still have to pay informal charges. For some businesses, unofficial fees eat up as much as ten percent of their revenue, he noted.
Nearly 80 percent of businesses said they had no choice but pay the informal charges to “build up relationships”. Some considered it ‘coffee money,’ a ‘guarantee contract’ or justified it as the small ‘gift’ they give out today which may help them deal with bigger troubles tomorrow.