Da Nang narrowly tops Binh Duong in 2008 Vietnam Provincial Competitiveness Index

Da Nang narrowly tops Binh Duong in 2008 Vietnam
Provincial Competitiveness Index

The Provincial Competitiveness Index (PCI) is a survey of the business climate in the nation’s 64 provinces and cities in Vietnam. The PCI is widely viewed as a critical tool for measuring and assessing the standards of economic governance from the perspective of private sector businesses. Year 2008 marks the fourth iteration of the PCI analysis.

Graph 1: Provincial Competitiveness Index 2008 (Source:www.http://www.pcivietnam.org)

The Provincial Competitiveness Index 2008 is the result of a major, ongoing collaborative effort between the Vietnam Chamber of Commerce and Industry (VCCI) and the U.S.Agency for International Development (USAID)-funded Vietnam Competitiveness Initiative (VNCI), managed by DAI, with a substantial contribution by VNCI partner The Asia Foundation (TAF). The report was based on a survey of 7,820 private domestic enterprises on a number of indices relating to business or investment climate. The rated factors are those that can be directly influenced by the actions and attitudes of provincial authorities and include entry costs, proactivity of local leadership, labour training, transparency and access to information, state-sector bias, private sector development services, land access, security of business premises, legal institutions, informal charges and time spent on regulatory compliance. In 2008, the Vietnam News reported on the 12 of December that on a 100-point scale, Da Nang earned 72.18 points, followed by Binh Duong with 71.76 points, allowing the central region city to surpass the southern province of Binh Duong which topped the survey in its first three years but dropped to second place in 2008.

In Business-in-Asia close analysis of this years report, we found the following:

1.) Both provinces, Da Nang and Binh Duong, top the Excellent tier and their final scores (72.18 and 71.76) differ by less than half a point. Binh Duong, the PCI champion for the past three years, lost its crown to Da Nang, which had ranked second in all previous iterations. Da Nang is to be applauded for this but Binh Duong and Da Nang both remain top places to invest in Vietnam in 2008.

2.) Da Nang actually showed a decline from last year in some indices, including private development services, informal charges and time spent on regulatory compliance, land access and security of business premises. However, its advantage in Port and Airports helped in its overall Standard Infrastructure score.

Graph 2: PCI Infrastructure Index - Standard Infrastructure including Ports and Airports

(Source:www.http://www.pcivietnam.org)

Graph 3: PCI Infrastructure Index - Standard Infrastructure (not including Ports and Airports)

Indicators Used In Infrastructure Index are:

1) Industrial Zone - Quality and Coverage
2) Road Quality and Transport Costs - Number of Industrial Zones and Concentrations in Province Percentage of total IZ surface area that currently has occupants; Firm Rating of Provinical Industrial Zone Quality (% Very Good or Good); Number of days annually that roads are impassable due to rainfall; Transport costs of a 40-foot container from provincial capital to nearest major ports (HP, HCMC,DN) in Millions of VND; Monetary loss annually from spoiled and damaged products in the past year (Millions of VND); Percentage of roads in province (national, provincial, or district) that are paved with asphalt.
3) Utilities (Energy and Telecommunications); Hours of Telecommunications outages in the province per month; Assessment of telecommunications quality (% Good or Very Good); Telephones (Land and Cellular) per 100,000 Citizens in 2007.
4) Major Infrastructure (Ports/Airports); National Seaport (Container Cargo > 34,000 TEU); Local Seaport (Container Cargo > 2,000 TEU); International Airport; Domestic Airport

3.) Binh Duong is still the strongest in the Infrastructure Index; however, when comparing ports and airports and seaports access, it lost to Da Nang because it is an interior province with no provincial seaport and with no airport since it relies on Ho Chi Minh City international airport which is about a 45 minute drive away. A further fact to note here in comparing airports is that Danang airport is largely an internal airport with few international flights while Ho Chi Minh City International Airport is the country's largest and has the most flights to neighboring regions. Binh Duong remains top of the Index on Proactivity (which covers issue such as are the provincial officials knowledgeable enough about present national law to find opportunities within existing law to solve firm problems, and so on). Binh Duong was judged weaker than DaNang on its website, which made its score lower in the Transparency Index than DaNang, and on the ICT Readiness Index, Binh Duong lost out to Ho Chi Minh City and Hanoi but still exceeded DaNang.

Graph 4: Proactivity Sub-Index (Resource: www.http://www.pcivietnam.org)

Indicators in Comparison of Proactivity (2005-2008) - (% Strongly Agree or Agree)

1.) Provincial officials are knowledgeable enough about present national law to find opportunities within existing law to solve firm problems
2.) Provincial officials are creative and clever about working within the national law to solve the problems of private sector firms
3.) All good initiatives come from the provincial government, but the center frustrates them
4.) There are no good initiatives at the provincial level; all important policy
comes from the central government

Graph 5: Transparency sub-index (Resource: www.http://www.pcivietnam.org)






Graph 6: ICT Readiness Index (Resource: www.http://www.pcivietnam.org)

3.) The two major economic hubs, Ho Chi Minh City and Hanoi, were also in a lower positions in Year 2008 PCI, with Ho Chi Minh City, at 60.15 points, falling from 10th in 2007 to 13th place; and the capital city of Hanoi, at 53.74 points, dropping from 27th to 31st.

Over the past years, more than 40 provinces and state agencies in Vietnam have used the PCI to engage in public-private dialogue and analysis with local communities to better understand the competitive factors that drive economic growth. The report helps direct provinces and cities towards their areas of greatest weakness, encouraging them to make necessary reforms to facilitate businesses rather than ranking provinces and cities in high or low positions. Furthermore, investors use the index as a basis for their decisions about the location of new business ventures.

Who Answers the PCI Survey? (Composition of the 7820 Total Respondents)

- Legal Form

• Sole Proprietorship
• Limited Liability
• Joint Stock
• Joint Stock with Share Listed on Stock Exchange
• Partnership/Other

- Sector w/Majority Output

• Manufacturing/Construction
• Service/Commerce
• Agriculture/Aquaculture/Natural Resources
• Equal Output in Two Sectors

- Age of Firm

• Registered before Enterprise Law
• Registered After Enteprise Law

- Size of Operations (Total Assets, Billion VND)

• Under 0.5
• From 0.5 to under 1
• From 1 to under 5
• From 5 to under 10
• From 10 to under 50
• Over 50

-History of Company

• Greenfield Private Company
• Began Operation as Household Enterprise
• Former Local State Owned Enterprise
• Former Central State Owned Enterprise

- Primary Customers

• Vietnamese Indivduals and Companies
• State Owned Companies
• Export Directly or Indirectly
• Foreign Individuals or Companies in Vietnam

Despite the stability in PCI rankings over time, 2008 scores were generally lower across every level, with the score of the median province in the survey falling from 55.6 in 2007 to 53.2 in 2008, indicated in the PCI report summary. While most PCI sub-indices experienced moderate increases, two sub-indices, Labor and Private Sector Development showed dramatic declines. Because of the high weights of these indices, the declines affected the overall PCI scores significantly. The PCI report indicated that the causes of the lower scores are predominantly due to either: 1) evidence of actual deterioration in public service delivery, or 2) increasing expectations by firms that have not been met by proportionate improvements in the quality of government services. Vietnam's macroeconomic instability in 2008, also had a measurable influence on firms' perceptions.