A survey of 1,550 businesses from 46 countries whose operations are located in 14 cities and provinces in Vietnam points to a slew of shortcomings in the business climate of Vietnam, says the Provincial Competitiveness Index (PCI) 2016 report.

The report by the Vietnam Chamber of Commerce and Industry reveals about 72% of firms spend over 5% of their time on regulatory procedures.

Nearly 5% of foreign-invested enterprises (FIEs) say they are harassed by over eight inspections per year. 

The most problematic procedures relate to taxes, social insurance and customs, said the report published in Hanoi on March 14.

The share has dropped marginally since 2014, but roughly 68% of foreign firms continue to believe there remains a preference toward State-owned enterprises.

Some 25% of FIEs admit they paid bribes when attempting to acquire their investment licenses, and 13.6% had this practice when competing for government contracts. 

Both of these numbers represent declines from 2015.

Up to 88% of firms agreed they were disadvantaged in some way during government procurement, indicating that a culture of paying commissions in contracting may be impeding the best selection of service providers. 

This in turn leads to higher costs and lower quality than optimal selections.

Around 45% of firms paid a bribe during an administrative inspection in 2016. Nearly 80% of bribe paying respondents report that the main benefit was a relationship being established.

The prevalence of these activities indicates the nature of corruption in Vietnam, illustrating how difficult to uproot this practice. 

Bribery has become so common that words do not even need to be exchanged between the two parties.

Stepping up investments

In 2016, some 11% of FIEs stepped up their investments in existing operations and 63% added new employees to their payrolls. 

The employment increase is the largest recorded in the annual PCI-FDI survey in five years.

Over half of the businesses in the PCI-FDI sample intend to expand the size of their operations, the highest share registered since 2010.

Over 90% of FIEs were able to obtain all the documentation they needed to operate legally within three months of initiating the procedures. 

About 40% of firms were fully legal within a month, the highest percentage in Vietnam, up dramatically from the previous five years.

Speaking at the launch of the report, Ted Osius, the U.S. Ambassador to Vietnam, said the report is vital for investors and businesses looking to invest in Vietnam.

“Foreign businesses are finding that the cost of entry has fallen significantly, and they attribute this to the 2014 Enterprise Law and the 2014 Investment Law,” he said.

As per the report, the typical FIE in Vietnam remains relatively small, export-oriented, and operates a low-margin business as a subcontractor to a larger multinational producer, and is therefore usually situated among the lowest nodes of a product’s value chain. 

Reflecting the data on registered FDI, the vast majority of firms are from Asia, particularly, Japan, Korea, Taiwan, Singapore, and China.

SGT