Vietnam’s business environment is still trending upwards: PCI 2023 Report

Vietnam's national and provincial governments are increasingly proactive in crafting legislative and policy frameworks that foster a favorable business environment, sustaining the positive momentum observed in recent years.

Representatives from provinces/cities were honored at the event. Photo: Khac Kien/The Hanoi Times

Chairman of the Vietnam Confederation of Commerce and Industry (VCCI) Pham Tan Cong shared the findings from the 2023 Provincial Competitiveness Index (PCI) and Provincial Green Index (PGI) report released today [May 9].

The 2023 PCI-PGI Report is a collaborative research under the Provincial Green Index Initiative program and is conducted annually by VCCI with assistance from the United States Agency for International Development (USAID) and private sector partners to promote an enabling and environmentally friendly business climate in Vietnam.

The report is based on responses from 10,676 firms, including 9,127 domestic private businesses and 1,549 foreign-invested enterprises (FIEs) operating in Vietnam.

Quang Ninh, Long An, Haiphong, Bac Giang, and Dong Thap are the top-ranking localities in the 2023 PCI. Additionally, Quang Ninh, Danang, Dong Nai, Hung Yen, and Ho Chi Minh City are the top places in the 2023 PGI.

Sharing insights from the report, VCCI’s Head of the Legal Department Dau Anh Tuan stated that the 2023 PCI-PGI survey indicates significant improvements in implementing supportive policies for businesses, reducing unofficial costs, and streamlining administrative procedures.

Particularly noteworthy is the effective application of information technology and digital solutions, with nearly 77% of businesses reporting reduced time and cost savings from online administrative procedures, he noted.

“The business community also appreciates the proactive efforts of the provincial governments in enhancing the business environment compared to previous years,” Tuan said.

The quality of provincial economic governance continues to improve over time, with the overall PCI score reaching 66.66 points in 2023, up by nearly 1.44 points from 2022. Many provinces maintain and introduce new initiatives to improve the business environment. Notably, lower-ranked provinces are making strong progress by effectively learning from the successes of higher-scoring provinces.

Moreover, business support initiatives are undergoing positive transformations. Unofficial costs continue to fall, with the proportion of businesses reporting informal costs in 2023 dropping to 33.3%, significantly from 66% in 2015-2016 and a record high of 70% in 2006 (when this indicator was first surveyed).

From the perspective of foreign-invested enterprises (FDIs), there is a shared view that Vietnam has been on a steady recovery path since Covid-19, Tuan said.

FDI enterprises' hiring rates have increased from 55.8% in 2022 to 59.9% in 2023. The business situation shows promising improvements, with the profit-reporting rate at 46.5% and the loss-reporting rate at 42.3%.

In addition, FDI enterprises perceive a decreasing burden of compliance in Vietnam over time, with the difficulty in tax procedures dropping to 16% from 27% in 2022.

Tuan noted that many FDI enterprises are sourcing inputs from domestic businesses, with the percentage of FDI enterprises using domestic suppliers gradually increasing from 63.3% in 2022 to 75% in 2023.

However, he also pointed out the challenging economic landscape reflected in this year's report, with a low percentage of businesses planning to expand operations in the near future. Many businesses are struggling with various difficulties including access to credit, finding customers, market volatility, skills shortages, and red tape.

“Furthermore, businesses are also grappling with complex natural disasters and climate change, which have serious impacts. External factors exacerbate business challenges, such as ongoing global geopolitical tensions, high inflation in many countries, declining global trade, consumption, and investment, increasing trade protectionism, and rising trade defense barriers,” emphasized Tuan.

Production activity at Rang Dong Company. Photo: Hai Thanh/The Hanoi Times

Increasing local  awareness of climate change

Speaking at the event, US Ambassador to Vietnam Marc E. Knapper stated that the US Embassy in Vietnam, through the USAID, is leveraging its nearly 20-year partnership with VCCI to help Vietnam enhance its competitiveness in the global marketplace by transitioning to a green economy.

“By promoting environmentally friendly regulatory reforms and investment, the Provincial Green Index will advance Vietnam’s sustainable economic development and its ambitious net-zero emissions by 2050 target,” said Knapper.

Following a pilot in 2022, VCCI has released the PGI for 2023. This index provides input from business practices to support provincial governments in environmental governance, balancing economic growth and environmental sustainability objectives.

Analysis of the 2023 PCI-PGI report shows that higher PGI scores correspond to better environmental quality and resilience to disasters and climate change at the local level.

However, provincial governments are facing difficulties in identifying and implementing local environmental initiatives and solutions, due to a lack of resources and expertise, poor coordination in addressing regional issues, or insufficient awareness and motivation for change among businesses.

VCCI Chairman Cong believed that in order to help enterprises recover and develop in the coming time, local governments need to take more substantial measures to improve the business environment, streamline administrative procedures, and reduce costs for businesses.

“In the challenging economic situation, proactive and decisive actions from provincial governments are crucial. Amidst the uncertainties and fluctuations in the world, now more than ever, businesses need stability, consistency, and reliability in policy-making and law enforcement,” said Cong.

2024 has been identified by the Vietnamese Government as a year of acceleration and breakthroughs to successfully implement the 5-year Socio-Economic Development Plan for 2021-2025. In Resolution 01/NQ-CP dated January 5, 2024, the Government  set the theme for the year as “Resolute Responsibility; Proactive Timeliness; Innovative Acceleration; Sustainable Efficiency.”

Accordingly, Cong emphasized that the business community expects local authorities to deliver government policies in a timely and effective manner. This will play a crucial, even decisive role, in implementing efforts to improve the business environment and enhance national competitiveness in 2024 and beyond.