Oct 26, 2012

Vietnam - VN’s business environment status unchanged: report

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Vietnam’s ranking in terms of business environment remains unchanged from a year ago, according to a recent report of the International Finance Corp, a member of the World Bank.

Between June 2011 and June 2012, Vietnam has improved its business environment through a series of regulatory reforms, making it easier for local firms to start up a business, said the “Doing Business 2013: Smarter Regulations for Small and Medium-sized enterprises” report.

However, Vietnam still ranks 99th out of 185 economies on the ease of doing business, unchanged from its previous status.

Vietnam has implemented a total of 18 institutional or regulatory reforms, in 8 of 10 areas of business regulation measured by the annual Doing Business report over the past eight years.

The most recent reform made starting up a business easier by allowing Vietnamese companies to use self-printed value -added tax (VAT) invoices.

Of the 10 criteria for rating, Vietnam has been ranked well in several areas, such as dealing with construction permits (28th), getting credit (40th), enforcing contracts (44th), registering property (48th), and trading across borders (74th).

Up in the air

But in looking at all three criteria with best practice, construction permits, getting credit, and enforcing contracts, both national and IFC experts told Tuoi Tre that they are questioning the report's observations from the real practices in Vietnam.

In particular, the field of construction permit licensing is still causing headaches for investors, with many projects taking too long to obtain the permits due to complex procedures, thus raising their operational costs.

Moreover, a roadmap for feasible solutions to tackle bad debt, which is considered a tumor absorbing all the available credit of the economy, is still in the middle of nowhere, stirring up concerns of local businesses struggling to gain any possible access to affordable credit.

The problem is still under debate at the current meeting of the National Assembly.

Regarding execution time for trade contracts, this still takes up to 400 days, with contract enforcement costing up to 29 percent of the contract value.

The report showed that Vietnam ranked over 100 in five out of ten indicators, including starting a business (108th), access to electricity (155th), protecting investors (169th), taxation (138th) and bankruptcy proceedings (149th).

Data breakdowns also show that among the ten criteria, only 'starting a business', 'getting electricity', and 'paying taxes' see real improvements over the previous year, while 2 criteria make no progress and the remaining five have their ranking downgraded.

Vietnam remained below the world average after ten years of reforms and surveys, proving that it has failed to make a breakthrough despite the issuance of Resolution No 11 and Project 30, both aimed at improving the business climate and simplifying administrative procedures, economist Pham Chi Lan told Vietnam News Agency.

"It's a pity that the reform problems have been addressed, yet the results aren't clear," Lan said.

Allowing companies to print their own VAT invoices, which was recognized as an improvement by the report's authors, did not do much to increase Vietnam’s rankings, while access to electricity remained problematic due to ongoing electrical shortages and a monopoly in the power market, together with high power costs, she added.

Lan told the Vietnam News Agency that the rankings did not reflect the real situation in Vietnam, although she admitted that construction permits and access to credit remained headaches for domestic enterprises.

"Vietnam needs to reform its business regulatory climate if it hopes to reach the level of other economies in the Asia-Pacific region," VNA quoted World Bank country director for Vietnam, Victoria Kwakwa, as saying in a meeting to launch the report.

Singapore tops the global ranking in ease of doing business for the seventh consecutive year, while Hong Kong SAR, China, held onto the second spot.

Joining them on the list of the 10 economies with the most business-friendly regulations, are, in this order: New Zealand; the United States; Denmark; Norway; the United Kingdom; the Republic of Korea; Georgia; and Australia.


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