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Foreign businesses still hurt by bribes in Vietnam: report

A competitiveness measure report released Thursday paints a tad brighter picture of the business environment in provinces and cities across Vietnam, which is however still marred by unofficial expenses that keep burdening enterprises.

A competitiveness measure report released Thursday paints a tad brighter picture of the business environment in provinces and cities across Vietnam, which is however still marred by unofficial expenses that keep burdening enterprises.
A competitiveness measure report released Thursday paints a tad brighter picture of the business environment in provinces and cities across Vietnam, which is however still marred by unofficial expenses that keep burdening enterprises.

Enterprises were more optimistic about their operations in Vietnam, but the number of firms forced to pay unofficial charges was on an upward trend, Professor Edmund Malesky said at a ceremony to unveil the Vietnam’s Provincial Competitiveness Index 2014 (PCI) report in Hanoi.

Prof. Malesky is the primary author and lead researcher of the annual report, initiated by the Vietnam Chamber of Commerce and Industry and the U.S. Agency for International Development a decade ago.

The report finds that 16.3 percent of foreign-invested enterprises (FIEs) increased their investment in existing operations and 65.1 percent added new employees to their payrolls.

These enterprises, however, “acknowledge higher frequency and scale of unofficial side payments” from business entry and procurement to customs and courts, and are thus “concerned about the effect of this corruption on their operations,” according to the report obtained by Tuoi Tre News.

Last year 17.2 percent of the foreign-invested businesses surveyed in the report had to pay informal charge for their Vietnam entry, while the figure in 2011 was only 9.9 percent, according to the report.

As many as 31.4 percent of the businesses said they had to pay commission during procurement in 2014, more than triple the 9.5 percent recorded in 2011.

The type of informal charge that affected the most businesses is “[bribes] during customs procedures,” with 66.2 percent claiming they had to pay such unofficial fees, according to the report.

Paying the informal charge really enabled businesses to get things done, with 58.2 percent saying they had “services delivered after bribe payment.”

“Perceptions of corruption among foreign investors are getting worse despite efforts made by Vietnamese authorities to address the problem,” Prof. Malesky said.

The report also points out that “lengthy waiting periods open up opportunities for corruption,” in the manner that the more days it takes to obtain a permit, the more obligated FIEs feel to pay more to expedite the processing of the work permit.

Interestingly enough, the southern province of Binh Duong is “the most prominent exception to the national trend,” as investors there reported a lower frequency of bribe requests and smaller sizes of payments, the report noted.

Only 50 percent of the FIEs in Binh Duog said they are disadvantaged when they refuse to pay, compared to 89 percent in the rest of the country.

In comparison with other regional countries in Asia, Vietnam has four strengths and four weaknesses, according to the report.

The strong points include low taxes, low expropriation risk, low policy uncertainty, and police influence, whereas the weak factors are high corruption, poor infrastructure, poor public services, and regulatory burden.

“The time and monetary costs of registration and licensing have remained reasonable and steady… but most firms seem to experience costs from the regulatory burden after registration, when they must comply with business regulations, inspections, and customs procedures,” the report concluded.

Da Nang keeps the lead

The 2014 edition marks the 10th anniversary of the PCI report, which was initiated to “assess the ease of doing business, economic governance, and administrative reform efforts by local governments of provinces and cities in Vietnam,” according to the report.

The 2014 PCI report is based on a rigorous survey of the perceptions of 9,859 domestic firms, and it “augments the collective voice of private entrepreneurs in Vietnam regarding economic governance in their province and the country.”

Da Nang, the economic and tourism hub of central Vietnam, topped the 2014 PCI list for the second time in a row.

The Mekong Delta province of Dong Thap jumped to the second from the fifth post in 2013, whereas the northern province of Lao Cai came third.

Ho Chi Minh City for the first time made it to the top five, standing at the fourth place, right before the northern province of Quang Ninh.

Vinh Phuc, Long An, Thai Nguyen, Kien Giang, and Bac Ninh completed the top ten for the 2014 CPI.

Hanoi stood at the 26th place, up seven notches from the 2013 ranking.

The northern province of Dien Bien replaced Tuyen Quang, also located in the north, at the bottom of the list. All of the other four in the bottom group are northern mountainous provinces, namely Bac Kan, Ha Giang, Cao Bang, and Lai Chau.

The overall PCI comprises ten sub-indexes reflecting economic governance areas that affect private sector development.

A province that is considered to perform well on the PCI is the one that has low entry costs for business start-up, easy access to land and security of business premises, and a transparent business environment and equitable business information.

Other factors include minimal informal charges, limited time requirements for bureaucratic procedures and inspections, minimal crowding out of private activity from policy biases toward state, foreign, or connected firms, and proactive and creative provincial leadership in solving problems for enterprises.

Having developed and high-quality business support services, sound labor training policies, and fair and effective legal procedures for dispute resolution also adds to the good performance of a locality.