VIETNAM'S PROVINCIAL COMPETIVENESS SLIPS IN 2008

UNCLAS HANOI 000121


STATE FOR EAP/MLS MBROWN
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E.O. 12958: N/A
TAGS: ECON EAID EFIN EINV KCOR KPRV PGOV VM

SUBJECT: VIETNAM'S PROVINCIAL COMPETIVENESS SLIPS IN 2008

REF: A) 08 Hanoi 1918 ("Gains in Provincial Competitiveness");
B) 08 Hanoi 463 ("Education Scenesetter");
C) 08 Hanoi 1329 ("Private Sector Tells Vietnam");
D) Hanoi 45 ("Responding to the Global Financial Crisis")



1. (U) Summary: The latest regional competitiveness survey showed a
"systematic" deterioration in the business environment throughout
Vietnam. According to the 2008 Provincial Competitive Index, a
survey of thousands of Vietnamese businesses, provincial governments
were less effective in 2008 in improving the overall business
climate. Although there was little to no progress on corruption,
respondents noted greater administrative efficiency. The survey,
which ranks Vietnam's 63 provinces in terms of their business
climate, gave top marks to Danang in central Vietnam, above
perennial favorite Bing Duong, in the south. The survey is rapidly
becoming the standard by which provinces asses themselves, and a
useful tool in promoting reform at the regional level. End
Summary.

A STEP BACK
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2. (U) The "Vietnam Provincial Competitiveness Index" (PCI) reported
"systematic" declines in provincial competitiveness across the board
in 2008, including drops in overall score in seven of the top ten
provinces from the 2007 results (REF A). This is a reversal from
previous years that had shown a steady increase in regional
competitiveness. The annual PCI is the leading study in regional
competitiveness and is sponsored by Mission Vietnam and the Vietnam
Chamber of Commerce and Industry (VCCI). The median PCI score this
year (53.2) was 2.4 points lower than in 2007 (55.6). In 2006, the
median weighted PCI score was 50.7.

CONTRIBUTORS TO THE FALL: SKILLED LABOR SHORTAGES
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3. (U) The PCI cited several reasons for the lower scores this year.
One was Vietnam's chronic skilled and semi-skilled labor shortage
(REF B). For a third straight year, in 2008 it proved difficult for
private firms and SMEs to find trained and qualified labor after a
continued fall in graduation numbers. The PCI noted a drop in the
national numbers of secondary school graduates "exacerbated" the
skilled labor shortage in 2008. From 2006 to 2007, the national
secondary school graduation rate dropped from 93% to 82%. The
greatest drop was seen in the poorer provinces, where the secondary
graduation rate fell from 72% to 38%. Vocational schools
experienced similar declines in enrollment over the same period.

INFRASTRUCTURE LIMITATIONS
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4. (U) The failure to improve infrastructure, another often-cited
disincentive, was also cited as one the reasons for 2008's lower
scores (REF C). PCI respondents agreed that "infrastructure is one
of the most important constraints on economic growth and
productivity in Vietnam." The cost of shipping a typical 40-foot
container is "nearly twice as high in Vietnam" than in China,
according to the PCI. The PCI authors also stated that Vietnam is
behind in developing "road, water, rail, and air transportation
networks."

CORRUPTION REMAINS A CHALLENGE
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5. (U) Informal charges and instances of corruption remained a
problem, according to the PCI, noting that there was no improvement
from 2007. The number of companies spending more than 10% of their
time and resources dealing with bureaucratic red tape procedures was
also higher in 2008 than on the previous year.

IMPROVEMENTS IN SOME AREAS: GREATER ADMINISTRATIVE EFFICIENCY
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6. (U) Businesses reported progress in one-stop shop (OSS) system
implementation in many provinces, which facilitates access to
required legal documents, eases licensing and registrations, and
simplifies procedures for start-ups. According to the PCI, security
of property rights also continued to improve, while rules and
decisions were increasingly publicized as a result of the
proliferation of legal provincial gazettes. Sixty-five percent of
surveyed companies reported ready access to provincial legal
documents compared with 61% in 2007. Eighty-one percent of
respondents now have formal Land Use Rights Certificates compared to
75% in 2007.

DANANG BUMPS HAI DUONG FROM TOP THE LIST
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7. (U) Central Vietnam's main city of Danang took the top spot as
the most competitive province from southern Binh Duong, which had
held the top spot for four consecutive years. However, the overall
competitiveness scores of both decreased compared with last year.
Vin Phuc, part of the Hanoi-Red River Delta industrial belt, came in
third place, displacing Vinh Long from the south, to fourth. The
score of both improved from 2007. Rounding up the top-ten for 2008
are Dong Thap in fifth place, followed by Long An and Ben Tre (all
in the south),Lao Cai (near the Chinese border in the north),An
Giang (south) and Thua Thien-Hue in central Vietnam. Hanoi dropped
in score and places from 27 to 31, while Ho Chi Minh City also
dropped in both scores and places, from 10 to 13.

PCI: AN INCREASINGLY PROMINENT TOOL
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8. (SBU) The PCI results are drawing increased interest from
provincial authorities. Provinces are showcasing their rankings in
their brochures and websites, while in meetings with Embassy
officials, many lower-ranking ones vow to do better. After four
years, provinces better understand the meaning and impact of the
results, and using them to fix deficiencies and capitalize on
advantages.

COMMENT: TIME TO ADDRESS OLD PROBLEMS
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9. (U) Although there was progress in some important areas, the
overall perception that Vietnam's provinces are less competitive
than they were a year ago is worrisome at a time when the economy is
under significant pressure (REF D). None of the main cited problems
--skilled labor shortages, wanting infrastructure and red tape and
lack of transparency-- are new. Vietnam could be a victim of the
success of previous years as expectations outpace reality, or
perceptions may have soured as a result of the economic challenges
of 2008, as the PCI authors noted. The overall score did not
totally revert back to 2006 levels but the 2008 backslide halted
what had been a steady progression in perceptions that the business
climate in the regions was improving. Many provinces that topped
the list in 2008 have the dubious honor of saying that they came on
top by backsliding less than their competitors.

METHODOLOGY
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10. (U) The 2008 PCI is based on responses received from 7,820
Vietnamese private companies (i.e. no foreign firms or State-Owned
Enterprises) with an average of 122 responses per province. The PCI
measures the ten indicators: legal institutions, entry costs, land
access, transparency, time costs, informal charges, SOE bias,
pro-activeness of provincial leadership, private sector development
services, and labor training. The 2008 report focused on a series
of time data to show the impact of policy changes over time related
to the economic growth of the provinces, rather than confining the
data to one year of collection as it did for the last three years.
As well, this year's report features an additional infrastructure
index to indentify a possible area of improvement for the provinces.



11. This cable was coordinated with USAID Vietnam.