FAQs

1. What is PCI ?

PCI is the abbreviation of Provincial Competitiveness Index which is designed to measure and evaluate the ease of doing business, economic governance and administrative reform efforts by local governments, through which to promote the development of the private sector in 63 provinces and cities in Vietnam. In short, the PCI augments the collective voice of private entrepreneurs in Vietnam regarding the business environment in provinces and cities in Vietnam.

2. Where to look for further information ?

This publication only provides basic information on Provincial Competitiveness Index. For detailed information of published PCI reports, survey data over the years, as well as efforts to improve investment and business environment of the provinces and cities, please visit the PCI website at www.pcivietnam.vn or www.pcivietnam.org. For further assistance or any inquiries, please contact PCI research team via e-mail address: pci@vcci.com.vn or vcci.pci@gmail.com.

3. What sub-indices to construct the final PCI ?

Until the most recent update of methodology in 2013, the overall PCI comprises ten subindices 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: 1) low entry costs for business start-up; 2) easy access to land and security of business premises; 3) a transparent business environment and equitable business information; 4) limited time requirements for bureaucratic procedures and inspections; 5) minimal informal charges; 6) minimal crowding out of private activity from policy biases toward state, foreign, or connected firms; 7) proactive and creative provincial leadership in solving problems for enterprises; 8) developed and high-quality business support services; 9) sound labor training policies; and 10) fair and effective legal procedures for dispute resolution.

TO BE MORE SPECIFIC: 1. Entry Costs:A measure of the time it takes firms to register, acquire land, and receive all the necessary licenses to start business, the number of licenses required, and the perceived degree of difficulty to obtain all licenses and permits. 2. Land Access and Security of Tenure:A measure combining two dimensions of the land problems confronting entrepreneurs: how easy it is to access land; and the security of tenure once land is acquired. The first dimension comprises: whether firms possess their official land use rights certificate; whether they have enough land for their business expansion requirements; whether they are renting from SOEs; and an assessment of land conversion efforts. The second dimension includes perceptions of various tenure security risks (such as expropriation, unfair compensation values, or changes in the lease contract), as well as the duration of tenure. 3. Transparency and Access to Information: A measure of whether firms have access to the proper planning and legal documents necessary to run their business, whether those documents are equitably available, whether new policies and laws are communicated to firms and predictably implemented, and the business utility of the provincial web page. 4. Time Costs and Regulatory Compliance: A measure of how much time firms expend on bureaucratic compliance, as well as how often and how long firms must shut their operations down for inspections by local regulatory agencies. 5. Informal Charges: A measure of how much firms pay in informal charges, how much of an obstacle those extra fees pose for their business operations, whether payment of those extra fees results in expected results or ‘services’, and whether provincial officials use compliance with local regulations to extract rents. 6. Bias Against Private Firms (Competition Environment): A measure of the competition regime confronting private business, focusing on the perceived bias of provincial governments toward state owned enterprises (SOEs), foreign firms, and connected entrepreneurs, notably in terms of incentives, policy, and access to capital. 7. Pro-activity of Provincial Leadership: A measure of the creativity and astuteness of provinces in implementing central policy, designing their own initiatives for private sector development, and working within (sometimes unclear) national regulatory frameworks to assist and interpret in favor of local private firms. 8. Private Sector Development Services: A measure of provincial services for private sector trade promotion, provision of regulatory information to firms, business partner matchmaking, and technological services for firms. In 2009, this index was altered slightly to promote the development of private business service providers. Early iterations had the perverse effect of encouraging provinces to develop such services and offer them for free, which was crowding out the ability of local businesses to develop and play this role. 9. Labor Training: A measure of the efforts by provincial authorities to promote vocational training and skills development for local industries, and to assist in the placement of local labor. 10. Legal Institutions: A measure of the confidence of the private sector in the provincial legal institutions, whether firms regard provincial legal institutions as an effective vehicle for dispute resolution, or as an avenue for lodging appeals against corrupt behavior by officials (Malesky 2005).

4. Weight of sub-indices

Sub-indices Weight (%)

1. Entry Costs	5
2. Land Access	5
3. Transparency	20
4. Time Costs	5
5. Informal Charges	10
6. Policy Bias	5
7. Proactivity of Provincial Leadership	5
8. Business Support Services	20
9. Labor Training	20
10. Legal Institution	5

5. Process of constructing PCI

The process of constructing PCI includes 3 steps:

STEP 1 – COLLECTING DATA To ensure objectivity, the data are collected from two sources: (i) mail-out surveys to thousands of private enterprise operating in 63 provinces, cities across the country. Because it was not feasible to survey every firm on this list, a stratified sample of firms is generated that would be representative of the total population of firms in each province across dimensions such as business lines, field of activity, type and age. (ii) through published sources: General Statistics Office, Ministry of Planning and Investment, Ministry of Natural Resources and Environment, Ministry of Industry and Trade, Ministry of Labor, Invalids and Social Affairs, the Supreme People’s Court and official website of provinces and cities. The result of step 1 will form the PCI indicators such as business registration days; percentage of enterprises believing that the quality of vocational training is Good or Very Good… STEP 2 – CONSTRUCTING THE PCI SUB-INDICES Each indicator will be standardized to a ten-point scale, whereby the best and worst performing provinces are awarded the scores of 10 and 1 respectively. Sub-index = 40% x average of “hard” indicators (which are announced by ministries and departments) + 60% * average of “soft” indicators (which are obtained through PCI surveys). STEP 3 – CONSTRUCTING THE FINAL PCI In this step, the sub-indices will be assigned with weights. There are three levels of weight: high (15-20%), medium (10%) and low (5%), reflecting the contribution and importance of each sub-index for the growth of private firms, capital and profits. Weighted PCI = (Sub-index 1 x 5% weight + Sub-index 2 x % weight + …. +Sub-index 10 x %weight) * 100

6. Method of PCI survey sampling

Researchers began their study by obtaining a list of tax-paying firms in every province from the National Tax Authority.This list was considered preferable to similar lists from the provincial business registration agencies for two reasons. First, most observers tend to believe that the lists are inflated. Second, addresses and phone numbers obtained from the Tax Authority were deemed to be more reliable as these came from the same data used by provincial tax officers to contact firms regarding payment. Because researchers wanted to compare provinces, it was necessary to construct separate provincial-level stratifications rather than one large national-level survey which would have sampled most heavily in HCMC and Ha Noi. To construct province-level stratifications, researchers used the Tax Authority lists to group firms by type of enterprise (Sole Proprietorship, LLC and JointStock Company), economic segment (manufacturing, natural resource exploitation, service and commerce, and agriculture) and firm age (measured by whether the firm was registered before or after the Enterprise Law 2000). Firm size was not used in the stratification, because it correlated too closely with type of firm. After verifying phone numbers and addresses, mail-out surveys were sent to firms based on their proportional representation in the above mentioned categories. Firms were selected randomly within each category.

7.Developing PCI questionnaire

In PCI surveys, questionnaires are always adjusted, adding necessary contents for each year to capture the dynamics of economic development of Vietnam. The questionnaires are developed by VCCI experts, in close consultation with experts, researchers from enterprises, business associations, research institutes, universities as well as public officials directly working at various central and provincial state authorities. For the survey years with major changes, questionnaires are field-tested, then modified, changed or removed accordingly if found unnecessary.

8. PCI Survey Methodology

PCI research team chose the mail-out survey method, after considering different methods. While a door-to-door survey would have led to a higher response rate than a mail-out survey, it had several disadvantages that would have undermined the overall goals of the project. First, sending complete research teams to all provinces would have been prohibitively expensive, limiting the amount of provinces which could be covered and eliminating the ease of surveying smaller firms based in rural localities. Second, door-to-door surveys would have eliminated the anonymity of respondents and reduced their openness. Firms would also worry that they could be identified and punished for critical answers. Finally, a project of this scale would have required hiring dozens of different interviewers, who even with excellent training may introduce new “treatment effects” through their interview techniques or personalities. These treatment effects would have been nonsystematic across provinces and therefore difficult to account for. Moreover, it was not clear that response rates actually differed very much between the two techniques when researchers properly accounted for nonresponses in the door-to-door survey from incorrect addresses and entry refusals. For these reasons, the research team chose to use a mail-out survey, but introduced several precautions to limit the impact of nonresponse bias. These precautions are discussed below. PCI Survey Methodology

9. Statistics on PCI’s impacts

Nearly 100.000 enterprises participated in the PCI survey in the last 11 years. As such, if calculating on the number of enterprises operating in Vietnam, for every 5 enterprises, there have 1 enterprise having participated in PCI survey. This is the biggest sample of business survey in Vietnam, in addition to the general enterprise census of General Statistics Office.

215 documents on PCI have been promulgated by provinces, cities in order to improve the business environment using PCI survey data until June 2016, including Resolutions of the Provincial Party Committee, Resolutions of Provincial People’s Council… to Resolutions of the Government such as Resolution 19/NQ-CP on the tasks and solutions to improve the business environment and enhance provincial competitiveness.

63 provinces and cities have issued documents on PCI

Most localities have targeted to improve PCI indicators as the basis for activities to improve the provincial business environment. Especially, during the party committee congress of provinces and cities of the last term of 2015-2020, 13 provinces and cities have included PCI as a target to improve for the political system and of the provincial Government in the documents of Provincial Party Committee Congress, such as Ho Chi Minh city, Da Nang or such mountainous provinces as Lam Dong, Hoa Binh, Son La…

350 workshops on PCI were held across the country with the participation of nearly 52,200 local officials attending the PCI related activities and events.

>1 million articles and news on the internet referring to PCI or use PCI as a tool to analyze the business environment at the provinces.

10. Impacts of the PCI

Given more than 10 years of operation, there are at least four major impacts that PCI has achieved, as follows: 1. PCI changes the mindset on economic governance: Earlier, local authorities assumed that geographical location, development of new infrastructure… were important, PCI has confirmed that the enhancement of governance quality will boost development of business sector and investment attraction. 2. PCI creates an effective oversight tool: Through PCI, the voice of enterprises is hearded. A government always aims to serve and satisfy of it’s people and enterprises. This is the ultimate goal of all reforms. And perhaps, this is also the first study to quantify the targets of satisfaction it’s people and enterprises with the governmental levels. 3. PCI is the motivation for changes: It is rare to see such a project like PCI that helps promote changes in not only attitudes but also specific activities of the governments. Lots of new reform initiatives have been implemented by provinces thanks to PCI. 4. PCI promotes collaboration and sharing: In the past 12 years, PCI has helped to spread the good experiences and successful reform lessons at provinces across Vietnam: The initiative of District/ Departmental level Competitiveness Index (DDCI) measuring the effectiveness of towns, districts and departments has spread from Kien Giang, Lao Cai to Vinh Phuc, Quang Ninh, Tuyen Quang, Bac Giang, Thai Nguyen and many other cities. In addition, this “made-in-Vietnam” initiative has also been exported to and implemented in 13 countries worldwide including big reforming economies such as India, China, Malaysia, Indonesia, Sri-lanka, Bangladesh, Salvador, Kosovo, Myanmar, Laos… and this list is getting longer. Impacts of the PCI

11. Who can use PCI?

PCI data and reports have currently become useful sources of information and commonly used among many different groups: Domestic and foreign enterprises consider PCI as an important support for making informed decisions in business location and expansion. Local government leaders use PCI as a success measure of reform programs on economic governance, as well as to identify the experiences, good practices from other provinces to apply to their owns. Elected representatives can use PCI to monitor the performance of the provincial governments (People’s Committee and departments) in improving the business environment. Business associations can use PCI to engage in business dialogues, policy recommendations for local governments to improve the business environment. Central policy makers refer to PCI indicators as criteria for evaluating economic reform policies. Reporters can quote PCI to illustrate the articles analyzing evaluating issues at the provinces. Some development organizations also use PCI to identify and evaluate the effectiveness of their assistance programs in Vietnam. Researchers, scholars from around the world exploit the PCI Data for researches and scientific analyses.

12. Who participate in grading PCI ?

PCI is established from the perceptions and reviews of enterprises of the private sector doing business at provinces. The PCI survey is not answered by State owned enterprises and foreign invested enterprises.

13. What is the PCI’s approach ?

The PCI is constructed based on the realities of Vietnam and designed in a way that makes it easy for the provinces to apply measures for economic governance reform, specifically as follows: First, by eliminating the influence of the initial traditional conditions to the economic growth of a province (geographical location, infrastructure, market scale and human resources), PCI research indicates that a good economic governance practice at provincial level plays a critical role for growth in Vietnam. Second, by standardizing the scores from the existing good practices in Vietnam, PCI encourages provincial governments to improve economic governance on the basis of the good practices of economic governance available in Vietnam, not based on an ideal model which may not be feasible. Third, by comparing the economic governance practices with the results of economic development, PCI helps to quantify the importance of the economic governance practices for investment attraction and growth. Fourth, the indicators constituting the PCI are designed to be easy for action, these are specific indicators that allow provincial officials to establish the targets and monitor the progress in implementation.

14. Agencies implementing and launching the PCI ?

The PCI is implemented by Vietnam Chamber of Commerce and Industry (VCCI) with the support of the United States Agency for International Development (USAID). PCI is collaboratively conducted by a group of local and foreign experts of VCCI.

Founded in 1963, the Vietnam Chamber of Commerce and Industry (VCCI) is a national organization that assembles and represents the business community, employers, and business associations of all economic sectors in Vietnam. The mission of VCCI is to protect and assist business enterprises, to contribute to the socio-economic development of the country, and to promote economic, commercial, and technological cooperation between Vietnam and other countries in the world. VCCI’s two main functions are: (i) representing the Vietnamese business community through the promotion and protection of the lawful, legitimate interests of Vietnamese enterprises and employers in domestic and international relations; and (ii) promoting the development of business enterprises, facilitating cooperation among business entities, and offering assistance in trade and investment, economic and technical cooperation as well as other business activities of enterprises in Vietnam and abroad. The United States Agency for International Development (USAID) is an independent federal agency that provides economic, development and humanitarian assistance around the world in support of U.S. foreign policy goals. Currently, USAID programs in Vietnam support the country’s progress by focusing resources in health, economic growth and governance, higher education, environment and climate change and vulnerable populations, including persons with disabilities. USAID played a key role in helping Vietnam reach out to global markets through its accession to the World Trade Organization and the Vietnam-US. Bilateral Trade Agreement. In partnership with the Government of Vietnam, USAID continues to promote greater market integration through its support for the Trans-Pacific Partnership under negotiation. USAID also supports efforts to strengthen the rule of law and improves economic governance while seeking to further Vietnam’s integration into the global economy as it continues its transition to a market-driven system. Working with the Government of Vietnam, USAID promotes transparency in law making, accountability, access to information and increased competitiveness. Under the USAID Country Development and Cooperation Strategy (CDCS) for Vietnam for the 2014-2018 period, USAID assistance will be focused on collaborative efforts that support the goal of Vietnam’s continued transformation into a responsible, more inclusive partner.

15. Purpose of constructing the PCI ?

The PCI is not intended solely for scientific research or to commend or criticize the provinces with high or low PCI scores. Instead, the PCI studies and explains why some provinces are ahead of the other provinces regarding private sector development, job creation and economic growth, thereby providing useful information for leaders of provinces and cities to identify areas of economic governance in need of reform and implement reforms in the most efficient way.