Provincial Competitiveness Index Ranking Analysis

The VCCI then sent out the questionnaires one week after Tet, when business owners are usually at their offices. The research team also made telephone calls to a random sample of businesses that had received the questionnaires but had not yet responded. A pre-prepared text was read consistently during the phone calls to explain the importance of the survey, encourage businesses to complete the questionnaires, and return them to the VCCI. Any businesses that had difficulty answering specific questions were also provided with answers upon request.

The list of enterprises in each province is obtained from the General Department of Taxation. This list is more reliable than the list of the Department of Planning and Investment. Because in the list of the Department of Planning and Investment, there may be some dissolved enterprises, some enterprises that are only registered but not actually operating. The phone numbers and addresses of all enterprises are verified by the Vietnam Chamber of Commerce and Industry.

b. Accuracy: shown in research method

With an approach from the perspective of businesses, those directly affected by the business environment, the PCI results obtained are highly objective and honest.

In the multivariate regression analysis method, sampling and grouping are always considered important. In the grouping criteria, the size of the enterprise is not used because it has a high correlation with the type of enterprise. Moreover, nearly 90% of Vietnamese enterprises have small and medium capital, that is, less than 10 billion VND. (See Appendix 3)

The provincial competitiveness index focuses on many factors related to governance such as the cooperative attitude of the government, the uncertainty of the policy environment, the complexity of administrative procedures... which are very difficult to quantify. To ensure scientificity, the weighting of each index is given.

component is a reasonable approach. Furthermore, since the PCI is point-in-time, the weighting is different from year to year. The analysis is based not only on soft data collected qualitatively but also on hard data that is publicly available in quantitative form.

Each component index is analyzed in relation to its impact on economic growth variables, specifically:

The ratio of active private enterprises (sole proprietorships, partnerships, limited liability companies and joint stock companies) to the local population. The number of active enterprises allows to identify those companies that have completed the business registration procedure and passed the initial registration stage to continue doing business.

Long-term private investment per capita represents the overall risk that entrepreneurs take. It is assumed that Hanoi entrepreneurs are generally willing to invest more than other provinces, but less than their potential, because they can accurately assess the long-term risks and benefits. When Hanoi has obstacles to business success or arises, investment is usually very small.

The average profit of each business shows the level of success of the business. This is the basis for the future development of the business.

c. Comprehensiveness: expressed in the scale of implementation

Within the framework of the research, in each province or city, only about 100 businesses sent feedback, but these 100 businesses represent thousands, tens of thousands of businesses currently operating locally.

When conducting stratified sampling, enterprises were grouped and classified into corresponding percentages according to 3 criteria: type, industry and the time the Enterprise Law was enacted in 2000.

Table 3: Criteria for classifying enterprises

(Source: VNCI)

(*) The Enterprise Law, issued in 2000, created many favorable conditions for the development of the private economic sector: simplifying procedures for establishing enterprises, abolishing hundreds of licenses and inappropriate legal regulations, establishing a new system of documents guiding implementation...

d. Representativeness

If we look at it from a word perspective: PCI - Provincial Competitiveness Index - Provincial Competitiveness Index has a very broad meaning. But that is simply

is the name of the sponsor 9. To avoid misunderstanding, the research team added a sub-title “Assessing the quality of economic management to promote the development of the private economic sector”. PCI only investigates small and medium-sized private enterprises, not corporations, enterprises with foreign direct investment (FDI) and state-owned enterprises.

In fact, FDI enterprises are concentrated in only a few provinces and cities 10 .

If we study FDI enterprises, the assessment between provinces and cities will be uneven. On the other hand, along with the policy of encouraging equitization, the number of state-owned enterprises tends to decrease. Private enterprises account for the majority of small and medium-sized enterprises. These enterprises have to interact with the government apparatus at all levels, and do not have as many advantages as FDI enterprises and state-owned enterprises. Therefore, if the business environment is favorable for private enterprises to develop, it is of course also favorable for FDI enterprises and state-owned enterprises to develop.

3.2. Analysis of Provincial Competitiveness Index rankings

Every year, through the published Competitiveness Index, each province is ranked from high to low and divided into groups. In 2005, there were 5 groups: Good, Fair, Average, Relatively low and Low. In the following two years, 2006 and 2007, a new group was added consisting of provinces that were clearly superior to the rest. The top group of provinces is called the “Very Good” group.

The grouping is more meaningful than ranking each province separately. The distance between the ranking groups is one-half of a point or more. When changing the weighting method, the composition of each group remains quite stable and there is no situation where a province can jump from one group to another, so using groups to analyze the results is more meaningful than depending on each decimal point of the score for analysis.

9 Dr. Edmund Malesky - Head of PCI Research Group

10 10 provinces and cities account for more than 80% of the total number of FDI enterprises in the country.

Table 4: Provincial Competitiveness Index Group


PCI 2005	PCI 2006	PCI 2007

Maybe you are interested!

(Source: VNCI)

Over the years, the provinces that have been "upgraded" and "maintained" in the ranking position show whether the measures implemented to improve the business environment by local authorities have been effective or not. The authorities of the provinces that have "fallen in rank" need to re-evaluate their operating methods, and at the same time study and learn from the experiences of other provinces. Because "PCI is essentially an index assessing the management capacity of provincial leaders with the private economy, not just covering the overall competitiveness of the province" 11 .

3.3. Impact of provincial competitiveness index on localities

The Provincial Competitiveness Index is researched and published annually and has great significance in economic management and administration in localities. It indicates the competitiveness of each province in attracting investment and development.

11 Mr. Vu Quoc Tuan - Research Board of the Prime Minister http://www.tuoitre.com.vn/Tianyon/Index.aspx?ArticleID=148355&ChannelID=11

private economic sector. That is the objective assessment of economic experts through highly scientific research methods.

Through the PCI of each province and city, we can see many intertwined relationships: between the activities of private enterprises and economic management practices, between economic management practices and the management activities of local authorities, and more importantly, the relationship between the local management apparatus and private economic sectors.

Table 5: Relationship Circle

The above circle of relationships is particularly important because it demonstrates that good economic policies and practices benefit not only businesses but also society as a whole. A dynamic private sector will be the basis for creating more jobs, contributing to raising living standards, first and foremost for local people.

From considering the competitiveness index in general and the component indexes in particular, provinces often prioritize reforms for the indexes that are easiest to improve, which can create favorable changes for the operation of the private economic sector.

The indicators that need improvement, ranked from easy to difficult, are usually:

 Increase transparency.

 Reduce the cost of cash transactions.

 Reduce the number, duration and scale of inspections and checks.

 Improve planning and policy.

 Increase dynamism.

 Reduce transaction costs in terms of time.

 Land reform.

 Reform business registration procedures.

Thus, the provincial competitiveness index is used as a policy tool to serve the work of reviewing, diagnosing and adjusting economic management activities at the provincial level through the following three steps:

Table 6: Three steps to review provincial economic management activities

When PCI increases by 1 point, it means increasing:

 7 businesses per 100,000 people.

 21 million VND profit per business.

On the other hand, there is a linear relationship between PCI and local GDP. If PCI increases, GDP also increases. Improving PCI also means that people's living standards in general increase and businesses in particular operate more effectively.

Table 7: Linear relationship between PCI and GDP

(Source: Policy Research Report - VNCI, No. 11)

The curve of high PCI provinces has a steeper slope than that of low PCI provinces. The gap between the two lines can be considered as “loss” due to poor management. In addition, the PCI index is also included in the plans and programs of donors in the field of KTTN development at the provincial and city levels. Donors such as IFC-MPDF 12 , DANIDA 13 and GTZ 14 use

PCI index as a tool for comparison, problem identification/research as well as monitoring/evaluation of support activities in local level programs.

12 Mekong Private Sector Development Facility ( MPDF ) of the International Finance Corporation ( IFC )

13 Danish International Development Agency (DANIDA)

14 German Technical Cooperation Organization (GTZ )