P 130913Z FEB 09
FM AMEMBASSY HANOI
TO SECSTATE WASHDC PRIORITY 9138
INFO AMCONSUL HO CHI MINH 
ASEAN MEMBER COLLECTIVE
ASIAN PACIFIC ECONOMIC COOPERATION
DEPT OF COMMERCE WASHINGTON DC
DEPT OF TREASURY WASHINGTON DC

UNCLAS HANOI 000121 
 
 
STATE FOR EAP/MLS MBROWN 
USTR FOR DBISBEE 
 
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 
----------- 
 
¶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 
-------------------------------------- 
 
¶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 
-------------------------- 
 
¶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 
------------------------------ 
 
¶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 
--------------------------------------- 
 
¶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 
---------------------------------------- 
 
¶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 
----------------------------------- 
 
¶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 
------------------------------------- 
 
¶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 
----------- 
 
¶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.