FIEs getting fed up with ‘bribery’ in Vietnam

Despite the Province Competitive Index (PCI) reported was announced by Vietnam Chamber of Commerce and Industry (VCCI) and a 6-year implementation of Vietnam Competition Initiative (VNCI), 2010 was the first year seeing the survey being expanded to foreign invested enterprises (FIEs) along with domestic firms.

According to Vu Tien Loc-Chair of VCCI, the extension of the surveyed objective came from the demand for researching factors boosting FDI of provinces/cities. Thus, the research group of VCCI took points of view at 1,155 FIEs.

Initial result, announced on March 16 by PCI research group, showed that labour cost, political stability and tax incentives are still leading factors appealing foreign investors to Vietnam’s provinces/cities.

Dr Edmund Malesky, chief of the research group from VNCI was quoted as saying that although numbers of these factors might change in the recent time, they always are selective factors by form, age, profession or market entry methods of investors.

The Professor of California University added, Vietnam is paying attention to attract high-tech investors called Future FDI Enterprise Generation. For the generation, the most interested factor is quality of labour, infrastructure, property ownership capital and interests related to contracts.

However, the biggest barrier for FDI attraction in localities is non-formal costs that FIEs have to suffer throughout the process of entering market and business operations.

PCI survey showed that 20 percent of FIEs responded that they had to pay for non-formal items in the business register process, 40 percent had to pay for commissions as joining tenders. Meanwhile, 70 percent of respondents had to lose “lubricating cost” (or “bribing items”) to clear their goods more quickly.

VCCI and VNCI officials said there was no big difference between domestic and foreign companies in non-official items. Even in some aspects (especially for closely managed sectors), “lubricating cost” FIEs had to suffer is higher (even more than 50 percent).

In addition, FIEs actually are not satisfied with the transperancy of local legal environments. Giving assessment on market entry costs in Vietnam, FIEs said it was worse as some investors had to wait for longer 1 month to complete the number of procedures that are larger than local firms did. Also, procedures, regulations, sustainability level in land using and labour quality were evaluated to be weaker than previous time.

Therefore, VCCI and VNCI recommended that local investment attraction should not be stopped at preferential measures, which need to focus on information, promotion and change of investment structure. Furthermore, local governments should be interested more in improving universal education quality, vocational training, reducing unnecessary costs for firms, and enhancing infrastructure investment.

The report noted, economists said that FDI preference policies are not in degree, but depending on appropriation of those policies. “88 percent of surveyed FIEs select localities that have fewer incentives but more higher appropriation to invest”.

FIEs in Vietnam come from 47 different nations and 75 percent is Asian companies. 84 percent of operating businesses are 100 percent foreign invested firms. Average disbursement ratio to registered capital is 62 percent. FIEs succeed in average profitability ratio of 20 percent a year equaling to $17,000 per labour unit. However, 20 percent of FIEs still posted losses in 2010. Only 13.5 percent of projects are invested with high-technologies and equipped with modern technologies.

Tags: Vietnam companies