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Vietnam’s Competitiveness Assessment Declines in 2011

There are now many annual ratings of a country's competetiveness.  The original annual rating and the one that we still feel is the best is the survey done by the World Economic Forum (WEF): The Global Competitiveness Report (GCI).  The annual report published was published since 1979.

The 2011-2012 report covers 142 major and emerging economies. The Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity, depending on how productively a country uses available resources.

For Vietnam, the country's competitiveness assessment declines in the edition of 2011, dropping six places to 65th.



WEF's Report Comments on Vietnam for 2011-2012
(Source: www.weforum.org)
 
"- Vietnam loses ground in 10 of the 12 pillars of the GCI and only a significant improvement in the macroeconomic environment (65th, up 20 places) limits its fall in the rankings. Despite this considerable improvement, some macroeconomic challenges remain.
- The 2010 budget deficit was still too large, at 6 percent of GDP, and inflation moved back to double-digit levels after having briefly receded the year before.
- Going forward, Vietnam will have to build on its strengths while addressing the economy’s numerous challenges. Among its competitive strengths are its fairly efficient labor market (46th) and its innovation potential (66th) given its stage of development, including its relatively large market size (33rd), which benefits from a particularly large export market.
- However, the challenges going forward are numerous and significant. Infrastructure, strained by rapid economic growth, remains a major challenge for the country despite some improvement in recent years, with particular concerns about the quality of roads (123rd) and ports (111th).
- And although education appears to be satisfactory in terms of quality, enrollment rates at all levels remain low (64th, 103rd, and 110th for primary, secondary, and tertiary enrollments, respectively).
- In order to further improve its competitiveness, Vietnam must also continue to strengthen its institutional environment. Regulation is perceived as burden- some (113rd), with the number of procedures (9, 94th) and time (44 days, 119th) required to start a business making this a cumbersome process. In addition, there are concerns regarding the level of intellectual property protection (127th) and, to a lesser extent, the respect of property rights (98th).
- Finally, corruption is considered frequent and pervasive (104th)."
Our Comment: Why Vietnam falls in WEF ranking?
- In 2010's records showed (read our report for 2010) Vietnam was up 16 positions from 2009; however dropped 6 points in 2011.  Among the country’s competitive strengths in 2010 compared to the 2011:

a.) In 2010, Vietnam's efficient labor market was ranked 30th. In 2011, the ranking was dropped to 46th.
b.) In 2010, Vietnam's innovation potential given its stage of development was ranked 49th. In 2011, the ranking was dropped to 66th.
c.) It's market size, however, has improved: from ranking 35th in 2011 has increased to 33th in 2011
d.) Labor-Employer Relations in 2010 was ranked 38th; however, in 2011 it was dropped to 50th.

- As Vietnam expanded their industrial base, industrial expansion calls for structural change towards more sophisticated industries and not juts a shift from agriculture to manufacturing

- Vietnam’s trade pattern also raises concerns given the country’s heavy reliance on imports and limited domestic technological content.

- Total tax rate in Vietnam is still lower than China and India

- Lastly, same problems are still remain:
The most problematic factors for doing business in Vietnam 2011 compared to 2009
The most problematic factors YR 2011

 The most problematic factors YR 2009
1 Inflation       
2 Access to financing  
3 Policy instability    
4 Foreign currency regulations   
5 Inadequate supply of infrastructure   
6 Inadequately educated workforce    
7 Tax regulations  
8 Corruption       
9 Poor work ethic in national labor force   
10 Inefficient government bureaucracy    

1. Inadequate supply of infrastructure  
2. Access to financing   
3. Inadequately educated workforce   
4. Inflation    
5. Tax regulations   
6. Policy instability   
7. Poor work ethic in national labor force 
8. Corruption    
9. Tax rates   
10.  Foreign currency regulations 
(Source: www.weforum.org, Table by: Business-in-Asia.com)    
  • Inflation from the 4th problem ranking has became the country's top concern.  The government has done much right in trying to control inflation but needs to keep strict controls on money growth and restrict poorly conceived project growth.
  • Policy and financing has not been improved; foreign currency regulations have become problematic as the country developed and more attention is needed here.
  • Vietnam, on the other hand, has a relatively sizeable (20th) and efficient (27th) banking system that provides a solid foundation for further growth. In addition, the country has an advantage in securitization (33rd), which underscores the relative depth and sophistication of the country’s non-banking financial services (48th).  Recently, the government has been promoting a program for smaller banks to merge with other banks to improve the size, reserves and efficiency of smaller banks.  Initial work is this area seems positive but more time is needed to see if this program will gain strength.
  • Educate workforce better.  We note the recent opening of Eastern International University (EIU) in Binh Duong as a clear step in the right direction.  Some provinces like Binh Duong have clearly gotten the message on the need for a better trained workforce and are moving ahead.  This effort needs to be expanded, however, throughout the country if Vietnam wants to become more competetive.
  • Infrastructure has not been the top problem, but much more needs to be done to improve infrastructure if a systematic way that doesn't just spread the money but focusses better on return on investment.  Areas like Ho Chi Minh City, the Southern Key Economic Zone, the area near Danang and cerain areas around Hanoi that already have received investment need a greater focus on meeting their infrastructure requirements.  More remote provinces will have to wait for additional investment.  Port investment as we have noted previously has been parcelled out in a way that didn't optimize the investment.  Vietnam doesn't need a host of poorly conceived ports that don't meet international standards.  What is needed is a well conceived and funded port for Ho Chi Minh City and the Southern Key Economic Zone, upgrade of Danang port in the center, upgrade of Cam Ranh Bay and upgrade of Haiphong in the North.  Parcelling money out to additional provinces just doesn't make sense given Vietnam's relatively limited investment options.
  • Corruption is still a concern and the government needs to do more in controlling corruption at all levels.
  • Government needs to be more efficient and government budgets need to be better controlled to limit waste and inefficiency.
 
More detailed analysis of the report:
The Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity, depending on how productively a country uses available resources.

Vietnam: Institutions          
Property rights, Intellectual property protection, Irregular payments and bribes, Favoritism in decisions of government officials, Wastefulness of government spending, Burden of government regulation, Efficiency of legal framework in settling disputes, Transparency of government policymaking, Business costs of terrorism, Business costs of crime and violence, Strength of investor protection

Vietnam: Infrastructure & Technological readiness
Quality of overall infrastructure (road, port, airport), Quality of electricity supply, Fixed telephone lines/100 pop, Mobile telephone subscriptions, Availability of latest technologies, DI and technology transfer, Internet users, Broadband Internet subscriptions, Internet bandwidth

Vietnam: Inflation
annual % change

Vietnam: Education and Training
Quality of primary education, Primary education enrollment, Secondary education enrollment, Quality of the educational system, Quality of math and science education, Quality of management schools, Internet access in schools, Availability of research and training services, Extent of staff training

Vietnam: Goods market efficiency
Intensity of local competition, Extent of market dominance, Extent and effect of taxation, Total tax rate, No. procedures and days to start a business, Business impact of rules on FDI,  Buyer sophistication

Vietnam: Labor market efficiency
Cooperation in labor-employer relations, Rigidity of employment, Brain drain

Vietnam: Market size
Domestic market size, Foreign market size

Vietnam: Business sophistication & Innovation
Local supplier quantity, Local supplier quality, State of cluster development, Extent of marketing.
Capacity for innovation, Quality of scientific research institutions, vailability of scientists and engineers



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