Vietnam Country Profile

Regional Differences

Regional Variations in Vietnam's Regulatory Environment and Corruption

Vietnam has embarked on a reform policy of decentralisation, which means that greater authority over investment licensing has been granted to provinces, municipalities and so-called investment zones. However, decentralisation is not necessarily in the interest of investors; decentralisation in Vietnam has led to different approaches toward economic governance, the uneven implementation of laws and variations in requirements. It has also given local officials considerable discretion to demand bribes for issuing licences and permits. The extent to which investment registration processes are simplified, corrupt practices pose problems, and the state is involved in real estate markets is determined by provincial decision-making. Therefore, companies should be aware that integrity and transparency and hence corruption vary widely across different North-South regional, urban-rural and provincial regulatory environments. In this regard, certain provinces have shown an aptitude to invigorate the private and foreign sectors, while other provinces have performed poorly. According to the USAID Provincial Competitiveness Index 2008 (a measure of economic governance), the five best performing provinces based on measures such as entry costs, transparency, time cost of regulatory compliance, informal charges and labour policy are Da Nang, Binh Duong, Vinh Phuc, Vinh Long and Dong Thap.

Moreover, some companies in poorly governed provinces simply choose to operate in the informal sector in order to avoid the risks associated with formalisation, such as problems related to costs of compliance and exposure to rent-seeking officials. However, a higher percentage of business activity takes place in the formal sector in well-governed provinces, while the extent to which corruption impedes business also varies by province.

Central to Vietnam's public administration reform has been to increase salaries and improve the professionalism of civil servants, so that demands for bribes would become a less pronounced part of public service delivery. However, as demonstrated below, these goals do not seem to have been achieved so far. According to the USAID Provincial Competitiveness Index 2008, the percentage of companies that identify the prevalence of bribes as an obstacle to business activities ranges from around 19% to 55% between provinces. The percentage of companies that believe that companies within their business sector are subject to demands for bribes from provincial authorities ranges from 46% to 84% between provinces, and companies estimating that more than 10% of their revenue is paid as 'informal payments' ranges from 2% to 22%. Countrywide, companies report that the predictability of implementation of central law at the provincial level has worsened, while almost 40% of companies surveyed believe government officials use compliance with local regulations as a means to extract bribes. However, it should also be noted that the recent establishment of provincial investment one-stop shops has reportedly had a positive effect on entry costs, waiting periods for business registration and other business-related formalities (see 'E-Governance' under 'Public Anti-Corruption Initiatives' in the Initiatives section).