Vietnam Country Profile

Regional Differences

Regional Variations in Vietnam's Regulatory Environment and Corruption

Vietnam has embarked on a reform policy of decentralisation, meaning 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 various requirements by which to abide. It has also given local officials considerable discretion to demand bribes for issuing licences and permits. Provincial decision-making determines the extent to which investment registration processes are simplified, the amount of corrupt practices that still occur, and the extent to which the state is involved in real estate markets. 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's Provincial Competitiveness Index 2010 (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, Lao Cai, Dong Thap, Tra Vinh and Binh Duong. 

Moreover, some companies in poorly governed provinces simply choose to operate in the informal sector in order to avoid the costs associated with formalisation, such as expenses related to the compliance with regulations and the 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's Provincial Competitiveness Index 2010, the percentage of companies reporting that actual bribes are paid during registration ranges from around 2% to 49% between provinces in 2010, while the percentage of companies that believe that companies within their business sector are subjected to demands for bribes from provincial authorities ranges from 21% to 77%. Companies estimating that more than 10% of their revenue is paid as 'informal payments' ranges from none to 17%. Furthermore, around 22% to 73% of companies ‘agree’ or ‘strongly agree’ that the government uses compliance with local regulations to extract rents. Despite that one-stop shop mechanisms in registration and use of information technology have been set up, the number of companies having to spend more than 10% of their time dealing with bureaucratic regulations actually increased from 15% in 2009 to 19% in 2010. (See 'E-Governance' under 'Public Anti-Corruption Initiatives' in the Initiatives section).