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REPORT
THE “COMPREHENSIVE STRATEGY FOR SERVICE SECTOR DEVELOPMENT
TO THE YEAR 2020 (CSSSD) WITH A VISION UP TO 2025”
ACTIVITY CODE: SERV-2A
Final Report
12/2009
Submitted by:
Andras Lakatos
Michel Kostecki
Andrea Spears
Daniel Linotte
Nguyen Hong Son
Nguyen Duc Kien
Nguyen Manh Hung
Le Trieu Dzung
Pham Thi Phuong
Nguyen Son
Tran Minh Tuan
Doan Thai Son
This document has been prepared with financial assistance from the Commission of the European Union. The
views expressed herein are those of the author and therefore in no way reflect the official opinion of the
Commission nor the Ministry of Industry and Trade
CONTENTS
INTRODUCTION .............................................................................................................................. 7
PART I: A VISION AND STRATEGY FOR VIET NAM'S SERVICES SECTOR ................... 8
CHAPTER 1:
FRAMEWORK FOR BUILDING A VISION AND STRATEGY FOR
SERVICE SECTOR DEVELOPMENT IN VIET NAM................................................................ 8
1.1 What role for the State in Developing the Services Sector? ........................................................ 12
1.2 A few stylized facts about service; What can the State do to develop the service sector, and
what it cannot? ................................................................................................................................... 15
1.3
Main Issue Areas That Need to Be Addressed by a Comprehensive Strategy for Service
Sector Development ........................................................................................................................... 21
CHAPTER 2: THE RATIONALE AND FOUNDATIONS FOR A VIETNAMESE
SERVICES SECTOR STRATEGY - CURRENT STATE AND DEVELOPMENT
ISSUES OF THE SERVICE SECTOR IN VIET NAM ............................................................... 31
2.1 The Importance of the Service Sector in the Vietnamese Economy ............................................ 31
2.2 Current level of development of the services sector .................................................................... 38
2.3 Structure of the Vietnamese Service Industry .............................................................................. 45
2.4 Profiles of Service Firms in Viet Nam ......................................................................................... 51
2.5 Competitiveness Issues Related to Development of Service Sector ............................................ 55
2.6 Viet Nam’s Trade in Services ...................................................................................................... 60
2.7 Trends in Demand for Vietnamese Services ................................................................................ 62
2.8 Viet Nam’s services gap ............................................................................................................... 66
CHAPTER 3: THE PREREQUISITES FOR STIMULATING THE SERVICES
SECTOR GROWTH........................................................................................................................ 69
3.1 Key drivers of growth and supporting infrastructure for development of the service sector in
Viet Nam ............................................................................................................................................ 69
3.2 What Stimulates Growth in the Service Economy? ..................................................................... 71
3.3 Foreign and Domestic Competition in Services ........................................................................... 82
CHAPTER 4: THE STRATEGIC DEVELOPMENT OF COMPETITIVENESS
WITHIN THE SERVICES SECTOR - COMPETITIVENESS AND EFFECTIVENESS
OF SERVICES IN VIET NAM....................................................................................................... 84
4.1 Introduction .................................................................................................................................. 84
4.2 The scope of this study ................................................................................................................. 86
4.3 Competitiveness analysis (I): quantitative analysis ..................................................................... 86
4.4 Contribution of services to GDP growth ...................................................................................... 93
4.5 Competitiveness analysis (II): qualitative analysis ...................................................................... 93
4.6 Effectiveness of the services sector .............................................................................................. 98
2
4.7 Policy recommendations ............................................................................................................ 103
CHAPTER 5:
TRADE IN SERVICES: WHAT STRATEGY FOR VIET NAM? ............. 108
5.1 Introduction ................................................................................................................................ 108
5.2 The Framework of Inquiry ......................................................................................................... 109
5.3 Economic Development and Service Trade in Viet Nam .......................................................... 112
5.4 The Impact of Policy Reforms in Services on Trade and Economic Performance .................... 117
5.5 The Prerequisites for Stimulating Growth of Trade in Services ................................................ 119
5.6 Strategic Recommendations for Development of Viet Nam’s Trade In Services ...................... 120
5.7 Servicing Foreign Owners of Equipment Temporarily Transferred to Viet Nam ..................... 127
5.8 Developing Trade-related Services Offered to Exporters and Importer .................................... 129
5.10 Developing Foreign Client-base for Viet Nam’s On-line Services.......................................... 131
5.11 Improving the Skills of Labor Inputs Offered Temporarily to Foreign Clients ....................... 131
5.12 Developing Services Offered by Firms Temporarily Based Abroad ....................................... 132
5.13 Establishing and Expending the Subsidiaries of Service Firms Abroad .................................. 134
5.14 Optimizing Imports of Services to Viet Nam........................................................................... 134
5.15 Government Action Plan for Viet Nam’s Trade in Services: Several Suggestions ................. 136
5.16 Rendering Regulations More Supportive for Exports of Services ........................................... 138
CHAPTER 6: SERVICES SECTOR CAPACITY ASSESSMENT: CONSULTATION,
COORDINATION AND CAPACITY TO IMPLEMENT SERVICES SECTOR
POLICIES, PLANS AND INTERNATIONAL COMMITMENTS .......................................... 143
6.1 Introduction and Background ..................................................................................................... 143
6.2 The Task Ahead: Services-Related Objectives, Trends and Priorities...................................... 146
6.3 Progress since 2006 and Suggestions for Action ....................................................................... 149
6.4 Capacity-Building and Institutional Strengthening Suggestions ............................................... 170
6.5 Summary: Key Findings and Recommendations ....................................................................... 174
6.6 Sum-Up of Main Recommendations .......................................................................................... 178
CHAPTER 7: STRATEGIC RECOMMENDATIONS.............................................................. 179
7.1 Main principles for an effective and comprehensive policy framework for services ................ 179
7.2 Remove impediments that prevent competition and demand for services ................................. 180
7.3 Remove regulatory barriers to services ...................................................................................... 181
7.4 Services Related Policy Making and Implementation ............................................................... 182
7.5 International Trade and Investment in Services ......................................................................... 185
7.6 Innovation Policy ....................................................................................................................... 185
7.7 Human Resources ....................................................................................................................... 186
7.8 Priority Services Subsectors ....................................................................................................... 186
CHAPTER 8: CONCLUSIONS .................................................................................................... 188
References ........................................................................................................................................ 190
3
PART II: SECTORAL REPORTS ............................................................................................... 209
CHAPTER 1: BUSINESS AND PROFESSIONAL SERVICES ............................................... 209
1.1 Business and professional services ............................................................................................ 209
1.2 Professional services .................................................................................................................. 212
1.3 Computer and related services ................................................................................................... 220
1.4 Research and developments services ......................................................................................... 222
1.5 Other business services .............................................................................................................. 223
CHAPTER 2: INSURANCE AND SECURITY SERVICES ..................................................... 232
INSURANCE SECTOR................................................................................................................. 232
2.1 Current status of insurance sector in Viet Nam.......................................................................... 233
2.2 Existing law and regulations governing insurance sector in Viet Nam ..................................... 237
2.3 The impact of WTO accession on insurance sector ................................................................... 242
2.4 Trade in insurance services ........................................................................................................ 245
2.5 Major Issues & Trends ............................................................................................................... 246
2.6 Key drivers of insurance sector growth and development ......................................................... 248
2.7 Overall goals and policy recommendations for comprehensive development of insurance
services in Viet Nam ........................................................................................................................ 254
2.8 Policy recommendations ............................................................................................................ 254
SECURITIES SECTOR ................................................................................................................ 256
2.1 The 10 years development of Viet Nam securities market and services .................................... 257
2.2 The evolution of the Viet Nam securities market (2000-2008) ................................................. 265
2.3 Current regulatory framework for securities services in Viet Nam ........................................... 273
2.4 Some diagnostic assessment on the Viet Nam securities market ............................................... 276
2.6 Foundation for sustainable development of securities service in Viet Nam .............................. 283
2.7 Recommendations to develop and improve the efficiency of the Viet Nam securities market . 285
CHAPTER 3: BANKING SERVICES ......................................................................................... 290
3.1 Overview of reform process in banking sector .......................................................................... 290
3.2 Importance and structure of banking service sector ................................................................... 291
3.3 Current level of development ..................................................................................................... 293
3.4 Development issues .................................................................................................................... 296
3.5 Trends and Forecast of demand for banking services in the medium and long term ................. 307
3.6 Service Gap ................................................................................................................................ 308
3.7 SWOT Analysis.......................................................................................................................... 309
3.8 Macroeconomic stability is a necessary condition for the sustainability and growth of the
banking sector .................................................................................................................................. 311
3.9 An Enabling Business Environment for Banking Service Growth ............................................ 312
3.10 High quality human resource is a necessary condition for developing banking services ........ 312
4
3.11 Strengthening protection of creditor's right and establishment of effective bankruptcy
mechanism are essential in heightening confidence in banking sector and contributing to the
growth of banking services .............................................................................................................. 313
3.12 Recommendations on banking service development strategy up to the year 2020 and
vision to the year 2025 ..................................................................................................................... 314
CHAPTER 4: TELECOMMUNICATION SERVICES ............................................................ 319
4.1 Current State and Development Issues of the Telecommunication Sector in Viet Nam ........... 319
4.2 Viet Nam business environment industry SWOT ...................................................................... 335
4.3 The prerequisites for stimulating the services sector growth ..................................................... 336
4.4 Regulatory Developments .......................................................................................................... 344
4.5 Commitment of Viet Nam after WTO in telecoms sector ......................................................... 346
4.6 Recommendations for development goals up to the year 2020 and Vision to the year 2025
for the Vietnamese service sector..................................................................................................... 352
4.7 Main solutions ............................................................................................................................ 360
4.8 The missions of Ministries, Branches, enterprises ..................................................................... 365
CHAPTER 5: PUBLIC SERVICES ............................................................................................. 368
5.1 The rationale for developing public services in Viet Nam......................................................... 368
5.2 Current State and Development Issues of the public services in Viet Nam ............................... 373
5.3 The prerequisites for stimulating the development of public services in Viet Nam .................. 380
5.4 Key public services to promote socio-economic development .................................................. 393
5.5 Improve maternal health............................................................................................................. 404
5.6 Reduce HIV/AIDS infection and eradicate other major diseases .............................................. 404
5.7 Recommendations for Goals and Vision for the Development of Public Services in Viet
Nam to the year 2020 and 2025 ....................................................................................................... 407
5.8 Recommendation for Guidelines and Measures to develop public services in Viet Nam ......... 412
CHAPTER 6: TRANSPORT SERVICES ................................................................................... 417
6.1 Executive summary .................................................................................................................... 417
6.2 Current status and development issues of the transport services in Viet Nam .......................... 418
6.3 The prerequisites for stimulating transport services growth; key drivers of growth and
supporting infrastructure for development of the transport services in Viet Nam ........................... 434
6.4 Overall goals and strategic recommendations for comprehensive development of transport
services in Viet Nam ........................................................................................................................ 446
6.5 Recommended policy orientation and action plan for transport services in Viet Nam.............. 450
CHAPTER 7: POLICY AND LEGAL FRAMEWORK ON SERVICE SECTOR
DEVELOPMENT........................................................................................................................... 454
7.1 Introductions............................................................................................................................... 454
7.2 Current policy and legal framework on services sector development ....................................... 454
7.3 Development concerns relating to the legal framework and policy on service sector in Viet
Nam .................................................................................................................................................. 460
5
7.4 Recommendations ...................................................................................................................... 470
REFERENCES ............................................................................................................................... 472
APPENDIXES ................................................................................................................................ 482
Appendix 1. Liberalization Commitments in Banking Services ...................................................... 482
Appendix 2. The benefits and risks of banking services liberalization ............................................ 488
Appendix 3. Profile of major banks ................................................................................................. 490
Appendix 4: Profiles of the Major Service Firms in Viet Nam – Operators .................................... 494
Appendix 5: Decree no. 121/2008/ND-CP December 3, 2008, on investment activities in the
post and telecommunications sector ................................................................................................. 515
Appendix 6: Forecast Modelling ...................................................................................................... 522
6
INTRODUCTION
This study report, jointly written by a team of international and Vietnamese experts has been
commissioned by the Multilateral Trade Assistance Project III (EU - Viet Nam MUTRAP III),
which is executed by the Ministry of Industry and Trade of the Socialist Republic of Viet Nam in
partnership with the European Commission, under its Activity SERV-2A 1. The report’s aim is to
support the Ministry of Planning and Investment in devising the “Comprehensive Strategy for
Services Sector Development (CSSSD) to the year 2020” as required by Resolution 16/2007/NQ-CP
on “the implementation of major policies to accelerate and stabilize the economic development
after the accession to the WTO”. The specific objective of the report is to assist the Ministry of
Planning and Investment (MPI) and the Interagency Task Force (ITF) in finalizing the draft of the
“Comprehensive Strategy for Services Sector Development” (CSSSD) for subsequent submission to
the Government for approval.
This report builds on, and supplements and earlier report, the “General Framework for a National
Strategy for the Services Sector in Viet Nam up to 2020” (GFSS) released in 2006, which itself was
part of a larger three-year project funded by the United Nations Development Programme (UNDP)
on “Capacity Strengthening to Manage and Promote Trade in Services in Viet Nam in the Context
of Integration” (or “Trade in Services” Project VIE/02/009). The Ministry of Planning and
Investment is the national executing agency of the Project, while the Department of Trade and
Services of the MPI is serving as the implementing agency.
The GFSS provided a comprehensive analysis of challenges and recommendations on how to
address these challenges and still remains a sound basis for jump-starting the finalization of the
draft CSSSD 2010-2020 and a vision until 2025. Given the time and human resource constraints of
the activity SERV-2A, the present report could not have the same level of ambition as that of the
GFSS in terms of scope of field research, details of sector-specific analyses or policy networking. In
addition, as the time lapsed since the GFSS (3 years) is rather short from the perspective of a 15year-long strategy and vision, replicating the GFSS exercise would not have resulted in a
fundamentally different analysis and set of policy options. Therefore, when preparing the present
study report, the authors have refrained from duplicating the GFSS, and rather they preferred to
focus – in agreement with the beneficiary of the SERV-2a activity, the Ministry of Planning and
Investment (MPI) – on complementing the GFSS and recommendations for the main directions for
preparation of the CSSSD.
Part I of the report was drafted by DMI experts, while Part II contains the background reports
written by PTF experts.
1
“Formulation of the Draft Comprehensive Strategy for Services Sector Development to the year 2020 and a vision to
2025”
7
PART I: A VISION AND STRATEGY FOR VIET NAM'S SERVICES SECTOR
CHAPTER 1: FRAMEWORK FOR BUILDING A VISION AND STRATEGY FOR
SERVICE SECTOR DEVELOPMENT IN VIET NAM
For the last two or three decades there has been growing attention among economists, and to a
lesser degree policy makers, to the contribution of service industries to the processes of economic
development throughout the world. However, the value of service industries to the economy is still
often underrated; manufacturing still attracts most of the political and administrative energy when it
comes, for example, to designing tax, trade and support policies.
Nevertheless, there is an increasing recognition of the importance of services, in part because they
have become increasingly interconnected with the goods sectors as a way of enabling the latter to
remain competitive. Despite differences in structures of production and employment, modern
economies, developed and developing alike, all share a common feature: a significant and
increasing share of services. Among OECD countries, the service sector has become the most
important provider of both output and jobs; this sector accounted on average for roughly two-thirds
of total gross value added and employment in 2000. In developing countries, too, the share of
services has risen relative to total value added. The adequate provision of services is increasingly
recognized as one of the preconditions for - rather than a result of - development. For instance,
inadequate infrastructure services, such as poor telecommunications and transport networks or a
weak financial system, are perceived as critical bottlenecks for sustainable development.
Distribution, trade finance, insurance, marketing and other business services are complementary to
the healthy growth of industrial activities. 2 It is now accepted that services play a critical role in
determining both the quality and speed of the process of economic development, and that a
competitive economy cannot exist without an efficient and technologically advanced service sector.
Before the economic reforms in the transitional economy countries of Europe and Asia, the political
attention to services was practically non-existent. Services industries were generally neglected
under central planning as Marxist political economy stressed the importance of the production of
tangible (material) goods as determinants of economic development, and treated the services sector
as unproductive. Policy makers and economy planners focused on industrialization and exportable
products. The neglect of services was reinforced by the difficulties of planning services as opposed
to planning demand and production of tangible goods. To the extent services have been dealt with
by governments of socialist countries, attention was broadly limited to basic social services (health
and education) and infrastructure services (energy, transportation, telecommunications, postal
services) with focus on their goods aspects.
In the pre-reforms conditions of transitional economies, State-ownership and lack of competition in
the economy prevented the emergence of many services and those, which existed, suffered from
underdevelopment. Many of the services that are critical to the functioning of a market economy
simply did not exist not just a financial sector that could allocate investment funds efficiently, but
also design, advertising, packaging, distribution, logistics, management, after sales services, etc.
The lack of producer services was reflected in transport bottlenecks, queuing for and low quality of
2
Bernard Chane-Kune, Kiichiro Fukasaku, Jean-Christophe Maur and Ramkishen S. Rajan: “Liberalisation and
Competition in the Service Sectors: Experiences from Europe and Asia”, in “Asia and Europe: Services Liberalisation”,
OECD, Paris, 2003
8
telecommunications, the absence of efficient financial intermediation, and much lower employment
in services than was the case in market economies. 3
Similar was the situation in Viet Nam before Doi Moi. There was no explicit policy or growth target
developed for services; what was worse, no legal and regulatory frameworks existed for services.
Trade in services was almost ignored in reports on economic relations between Viet Nam and the
outside world. 4
Viet Nam’s services sector has been progressively opening up since the market-oriented reforms of
Doi Moi was launched, and this resulted in spectacular development of the sector, which is
accelerating since the country’s accession to the World Trade Organization.
The revealed economic gains from the services sector development have attracted a much higher
level of policy attention during the last 15 years. 5 Viet Nam’s National Economic Development
Plan for 1996-2000 set ambitious targets, which however were not completely met, for an annual
rate of growth in services of 12%-13% and a services share in GDP of 45%-46% by 2000. The
Development Strategy for 2001-2010 issued by the 9th Communist Party Congress also focused on
the services sector, setting revised targets of an average annual rate of growth of 7-8% and a
targeted services share of 42-43% in GDP and 26-27% in employment by 2010.
Since the 6th Party Congress, a number of major market-oriented and liberalizing reforms have
been launched during the Doi Moi period, many of them affecting directly or indirectly service
activities. However, enhanced market openness measured in terms of FDI inflow has mostly
benefited the manufacturing sector, while within the service sector it was concentrated to a few,
non-strategic service sub-sectors, mainly hotels and restaurants, real estate, renting and business
activities. 6
While FDI was partly channelled to telecommunications, the overall policy approach to strategic
sectors was very cautious, and a significant, yet gradual and partial, degree of market liberalization
in core infrastructural areas (e.g. energy and telecommunications) dates only since the late 1990s. In
the domain of financial services, affected by the burden of numerous non-performing loans, initial
reforms of the late 1980s, resulted in the replacement of the mono-bank system with a two-tier
banking system, as the function of the Central bank was separated from those of the four new Stateowned commercial banks (SOCBs). Later, limited participation of private actors, and representative
offices, and branches of foreign banks were gradually allowed to enter the Vietnamese financial
market. 7
The overall GDP indicators for the period 2005-2008 8 show that in spite of a better services sector
performance than that of industry/construction in terms of SEDP 2006-2020 targets, no
3
Felix Eschenbach and Bernard Hoekman: Services Policy Reform and Economic Growth in Transition Economies,
Review of World Economics, Volume 142, Number 4 / December, 2006
4
Pham Chi Lan, Member of the Advisory Board to the Prime Minister: Designing a National Services Export Strategy
for Vietnam, ITC Executive Forum on National Export Strategies, 5-8 October 2005, Montreux, Switzerland
5
Pham Chi Lan
6
See Table 8 in Ministry of Planning and Investment: “Support To Socio-Economic Development Monitoring” Results-Based Mid-Term Review Report For Implementation of the Five-Year Socio-Economic Development Plan 20062010, Project 00040722, Hanoi, May 2009
7
Alberto Gabriele: Strategic Services Policies and International Trade Integration in Vietnam, Journal of Economic
Integration 20(2), June 2005; 263-293
8
See Ministry of Planning and Investment: “Support To Socio-Economic Development Monitoring” - Results-Based
Mid-Term Review Report For Implementation of the Five-Year Socio-Economic Development Plan 2006-2010, Project
00040722, Hanoi, May 2009
9
breakthrough has been achieved in structural adjustment, and the service sector’s contribution to
GDP growth still falls behind the secondary sector.
Annual data and forecast
2004a
2005 a
2006 a
2007 a
Nominal
GDP 45.4
52.9
60.9
71.0
(US$ bn)
Real GDP growth 7.8
8.4
8.2
8.5
(%)
Origin of GDP (% real change)
Agriculture
4.4
4.0
3.4
3.7
Industry
10.3
10.7
10.4
10.6
Services
7.3
8.5
8.3
8.7
a
Notes: Actual
b
Economist Intelligence Unit estimates.
c
Economist Intelligence Unit forecasts.
Source: ASEAN Economic Bulletin, Vol. 26, No. 1, April 2009
10
2008b
90.4
2009c
89.6
2010 c
99.3
6.2a
3.0
4.0
3.8a
6.3a
7.2a
3.0
2.5
3.6
3.0
4.5
4.0
Sectoral composition of Viet Nam’s GDP: 1992 – 2004
(in percent of GDP)
Source: Chu Thi Trung Hau and Paul M. Dickie: Economic Transition in Viet Nam: Doi Moi
to WTO, ADB, 2006
Since its WTO accession early 2007, Viet Nam’s economy continued to grow rapidly and in 2007,
GDP growth remained high at 8,5%, compared to that of 8,2 per cent in 2006. However, the year
2008 has seen economic activities to slow down and economic growth rate was only 6,2% which
reflected investors’ fear of macroeconomic instability and global financial crisis and recession. 9 Das
and Shrestha (2009) foresee for 2009 macroeconomic conditions that will not permit in the short
run a more dynamic development of the services sector. It is predicted that FDI, which was an
important driver for growth of the Vietnamese economy, will be severely curtailed on lack of
available financing. Liquidity for banks is also expected to dry up, partly because banks are refusing
to lend to other financial institutions that may not be able to pay back loans, which, in turn, will
adversely affect the overall investment growth in the economy. On the supply side, in addition to
weakness in the industrial sector, services growth will also suffer as a result of the global financial
crisis and recessionary conditions in many developed countries. In 2009 tourism receipts will
decline, with other imports of trade-related services. The upward trend in the repatriation of foreign
investors’ income and profits will temporarily reverse, in line with a slowdown in the operations of
foreign enterprises. 10
It’s against this background that Vietnamese policy makers face the challenging task to enable the
services sector to achieve on the longer run a much greater proportion of the country’s total output
than it currently does. If the service sector grows more dynamically and expands its share in the
economy it would increase the country’s overall economic efficiency, help strengthen the business
sector, contribute to decrease unemployment, and accelerate trade and technological progress. This
calls for further and deeper reforms which lead to deep structural changes which are needed if the
services sector is to become the engine of Viet Nam’s economic growth.
9
Sanchita Basu Das and Omkar Lal Shrestha: Vietnam: further challenges in 2009, ASEAN Economic Bulletin, April,
2009
10
Sanchita Basu Das and Omkar Lal Shrestha: Vietnam: further challenges in 2009, ASEAN Economic Bulletin, April,
2009
11
The following sections of this Chapter first discuss the major cross-cutting issues for the further
development of Viet Nam’s services sector that the CSSSD is recommended to address, then the
major findings and recommendations detailed in the subsequent chapters are presented.
***
1.1 What r ole for the State in Developing the Ser vices Sector ?
The first and foremost question that arises in the context of a comprehensive government strategy
for developing the services sector in the context of the Vietnamese market economy with socialist
orientation is: “what the government can and should do to develop the service sector”? Should it
continue to produce and provide services, and if so, which ones, or should it leave services for the
market and confine itself to the responsibilities of policy maker and regulatory watchdog? Similar
questions also arise from time to time in some market economy countries in public discussions, for
instance about deregulation and privatization of public services, as demonstrated by debates about
liberalization of the postal and railways services in the EU, or the treatment of health and
educational services in the GATS. However, in Western market economy countries there is a
general consensus that genuinely non public services should be left for the private sector (even
though the borderline between public and non public services is sometimes interpreted differently).
However, in the case of transitional economies like Viet Nam, where governments (either at central
or local level) have traditionally had both service supplier and regulatory functions, the issue is
much wider, since state ownership is massively present in many services sectors that are normally
competitive sectors (i.e. in which services could be provided by private businesses in competition
with each other to provide consumers with more choice, lower prices and ostensibly better quality).
The Central and East European countries all had to address these issues in the context of their
transition from central planning to market economy and opted for massive elimination of state
ownership, through various approaches, like the “big bang” approach of Russia and the Czech
Republic or more gradual one like in the case of Hungary. However, in all Central and East
European countries, the consensus seemed to be that where no genuine public goods are supplied or
no strategic interests are involved, goods and services would be more efficiently produced and
provided by the private than the state sector.
In the case of Viet Nam’s market economy with socialist orientation, the issue is to find the optimal
mix of state and private ownership.
In the MPI/UNDP study “General Framework for a National Strategy for the Services Sector in
Viet Nam up to 2020” (GFSS) this issue was formulated as the “need for economic planning to be
balanced with market forces”. The GFSS concluded that the “challenge in a transition economy like
Viet Nam is to balance central economic planning with the positive benefits of market forces. In
the context of international integration, the government needs to retain enough control to make sure
that social goals (such as poverty alleviation) are met while also putting in place the regulatory
framework to ensure consumer protection as the market opens.”
A corollary and crucial question is “which services are more efficiently supplied by the government
than the private sector?” It would go beyond the scope and possibilities of this study report to
answer this question; this would require an evidence-based assessment of the situation of each
Vietnamese service sector, as well as the present and prospective capacities of the State and the
private entrepreneurs. As the overall economic situation changes, the private sector is strengthening,
new technologies are developed and become accessible, the answer should also evolve over time
giving larger rooms for the private sector to provide services. Therefore, answering this question
12
should not be an one-off exercise but rather an ongoing activity which should be foreseen by the
CSSSD.
It is clear however, that as long as the State retains its market positions in various services sectors, it
will have to pursue its role of strategic “developer” not only where it has legal monopoly, such as
infrastructure services, but also where it has a de facto dominant position through the combination
of State-owned enterprises, e.g. in banking and telecommunications.
No doubt however, that as Viet Nam is getting closer towards a market economy with socialist
orientation, the benefits of greater market openness and liberalized services markets will become
apparent, and competitive private businesses will greater role in expanding the services sector. The
positive and negative experience of the Central and East European countries and CIS countries of
Central Asia with market opening and services sector liberalization may be useful for Viet Nam.
Analyzing the correlations between services policy reforms and economic growth in European and
Central-Asian transition economies, Eschenbach and Hoekman (2006) found a statistically
significant positive association between reforms measures – through deregulation, re-regulation and
increased contestability of services markets (including privatization and FDI) – and per capita GDP
growth. The countries of Central European countries and the Baltic States where service intensity of
FDI was the highest, had a substantial convergence toward OECD countries in terms of share of
services in GDP, employment, output per worker, trade, and FDI, in sharp contrast with Central
Asian and CIS (Commonwealth of Independent States) economies. Given that trade and FDI in
services can be expected to be associated with the acquisition of new technologies, higher service
standards and more effective delivery, these differences should help explain the observed higher
labour productivity performance in services in the Central European and the Baltic countries
relative to Central Asia and the CIS.
Chart 1 shows three indicators constructed by the European Bank for Reconstruction and
Development (EBRD) that measure the extent of policy reforms in banking, non-bank financial
services, and infrastructure in transition economies. The value of the indices is set at zero for 1989,
so that the 2004 value provides a measure of the progress that has been made by countries in
converging to “best practice” standards - measured by a maximum value of 4.3.
13
Chart 1
Services Reform Index, 2004
Note:
CEE = Central and Eastern European countries (Poland, Hungary, Czech and Slovak
Republics, Slovenia);
SEE = Albania, Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Romania, and
Serbia and Montenegro;
FSU1 = Estonia, Latvia, and Lithuania;
FSU2 = Russia, Ukraine, Belarus, Moldova;
FSU3 = Armenia, Azerbaijan, Georgia;
FSU4 = Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan.
Source: EBRD, quoted by Eschenbach and Hoekman (2006)
The policy reforms in the financial and infrastructure services, including telecommunications,
power, and transport, undertaken by the Central and Eastern European countries and the Baltic
States, are highly correlated with inward FDI. These services are major inputs into the production of
goods and services, including agriculture and manufacturing. The costs of these inputs account for a
major share of the total cost of production, and are thus important factors affecting the
competitiveness of firms. It is therefore no surprise that the differences in the Service Reform
Indices are to large extent reflected by differences in economic structure and in the extents to which
European and Central Asian transitional economies have converged to comparators of OECD
countries (see Table 1).
14
Table 1
Changes in the Share of Services
in GDP and Employment and Labour Productivity
Source: Eschenbach and Hoekman (2006)
1.2 A few stylized facts about ser vice; What can the State do to develop the ser vice sector , and
what it cannot?
For a long time there was a clear distinction in everyday language between goods and services.
Whilst, “for several decades, modern economies have been service economies, and the point of no
return has long been passed” 11, there exists no consensus as to what services are and how they
should be best defined.
As surprising as it may be, even the General Agreement on Trade in Services of the WTO does not
define services. There exists a multitude of services classifications and the one developed for GATS
purposes during the Uruguay Round has never been made compulsory. This report does not
11
As noted by Gallouj (2002)
15
question the definition of services and will simply take them as understood in the WTO. However, a
short discussion about the nature of services and their specificities relative to goods seems
appropriate as the most important of them might have implications for understanding the nature and
content of desirable policies for services.
As noted by the Australian Services Roundtable (2006), good policy-making in services suffers
from poor definition of the nature of services industries in economic theory and in statistical
collections. This is despite the fact that services activity dominates developed economies and many
developing ones.
Services are very poorly understood as ‘tertiary’ activities that do not produce tangible “things” or
“goods”. In the official statistical classifications, the services sector is generally defined negatively
– as including all economic activity other than mining, manufacturing, agriculture, forestry and
fishing – and in Viet Nam’s statistical system, construction.
At the policy level, often there seems to be a general failure to capture by policy makers the nature
of services relative to that of goods and therefore to design appropriate policies for services
development. This failure may stem from some persistent old concepts of services, which continue
to influence present-day economic and political discourses that prevent from adopting policies
relating to services that would match the economic reality of the service economy.
These old concepts are mainly based on the myth that “services are unproductive”. The notion of
services as an unproductive activity with no economic value has its origins in the history of
economic thought, and in particular in the work of Adam Smith and Marxist economists who
considered services to be non-productive or parasitic, and who made a distinction between the
productive work of manufacturing and the unproductive work that characterizes service activities.
This concept partly explains the traditional division of economic structure in which services are
negatively defined: accordingly services belong to the “tertiary” sector consisting of activities,
which do not produce or modify material goods (or: “everything that is not agriculture or
manufacturing”). This classification of economic activities continues to influence many present-day
approaches to services. There have been many attempts to define additional sectors to the threesector classification to better capture economic realities, but none of them has been accepted by
societies in general and the scientific community in particular. 12
12
Sven Illeris: “The nature of services”, in John R. Bryson and Peter W. Daniels, editors: “The Handbook of Service
Industries”, Edward Elgar, Cheltenham, UK and Northampton, MA, USA, 2007. Illeris gives a detailed description of
the various proposals for 4th and 5th sectors.
16
Box 1
Debunking Myths About Asia’s Service Industries
Asian economies have much to gain from an agreement on trade in services in the Doha
negotiations of the World Trade Organization. Many understandably look to service exports
as a source of employment and economic growth. Yet, important though this is, the emphasis
on boosting offshore services risks overlooking a far larger, though less fashionable,
opportunity for Asian nations – that of stimulating their domestic-services sector.
Domestic services are essential to growth. They account for more than 60% of all jobs in
middle-income and developed economies, and virtually all net new job creation. Given
labour-saving new technologies, manufacturing is not a sustainable source of job growth for
any economy. Even China, the so-called "factory floor" of the world, has shed more than 15
million manufacturing jobs since 1995.
The problem is that Asian policy makers have long preferred to promote high-tech sectors,
manufacturing exports, and now trade in services. For them, domestic services conjure up an
image of small-scale, low-wage ventures like shoe repair and fast-food vending. But such jobs
by no means form the whole picture: domestic services also comprise huge sectors crucial to
economic development, including power supply, transport, retail, construction and
telecommunications, as well as a range of high-skill, high-wage occupations, from
accountants to advertisers and movie stars.
The sheer size of domestic-service sectors makes them powerful drivers of overall GDP
growth, and their share of the economy rises as countries develop. Services comprise roughly
half of GDP in India and the Philippines, but a full 68% in Japan and 75% in the United
States. And the quality of those services impacts growth rates in other sectors because every
enterprise must use them. Efficient, good value domestic services also help to attract foreign
direct investment. India's offshoring sector, for instance, did not take off until telecom reforms
were adopted in the early 1990s.
Yet productivity in domestic services lags far behind productivity in export sectors in nearly
every Asian economy. Four prevalent myths held by Asian policy makers and propagated by
some in the media are to blame.
MYTH NUMBER 1: “REFORMING DOMESTIC SERVICES WON'T DO MUCH FOR PRODUCTIVITY
BECAUSE THEY OFFER SO LITTLE SCOPE FOR INNOVATION.”
History shows otherwise. The late 1990s boom in U.S. productivity, for instance, was due
mostly to innovations in service industries like retail, wholesale, and financial services, not
just high-tech sectors.
MYTH
NUMBER 2:
SERVICE WORK.”
“MANUFACTURING
JOBS ARE HIGHER SKILLED AND BETTER PAID THAN
On the contrary, service industries create more high-skilled occupations than manufacturing.
In the U.S., for instance, more than 30% of service jobs are in the highest skill category of
occupations, which includes managers, researchers, and engineers, in contrast to only 12% of
all manufacturing jobs. And the distribution of wages across U.S. service and manufacturing
sectors is similar.
17
MYTH NUMBER 3: “MANUFACTURING JOBS ARE MORE STABLE THAN JOBS IN SERVICES.”
That can't be right, since manufacturing employment is shrinking world-wide. What is true is
that service industries tend to have higher job turnover than manufacturing. Service industries
as a whole create more jobs than they lose. So creating a dynamic service sector guarantees
lifetime employment opportunities for everyone, if not the same job for life.
The final myth is that reforming service sectors will lead to more unemployment. This fear is
centered on the retail sector, where big modern stores could drive out smaller, traditional
ones. But this is precisely how economies develop, resulting in a bigger national income for
everyone to share and higher overall employment. This fear ignores the fact that larger stores
offer lower prices and better services, which boosts demand and causes stores to hire more
people. This is why the U.S., with its highly productive retail sector, employs proportionally
more people in this sector than countries where traditional stores prevail.
Believing these myths can hobble a country's growth. Take Japan. By 2000, its world-class
export manufacturers were legendary. Yet output from the likes of Sony and Toyota
comprised only 10% of GDP. Productivity in the rest of the economy – most of it in domestic
services – was only 63% of U.S. levels. This is one reason why Japan's economy has
stagnated since the early 1990's. It also helps explain why recent deregulation in telecoms,
transport, energy, finance and retailing are estimated by Japan's Cabinet Office to have
boosted GDP by 4.6% in 2002.
An additional challenge is arising out from a number of characteristics that services have relative to
goods. 13
•
First, nature of the “product” resulting from a service is in most cases relatively fuzzy and
unstable. There is (in most cases) a lack of an entity that can be distinguished – a material
good that can be stored, transported, owned and sold – which means that it makes little sense
to measure the product itself (for example, teaching) and hence that the basic economic
concepts of GDP and productivity are difficult to apply. On the other hand, it is possible to
distinguish the effects, which constitute the reasons why users demand services, and which
may be very durable, as in the case of teaching.
In fact, stricto sensu, there is no “service product”, rather there is a “nebulous” process.
Indeed a service is a process, a sequence of operations, a formula, a protocol, a mode of
organization. It is difficult, in many cases, to locate the boundaries of a service in the same
way as those of a good can be fixed.
•
13
Second, many services are “interactive”: they are consumed as they are being produced
and involve some degree of customer participation. This means that service producers and
users must be present at the same time and place, face to face, although modern
telecommunications in some cases may relax this constraint. This also explains why it is
necessary for service producers to locate in the proximity of users. This also explains why
internationalization of services – or “trade in services” – rather takes the form of setting up
affiliates in the customer country than the form of cross-border exchange. Another
consequence is that service producers often have a local monopoly, which tends to slow
down productivity growth.
The following summary of services’ specificities draws on Illeris (2007) and Gallouj (2002)
18
•
Third, service relations mean that the activities are often labour intensive, with limited
possibilities for economies of scale, for standardization and for productivity increases. Their
quality depends heavily on the professional and social qualifications of the personnel. Two
services are never quite identical, which contributes to the problems of comparing
productivity over time and space
•
Fourth, the more the service has the character of producer/consumer co-production, the more
each service is unique. This means that both parties must engage in the relation in a state of
uncertainty, and that some mutual trust is required. Incidentally, the surrounding
circumstances also play a role interfering with the production of the service. The
consequence is that the normal market model is not applicable – its basic, though sometimes
forgotten, assumption of identical products is not fulfilled. However, and agreement
between the parties on the use of certain methods, or governmental rules to protect
customers in opaque markets, e.g. by laying down professional qualification rules for certain
categories of service providers, can mitigate these risks.
•
Fifth, the relatively low capital intensity of most service activities means that it is
comparatively easy to start new firms (low entry barriers). Consequently, most new firms
created are in the service sectors, especially when countries change from planned
economies – with low priorities given to services – to market economies. In most private
service sectors, there are many very small firms. Large firms, for example, in accounting
and management consultancy, tend to organize themselves in ways that leave many
decisions to the operative staff. There are, however, sectors with predominantly large
corporations and traditions of strict hierarchical organization, for example, banks, transport
companies and retail chains.
•
Sixth, the service sector is of extreme diversity. All attempts to define and classify services
recognized the complexity and diversity of the business activities that need to be included.
The simplest classification of service activities identifies five different types of services 14:
1. Consumer services that provide services for final end-users;
2. Producer and business services that provide intermediate inputs into the activities
of private and public sector organizations;
3. Public services provided directly by the state or indirectly by the private sector
and not-for-profit organizations;
4. Not-for-profit organizations working beyond the confines of the state; and
5. Informal services or unpaid service work that is often predominantly undertaken
by women, and which is a vital element of people’s daily lives.
The above-mentioned characteristics, especially locational constraints, the participation of users in
service production and the role of trust, imply that supply and demand of services cannot be
forecast with certitude and that any public policy based on numerical targets is doomed to be highly
inefficient if not futile.
While there have been various approaches adopted by governments to services sector development,
a common feature seems to be that the focus was on finding an appropriate policy environment for
boosting productivity and competitiveness of services. Most of these strategies comprised policies
addressing pressing cross-cutting issues rather than providing sector specific support measures,
14
The EU Services Directive divides market services them into three categories: services provided to consumers,
services provided to other businesses, and services provided to both consumers and businesses.
19
although the latter have also been widely used to the extent that such measures had particular
importance (for example, subsidies to, or direct provision of, infrastructural services) as part of a
comprehensive service sector strategy.
In the European Union services strategies have been adopted for instance in the framework of the
Single Market program, and recently as part of the Lisbon Strategy that aimed at creating the
World’s most advanced knowledge economy. Mention should also be made of the recent Services
Directive whose objective is to release the untapped growth potential of internal EU services
markets by removing legal and administrative barriers to intra-EU trade in the services sector.
Of more direct relevance is for Viet Nam and the CSSSD are the various public policies
(governmental and civil) pursued by East Asian countries to enhance the services sector in order to
enable the goods sector to remain competitive thereby better contributing to economic growth and
structural change. Instrumental to the success of these policies has been the contribution of
knowledge-based industries, including producer services, financial services, information technology
(IT) services (which are essential both for the development of a knowledge-based economy as well
as enabling international telecommunications and connectivity) complemented by physical
communications services such international airports, ports, and shipping.
Promoting FDI in research and development (R&D) has been a particular area targeted by many
Asian countries. The most successful countries achieved significant levels of R&D activity. Their
success seems to lie in proactive formulation and implementation of combined government policies
aimed at enhancing their “creative assets” 15. These policies include promoting imports of knowhow, people, capital and technology alongside domestic strategic investments in human resources,
specialized infrastructure such as technology parks, strengthening financial institutions, or
introducing targeted incentives for attracting knowledge-intensive investment. An important lesson
is that policies to strengthen education, competition, FDI, and business innovation, as well as
policies targeting the needs of specific industries and smaller firms, are effective, especially if they
are well coordinated and adopt a long time horizon.
15
Daniels and Harrington (2007)
20
Box 2
Research and development activities in some East Asian developing countries
Research and development expenditures by majority-owned foreign affiliates of US
corporations in China, Hong Kong (China), Republic of Korea, Malaysia and Singapore,
increased from USD 400 million in 1994 to more than USD 2,1 billion in 2002.
In China alone the number of inwardly invested R&D establishments increased by 700
between 1995 and 2005, from a standing start.
More than half of the 300 largest R&D spending firms in the world now have R&D facilities
in countries like Singapore, India or China.
In the Republic of Korea some 140 foreign affiliate research institutes, including one of
Microsoft’s four overseas research centres and the R&D establishments of Intel, Motorola,
Philips and Siemens, had all been opened by the end of 2004
As the synergy between national policies for creating sustainable knowledge-based clusters
and inward investment in R&D deepens, it also enables firms based in the Asian host
countries to invest in their own overseas R&D activities. According to UNCTAD (2005) in
2004 there were 60 R&D centres in other parts of the world which were owned by firms based
in the Republic of Korea; Chinese companies operate at least 80 R&D units in other parts of
the world and software firms based in India are now very actively engaged in creating a direct
R&D presence in the US and elsewhere
Source: Daniels and Harrington (2007)
1.3 Main Issue Ar eas That Need to Be Addr essed by a Compr ehensive Str ategy for Ser vice
Sector Development
The strong growth of services experienced during the last 2-3 decades by many countries resulted
from a combination of various factors. One of the most important among them was the growth in
competitive pressure. Another important factor was the opening up of service markets that were
previously sheltered from domestic and/or international competition. This resulted from regulatory
reforms of service markets (for example: transport, communication, finance and certain business
services) and a reduction of barriers to trade and investment in services. The growing scope for
competition and international cross-border trade was permitted by technological changes and the
consequential increased tradability of services. All this has increased the incentives for firms to
increase efficiency through greater use of advanced technologies, notably ICT, which has enabled
innovation and productivity growth in many services, and has also forced firms to make greater
efforts in introducing innovative products and processes throughout the value chain. In countries
where this process has advanced furthest, such as Australia and the United States, the resulting
boost to productivity has contributed to lower prices and growing demand for service products, and
to strong employment creation in certain services sectors, notably business services. The experience
of these countries shows that employment and productivity growth can go hand-in-hand. 16
The conclusion that one may draw from the above very concise summary for Viet Nam is that the
Comprehensive Strategy for Service Sector Development should address at least the following key
16
OECD (2005)
21
areas: as a starting point, establishing a culture of competition with a level playing field for all
actors and gradually increasing the competitive pressure by both internal and external liberalization;
opening up domestic services markets for foreign competition is important since modern services
techniques and technologies, and human skills can be acquired the most efficiently through FDI.
Regulatory reforms are essential elements of the liberalization strategy. Liberalization does not
mean absence of regulations, but necessitates in most of the cases de-regulation and re-regulation.
In the following we discuss some of the most pressing issues to be addressed by the CSSSD, which
pose immediate obstacles to the emergence of a vibrant and competitive services sector. These
include removing structural impediments to the development of the services sector, improving the
legal and regulatory frameworks for services firms, promoting competition in the domestic market,
adopting an appropriate innovation policy, creating a enabling business environment, just to
mention the most important ones.
The following points discuss the most important issues.
1.3.1 Ownership Structure and the Emergence and Development of Competitive Markets for
Producer Services
Firms in the primary and secondary sectors have always used services provided by other firms, such
as distribution, finance, and insurance, transport and telecommunications. With greater mobility of
people and technological change, more services became increasingly tradable and this further
increased the scope for specialization in production and trade which increased the needs for
externalized intermediate (producer) services that they previously used to produce internally.
Information technology services, personnel supply and training services, such as data processing,
legal advice, advertising, design, research, cleaning, security, are among the services which are
increasingly outsourced to external service providers.
The private sector is the driving force of growth and development in many economies, and
especially for services. A considerable share of the growth in business services is the result of
externalization by established firms, which are shifting various functions and activities to external
suppliers. By doing so these firms can reduce their costs and increase specialization thus their
competitiveness. In fact, in highly competitive markets, the competitiveness of firms depends
importantly on the availability of effective and efficient lower-cost, high-quality services inputs.
This externalization/outsourcing process provides the basis for greater firm specialization and
restructuring in addition to promoting new venture businesses and job creation. This process is also
the source of many new services either as a result of unbundling or, which is more important, as a
result of innovation.
However, in Viet Nam, the superiority of the State sector, represented by the SOEs (as well as other
enterprises with dominant State participation) has been emphasized for several decades until
recently 17.
The MPI & UNDP (2006) already noted that this developmental “externalization” process can
become distorted due to in-house production by state-owned enterprises and/or government
subsidies. Whilst the number of SOEs sharply decreased from 12.000 a decade ago to fewer than
3.200 in 2006, state ownership still dominates key industries such as telecommunications, ICT, steel
production, and construction.
17
Nguyen and van Dijk (2008)
22
In fact, in Viet Nam, State ownership in many sectors is still so dominant that this prevents the
emergence of competitive services markets. Large State-owned enterprises (SOEs), especially in
monopoly or oligopoly situation, have the tendency to produce business support services in-house
or purchase them from other state-owned enterprises as much as possible which make it impossible
for specialized independent services providers to come into being, or if they exist, the latter can not
acquire high quality specialized knowledge due to lack of competitive conditions.
It seems that SOEs do not attach much importance to acquiring higher quality specialized business
services from external sources, and even if they do consider this, they tend to internalize these
services. Therefore SOEs do not generate significant external demand for knowledge intensive or
specialized business services. This is not a problem as long as SOEs producing goods or services
themselves are in competition with other firms. However, if one or more SOEs dominate a given
market, specialized business services will not emerge or will help sustain an immature market for
such expensive and low-quality services.
The ICT sector is one among others where all major players are SOEs, which – together with tight
controls implemented through Internet development policy – prevent the private service providers
to genuinely participate in the sector. 18
1.3.2 Ownership Structure, Competition and the Development of the Service Sector
In order for efficient services to develop, not only a healthy competition between all service
providers should be present, but competition should grow to foster the growth and new entry of
firms that are particularly innovative and successful in meeting consumer demand. 19
Unfortunately, while Viet Nam has recently adopted a competition law, not only the ownership
structure discussed above distorts domestic services markets, but also by the use of SOEs by the
government to interfere with markets. SOEs seem in practice to remain outside the reach of
competition law and policy.
In Viet Nam, as Nguyen and van Dijk (2008) observed, in general, there is not yet a level playing
field for firms. The private and public (state) sectors face different government interventions,
receive different endowments and treatments.
SOEs are massively subsidized and receive all sorts of privileges to the detriment of the private
sector. The most frequently noticed differentiated treatments relate to forgiveness of debts by the
Government or SOCBs, forgiveness and replenishment of losses from the budget, preferential
access to finance by SOCBs, and preferential access to lands. According to Nguyen and van Dijk
(2008), “in general, government’s preferential treatment of SOEs remains a major obstacle to the
development of private firms. Evidence is the slow pace of implementation of recent reform
measures, including SOE reform.”
Several studies have examined the factors distorting competition and restricting the private sector
from reaching its full potential. For example, a survey on the major obstacles encountered by
18
Jonathan Boymal, Bill Martin, Dieu Lam: “The political economy of Internet innovation policy in Vietnam”,
Technology in Society 29 (2007) 407-421
19
OECD (2005)
23
private firms and SOEs 20 showed that unfair competition is perceived as the most severe constraint
by private firms and SOEs. A large share of the participating private firms (42%) felt that
preferential treatment of SOEs is a “major” or “severe” constraint. Another cause of unfair
competition is the high degree of informality in the business sector, giving an unfair competitive
advantage to noncompliant firms. Both sources of unfair competition distort the allocation of
resources.
Economic theory recognizes only market imperfections, such as the existence of a natural monopoly
or externalities, as motives for state ownership. The massive presence of SOEs in various
Vietnamese economic sectors and the preferential treatment they receive from the Government, are
even more surprising if one consider that the amount of capital needed to create one job in SOEs is
nearly five times higher than that in FDI firms and more than eight times higher than that in
domestic private firms. 21
As the two Finnish authors, Katariina Hakkala and Ari Kokko, observed, in order for the
Vietnamese government to successfully the challenge to use the limited amount of resources
available for public investment efficiently, it would be necessary to create a level playing field,
where investors from different sectors operate under the same rules and regulations, and where the
marginal return of investment in different sectors can be expected to be more or less the same. At
present, this is not the case. SOEs still receive favourable treatment, which leads to an inefficient
allocation of resources and an under-utilization of the economy’s growth potential. To release the
growth potential of the private sector, it would therefore be necessary reduce or abolish the various
privileges of SOEs.
1.3.3 Improving the Legal and Regulatory Framework for Services
With the relatively advanced liberalization of many barriers to trade in goods - at the multilateral,
bilateral and regional levels or on a unilateral basis - the cost of protecting services became of
greater overall significance than that due to protectionism in the goods sector. Regulatory barriers to
services impact even those domestic producers of goods who do not intend to participate in
international trade. In fact, these services barriers impact them – even farmers – as if they were to
pay an import duty in their own country.
20
Conducted by the Mekong Private Sector Development Facility (MPDF) in cooperation with researchers from the
Australian National University and the Central Institute of Economic Management (CIEM).
21
Hakkala and Kokko (2007)
24
Box 3
The economy-wide and cross-sectoral effects of service sector protection
Understanding the economy-wide and cross-sectoral effects of service sector protection is
crucial for both governmental policy makers and businesses. Services barriers have a taxing
effect on non-services sectors. Protection of services in telecommunication, banking,
distribution, electricity, professional services, and air and maritime transport, affects the
effective protection of agricultural and manufacturing sectors. This illustrates the potential
economy-wide costs of services barriers to downstream-using industries as well as the
benefits of service sector liberalization for the competitiveness of production of goods and
services and the economy as a whole. These linkages are important from a practical point of
view, given that services barriers reverse the protection of a number of agricultural and
manufacturing sectors, i.e. they act as effective taxation, offsetting thereby the protection
intended for agriculture and manufacturing.
Effective rates of protection are measures of the protection provided to an industry by the
entire structure of tariffs, taking into account the effects of tariffs on inputs as well as on
outputs. The effective rate of protection gives the percentage increase in value added per unit
in an economic activity that is made possible by the tariff structure relative to the situation in
the absence of tariffs, giving insights into the supply-side impact of the protection structure.
Given the important role of services as intermediate inputs in the production of most
industries, an inefficient services sector can be costly for the economy as a whole. For
example, even if a country were to engage in a reform programme that would reduce goods
tariffs to zero, distortions would continue to persist should services barriers remain
unchanged. As nations move to reduce tariffs and other barriers to trade substantially,
effective rates of protection may decline, and in some cases become negative for
manufacturing industries as they lose protection for their goods and continue to be confronted
with input prices that are higher than they would be if services markets were contestable.
Ignoring the services barriers in these calculations translates into distorted measures of the
protection structure of a country. In other words, the calculation of effective rates of
protection (ERP) needs to take into account services barriers in order to obtain an accurate
illustration of the total protective structure in the economy. Such an approach will also
highlight the costs imposed by inefficient services inputs to both services and non-services
sectors.
The recognition of the costs of services protection led many countries to engage in regulatory
reforms of its services sectors and adopting a liberal trade and investment regime in key service
sectors.
The importance of regulatory reforms and efficient regulations is also linked in the case of Viet
Nam to its recent accession to the World trade Organization. The GATS and also Viet Nam’s
Accession Protocol impose certain disciplines as to domestic regulation. These pertain to Viet
Nam’s various licensing regimes and services regulations. While Viet Nam has adopted many new
laws during the last 2-3 years to implement its WTO obligations in the area of services, further legal
and regulatory measures – and active implementation and enforcement - seem necessary to bridge
the remaining gaps.
25
The MPI/UNDP (2006) study has provided a comprehensive overview of both the legal and
regulatory frameworks for services in Viet Nam. Unfortunately, the observations made in 2006
remain largely pertinent: in Viet Nam, the policy environment for services and the legal texts are
“complex and contradictory”, and laws and regulations – sometimes even within the same hierarchy
- often conflict with each other.
One of the issues that the CSSSD might wish to address in the area of lawmaking, is the apparent
propensity in Viet Nam is to produce laws, decrees and lower-level acts, including circulars and
letters, on one single subject matter. It has been observed that in complex matters there is an
inflation of legal acts and the addressees frequently need additional written guidelines and
interpretations.
Public consultation in lawmaking or in the preparation of regulations is not yet an established
practice. It would benefit all stakeholders if the relevant authorities could involve, through
consultative processes, the business community and civil society in the preparation of economic
laws and regulations, both at central and provincial levels.
Regulatory independence and transparency are critical to regulatory effectiveness and, importantly,
to creating an environment that fosters competition and attracts investment. They are also at the
heart of the GATS Telecommunications Reference Paper to which Viet Nam is a signatory. Lack of
transparent rule-making processes breeds uncertainty - causing current investors to pull out and
potential investors to go elsewhere. Regulatory independence and transparency are also critical in
enabling regulatory agencies to monitor the business environment in an effective manner to ensure
that industry players comply with laws and regulations.
Concerning authorization procedures, there is tendency for licences to proliferate. In addition, many
authorization procedures still continue to involve discretionary power of the relevant licensing
authorities, which reduces the predictability of the outcomes of the licensing procedures. Businesses
have reported gaps in the interpretation in the investment law between provinces/cities, especially in
the services areas and the conditional sectors. Local licensing authorities have been reported to
ignore changes in legislation or interpret them in a restrictive manner that is detrimental for
businesses.
The CSSSD would provide an ideal opportunity to launch a systematic and comprehensive review
of regulations of services sectors. Such a review would aim to reduce unnecessary regulatory
barriers to market entry and operational efficiency of services providers, fostering competition and
competitiveness, rationalizing regulations and strengthening the capacity of regulatory agencies.
1.3.4 Strengthening the Competitiveness of Private Firms
The uneven playing field for private firms and SOEs creates a serious constraint on private sector
development, without which Viet Nam’s competitive services sector will not develop. However,
even if large-scale measures to level the playing field would be undertaken, Viet Nam’s young
private sector, which is largely based on small and medium sized enterprises, would not able to
compete in many of the skill intensive industries that still are dominated by SOEs and foreigninvested enterprises. Therefore, to fully utilize the growth potential of private sector and to achieve
the country’s ambitious development objectives, it is necessary to strengthen the competitiveness of
private enterprises. The focus in this section is on two domains that are important for improving
competitiveness of the private sector and where state institutions can play an important role:
education and human resources.
26
Viet Nam’s revealed comparative advantages at present are in labour- and resource-intensive
industries, such as light manufacturing and food products. However, it is also important to create a
foundation for Viet Nam’s future transition to a more modern, knowledge-based and globally
competitive service economy. Developed country experience shows the importance of effective
education and technology policies during early phases of industrial development.
The Vietnamese government has traditionally accorded a high priority to education. The efforts
during the past decade have given Viet Nam an international recognition for achieving the highest
level of literacy and best access to basic education of all low-income countries Since access to
primary education is largely assured, the current focus in national policies, as reflected in the SocioEconomic Strategy 2001-2010 and the Education Development Strategic Plan for 2001-2010, is to
concentrate resources on improving the quality of education. In particular, the quality of higher
education requires improvements to better meet the demands of a more sophisticated marketoriented economy.
Higher education in Viet Nam is characterized by a multiplicity of small mono-disciplinary
institutions with limited linkages between teaching and research. The structures and procedures of
the system are inherited from the era of central planning, when higher education was segmented by
economic sector, with many specialized institutions, each with little autonomy of its own, reporting
to a particular line ministry. The higher education system suffered from low efficiency and quality
and was unable to respond to the demands of the market economy. Low efficiency in higher
education resulted from the small size of higher education institutions. There are currently over 200
higher education institutions nationwide. The issue of low quality stems from the perception that
graduates are not well equipped for demands of the market economy.
Typically, teaching at the universities emphasizes the importance of facts over the use of knowledge
for problem solving, and aims to provide skills tailored to a particular segment of the labor market.
The government’s recognition of the inadequacies of higher education has led to reforms in tertiary
education policy including: 1) introduction of semi-public and non-public tertiary education; 2)
tuition fees and charges for students coupled with scholarships; and 3) encouragement of
entrepreneurial activity by institutions to raise additional non-government revenues.
While these measures have gone some way in providing a better environment for higher learning,
they have also caused some problems related to access to education: with increasing out-of-pocket
costs, higher education is largely out of reach of students from the poorer segments of the
population, irrespective of the personal qualities of the students. Hence, there is an ongoing debate
regarding the balance between what can be left to the market and what should be provided by the
public sector.
In addition to improving the quality of higher education, there is also a need to develop vocational
training.
The private sector also faces major constraints in finding experienced and well-trained managers.
While many can run small-scale businesses, they often lack the formal business knowledge and
experience that is needed to manage a medium or large enterprise facing international competition.
At the same time, Viet Nam is considered by many investors to have a flexible and easily trainable
work force with a high work ethic. Given improvements in skills training, Viet Nam can potentially
transform its current comparative advantages in semi-skilled and unskilled labour- intensive
industries to sectors which require labour with higher skill levels.
27
Human resources are a prerequisite for science and technology development. Skilled labour is
required for both adoption of technologies within firms and for science and technology
development at universities and research institutes.
At present, the links among firms, universities and research institutes are not particularly strong. A
plausible explanation is that most firms are still in businesses or sectors where it is not necessary to
be at the technology frontier and develop new technologies in collaboration with universities.
The perception of many Vietnamese firms, both private and SOEs, is that price is the main tool for
gaining competitive advantages. Advanced technology is not viewed as important, although a larger
share of SOEs recognizes it as their competitors’ main strength. An obvious explanation is that
many SOEs are active in sectors with a larger presence of foreign firms: the competitive advantages
of foreign multinational enterprises are often related to technology and productivity.
Apart from the clear need for improvements in education and domestic research capacity, it should
be noted that foreign direct investment (FDI) may also play an important role for human resource
and technology development. The entry and presence of foreign multinational corporations (MNCs)
lead to imports of new technology, and it is often recognized as a potentially important source of
technology and productivity gains for local firms as well. The technologies and productivity
advantages of multinational firms may spill over to local enterprises through demonstration effects,
labour mobility (as workers trained in foreign firms move to local firms), and various forms of
linkages between local and foreign firms. The increase in competition that typically occurs when
foreign multinationals enter a new market provides an additional push for local productivity gains,
since it motivates incumbent firms to reduce slack and search for other ways to improve efficiency
in order to maintain their market shares.
28
1.3.5 Improving Public Services
As noted by OECD (2005), in general governments can make a direct contribution to better services
sector performance by improving public services. Health, education (education was discussed in the
previous section) and social services for example are often provided in a non-market environment,
although with considerable variations across countries, as a result of which service providers face
difficulties in responding adequately to evolving users’ needs.
However, these services are growing in importance for human capital investment – a critical
ingredient for the emergence of competitive service industries.
The OECD suggested the exploration of a range of policy measures for a variety of public services,
such as the opening up of markets to private providers, the introduction of user choice, linking
public funding more closely to performance as well as user payments.
However, in the case of Viet Nam, priorities may be different. Viet Nam has already undertaken
some health care reforms associated with the introduction of user fees, the legalization of private
medical practices, and the commercialization of the pharmaceutical industry. It is also is
undertaking health financing reform with a view to achieve universal coverage of health insurance
in coming years.
Studies have shown that while the of user fees contribute to health resources and have helped to
relieve the financial burden on the Government, user fees can also drive people deeper into poverty,
widen the gap between the rich and the poor, and increase inequality in health outcomes. 22
Therefore the issue now for Viet Nam is to maintain an effective social protection and targeting
system to protect the poor, to increase equity and improve the quality of healthcare services, rather
than to further market-oriented reforms.
1.3.6 Adopting a Permanent Strategy for Service Sector Development
While the CSSSD is foreseen to provide an action plan up to the year 2020, it is recommended that
the CSSSD kick-start a policy framework to deal with services development issues whose life
would span beyond the CSSSD. Indeed, relative to past industrial developments, the speed of
contemporary economic and technological changes impacting services has dramatically increased.
Therefore, a prospective services strategy should adjust its objectives and monitor their realization
on a continuous basis.
In addition, it is recommended that services-related policies should be designed and implemented in
an integrated fashion with the rest of the economic sectors. This is due to the high degree of
interdependence of many services such as business services, financial activities, transport and
communications, with manufacturing industries and farming, Benefits arising from this connection
in terms of aggregate growth should be sought. Actually, the ideal would be to adopt “productivity
policies” understood as a comprehensive policy which constantly addresses innovation,
employment, competitiveness and regulations, both in the domestic and international contexts.
Last but not least, Viet Nam might consider the establishment of a Government-sponsored institute,
independent from the Government, that is capable to undertake high-quality research and analysis
on a wide range of economic, social and environmental issues affecting productivity and efficiency
of the economy, including on sectors and products that are vital for Viet Nam’s future as a
22
H.T. Dao, H. Waters, Q.V. Le: “User fees and health service utilization in Vietnam: How to protect the poor?”,
Public Health (2008) 122, 1068-1078, Elsevier Ltd.
29
knowledge based economy. A model for the establishment of such an independent analytical and
advisory body may be the Australian Productivity Commission.
30
CHAPTER 2: THE RATIONALE AND FOUNDATIONS FOR A VIETNAMESE
SERVICES SECTOR STRATEGY - CURRENT STATE AND DEVELOPMENT ISSUES
OF THE SERVICE SECTOR IN VIET NAM
2.1 The Impor tance of the Ser vice Sector in the Vietnamese Economy
Services are increasingly important facilitators and sources of economic growth
In all modern economies, services are the facilitators of economic activities and contributors to
quality of life for all citizens. For example, infrastructure services are supportive to all types of
enterprises. Education, health, and recreational services influence the quality of labor and
population in general. Business and professional services are crucial to increase of enterprise
competitiveness. Government services affect the business environment in which enterprises operate
(UNDP, 2006: 1).
Under the command economic system, service industries in Viet Nam, like in most former socialist
countries, did not enjoy favourable conditions to develop because of the view – held by policy
makers – that these are not productive sectors of the economy. In 1985, services accounted for only
32.5 percent of the GDP whereas the share of agricultural, aquacultural and forestry sector was 40.2
percent. With the launching of the Doi Moi, the service industries however have been quickly
transformed to become important facilitators of economic growth.
31
Figure 1: Growth Rate of the Service Sector, 1986-first half 2009 (%)
12
10.19
10
9.56
8.77
8.8
8.64
7.86
8
9.83
7.38
8.48
8.68
8.29
7.58
7.26
7.14
7.18
6.54 6.45
6.1
6
5.5
5.32
5.08
4.6
4
2.3
2.25
2
9
f2
00
20
08
Fi
rs
tH
al
fo
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
0
Sources:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical Publishing
House; GSO (2004). Viet Nam 20 Years of Reforms and Development (1986-2005). Hanoi:
Statistical Publishing House; GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical
Publishing House; GSO (2008 and 2009). Annual Report 2008, Quarterly Report I/2009, and
Half Year Report I/ 2009
The growth of the service sector has jumped from merely 2.3 percent in 1986 to 10.19 percent in
1990 (see Table 1) during the first phase of unbundling and re-structure of the economy to follow
market orientation. In the 1986-1990 period service sector grew at 5.77 percent annually, which was
higher than the growth rates of the manufacturing and agriculture. Service sector grew at 6.92
percent on average in the 1986-2008 period whereas the entire economy grew at 6.87 percent. For
specific phases, service growth was higher than the growth of the economy during the 1991-1995,
peaking at 9.83 percent in 1995 when the economy was said of escaping from a decade prolonged
socio-economic crisis. Then it fell below the growth of the economy from 1996 to 2004, as priority,
hence resources, was given to industrialization and modernization. However, service sector has
recovered, growing higher than the entire economy since 2005 and higher than the manufacturing
sector in 2008.
32
Table 1
Average Growth Rates of Three Sectors and the Economy,
quinquennia in 1986-2008
By sectors
Agriculture,
Industry and
Forestry
and
Services
Construction
Aquaculture
Quinquennia
Economy
1986- 2008
6.87
3.75
9.39
6.92
1986- 1990
4.43
2.67
4.71
5.77
1991- 1995
8.18
4.03
12.00
8.57
1996- 2000
6.95
4.42
10.60
5.69
2001- 2005
7.51
3.82
10.18
6.97
2006- 2008
7.63
3.72
7.48
8.05
Sources:
GSO (2000): Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical
Publishing House; GSO (2004). Viet Nam 20 Years of Reforms and Development
(1986-2005). Hanoi: Statistical Publishing House; GSO (2008). Statistical
Yearbook 2007. Hanoi: Statistical Publishing House; GSO (2008 and 2009).
Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/ 2009.
Service growth was the largest contributor to the growth of the economy during the 1986-2005
period even though it was lower than that of the manufacturing and construction sector 23 because
the service sector account for a larger share in the GDP in constant prices. Service sub-sectors that
contribute largest parts to the growth of the entire service sector are trade and repair of motor
vehicles, transport, storage and communication, hotel and restaurants, business services, and
education and training.
Table 2: Contribution of service sector to GDP growth (percentage points)
1997
199
8
1999
200
0
2001
2002
2003
2004
2005
2006
2007
GDP Growth of the
8.15
5.76 4.77
6.79 6.89 7.08 7.34 7.79 8.44 8.23 8.48
Economy
Contribution
of
Agriculture, Aquaculture, 1.97
1.36 1.13
1.58 1.55 1.54 1.55 1.59 1.65 1.54 1.51
and Forestry
Contribution
of
Manufacturing
and 2.66
1.93 1.64
2.40 2.52 2.65 2.83 3.07 3.39 3.37 3.54
construction
Contribution of Services 3.52
2.47 2.00
2.80 2.83 2.89 2.97 3.14 3.40 3.32 3.42
Sources: Author calculated from:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical Publishing
House; GSO (2004). Viet Nam 20 Years of Reforms and Development (1986-2005). Hanoi:
23
Except the year 1995.
33
Statistical Publishing House; GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical
Publishing House;
Table 3: Contribution of service sector to GDP growth (% of growth rate)
1987-1990 1991-1995 1996-2000 2001-2005 2006-2007
Agriculture, Aquaculture, and Forestry 32.62
28.70
23.99
21.05
18.30
Manufacturing and construction
27.75
33.43
38.39
41.37
26.73
Contribution of Services
40.65
43.55
42.58
40.55
40.33
Sources: Author calculated from:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical Publishing
House; GSO (2004). Viet Nam 20 Years of Reforms and Development (1986-2005). Hanoi:
Statistical Publishing House; GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical
Publishing House;
Services development is enabling industrialization and modernization
A common misconception is that, because of scarce resources, developing or transition economies
should accord priority to the development of industries rather than services. This misconception is
typically based on the assumption that “services” are primarily consumer or final demand services
and so are optional purchases. In fact, at least half of the services produced in an economy are
“intermediate” services, or services sold to other enterprises. Competitive manufacturing sectors
need a wide range of high quality service inputs – e.g., transportation, storage, telecommunications,
engineering, design, market research, packaging, and so forth. Competitive service inputs are
particularly important if one wants to increase the value-added in industrial and agricultural
production and the competitiveness of export-oriented industries. Moreover, service inputs such as
education and training are crucial in the provision of high quality human resources needed for the
industrialization and modernization process (UNDP, 2006).
Service sector growth is also associated with the development of infrastructures needed by
industrialization and modernization. These infrastructures, for example, include new and upgraded
highways, railway, seaports and airports serving as the artery for the transportation activities;
expansive telecommunication and internet network; increased number of domestic and foreign
banks and two stock exchanges channeling capitals into industrial production; and around 370
public and non-public higher educational institutions which produce almost a quarter of million
graduated students for the labour market each year. Although these outputs are still modest, this is a
marked success for a relatively poor country with limited resources and large population.
Service development has been crucial factor for Viet Nam to attract new foreign investments not
only into industries but also into the services to provide capital and technology to the
industrialization and modernization processes. Registered foreign investments into the whole
economy increased from US$ 6.8 billions in 2005 to US$ 12 billions in 2006, US$ 21.3 billions in
2007, US$ 71 billions in 2008, and US$ 8.78 billions in the first half of 2009. By 2008, total
registered FDI into the service sector reached 62 billion USD, or 39 percent of total registered FDI
in the economy. In terms of number of licensed projects, service FDI accounts for 45.4 percent of
the total FDI. Current FDI flows into hotel and restaurant sectors and real estate and business
activities because of their booms, followed by the distribution and transport sectors. However, in
the long run, FDI flows into other services such as financial intermediation, health and education
are also expected to rise because these sectors are opened up for competitions.
34
Table 4:
FDI in the Service Sector 1988-2007
Million USD
Number
of
Registered Capital (Million USD)
projects
Of which: Charter capital
Of which
Total
Share
Total
Total
Foreign
Vietnamese
side
side
TOTAL
9810
100.00 99596.2 43129 36413.7 6715.3
Trade, Repair of motor
108
1.10
641.9
292.2
192.9
99.3
vehicle
Hotels and restaurants
291
2.97
7620.6 3144.9 2474
670.9
Transport, storage and
272
2.77
5072.3 3788.4 2918.7
869.7
communication
Financial intermediation 65
0.66
862.7
791.1
730.6
60.5
Real estate, renting,
1341
13.67
14191.8 5252.3 4391.9
860.4
business activities
Education and training
101
1.03
146.8
72.7
60.3
12.4
Health and social work
54
Culture and sport
112
Community, social and
66
personal services
0.55
1.14
591.4
1683.5
224.8
769.4
188.5
603.1
36.3
166.3
0.67
38.7
27.2
23.1
4.1
Source: GSO, and MPI database
35
Table 5: FDI in service sector by July 2009 (Effective projects)
Number
of
projects
299
247
526
116
Total registered capitals Chattered
capital
Sector
(USD)
(USD)
Real estates
34,318,699,373
9,111,219,289
Hotel and Restaurants
10,772,027,712
2,325,997,243
Communication
4,644,523,917
2,891,673,564
Arts and Entertainment
3,741,202,178
1,103,142,799
Transportation
and
storage
269
2,127,690,039
794,886,012
Financial intermediation 71
1,181,625,080
1,084,338,000
Trade and repair service
225
1,037,210,781
475,392,995
Health and social works
62
951,775,273
234,151,705
Others
56
603,612,000
129,737,644
Professional services and
science and technology
688
550,125,923
246,785,786
Education and training
121
243,503,203
97,149,497
Public administration
86
177,212,926
80,592,516
Water
supply
and
garbage collection
14
48,323,000
31,523,000
Total
2,780
60,397,531,405
18,606,590,050
Source: Department of Foreign Investment, MPI. Database. July 24th 2009.
Service sector development creates jobs, reduces poverty, and enables social development
Services are the major source of employment. Since many service enterprises can be started with
very little capital, service industries provide opportunities for persons with minimal resources to
become self-employed and economically productive. In Viet Nam, the number of employees in the
service sector has increased steadily since 1985. As of 2008, the number of service workers was
already 2.8 times higher than that of 1985, growing at an annual rate of 4.56 percent. In the same
period, total employment of the economy only increased 1.73 times, rising at a pace of 2.41 percent
each year. Financial intermediation, transport, storage and communication are those services that
generate the largest portion of employment in service sector.
Table 6:
Employment in the service sector 1986-2008
Year
Number of employees
Changes (%)
(thousands)
Share of service workers in
total workers of the economy
(%)
1986
4,479.4
--
15.0
1990
5,275.6
17.77
15.7
1995
6,537.9
23.93
17.4
2000
8,199.8
25.42
21.8
36
Table 6:
Employment in the service sector 1986-2008
Year
Number of employees
Changes (%)
(thousands)
Share of service workers in
total workers of the economy
(%)
2005
10,504.6
24.7
2006
11,008.4
28.11
4.80
2007
11,535.8
4.79
26.1
2008
12,026.9
4.26
26.7
25.4
Sources:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical
Publishing House; GSO (2004). Viet Nam 20 Years of Reforms and Development (19862005). Hanoi: Statistical Publishing House; GSO (2008). Statistical Yearbook 2007. Hanoi:
Statistical Publishing House; GSO (2008 and 2009). Annual Report 2008, Quarterly
Report I/2009, and Half Year Report I/ 2009.
Note: Figures in the 2000-2007 period are from Statistical Yearbook 2007. Figures prior to
2000 are re-calculated based on the adjustment of 2000 data comparing with 1999 data to
ensure their comparability with figures in the 2000-2008 period because GSO has not
adjusted data before 2000.
Besides jobs, service development is vital to poverty alleviation and social development. Latest
Human Development Report of the United Nations Development Program (UNDP) in 2005 ranked
Viet Nam Human Development Index 105 within 177 countries with data with a score of 0.733
(UNDP, 2007). Within a ten-year period, from 1993 to 2004, the number of population who lived
below the national poverty line in Viet Nam was brought down from 40.4 millions to 19.7 millions,
or 60 percent of the number of poor households (MDGs Report, 2005: 14). In 2008, the proportion
of poor household declined to about 13.1 percent comparing with 20.2 percent in 2005 (MPI, 2009:
69).
These remarkable achievements are contributed in the large part by service development. Quality of
basic public services such as education, health, electricity and clean water are critical for improving
the life of the poor. The development of health and education services is regarded as not only as
engines for sustained growth but also as the opportunities for the poor to escape from their porverty
trap. The pre-school enrolment rate of children under five years old was 92.5 percent in 2008 and
the primary net enrolment rate has been increasing steadily since 2005, reaching 96 percent in 2008
(MPI, 2009: 55). National level malnutrition rate in children under five years old decreased from
25.2 percent in 2005 to about 21.0 percent in 2008. Under-five mortality rate decreased from 28%o
in 2005 to 25%o in 2008 whereas under-one-year-old child mortality decreased from 18%o in 2005
to 15.5%o in 2008 (MPI, 2009: 61).
Another potential benefit from services sector growth is to spread economic development benefits
throughout the economy, not only in all cities but also to the rural and remote areas. For example,
service enterprises with decent investments can be developed in even the smallest of communities
to generate incomes and jobs which are important for the poor, especially the poor women. The
dispersion of micro service companies associated with employment opportunities in rural
communities help to stem urban migration and preserve local small communities (UNDP, 2006).
37
2.2 Cur r ent level of development of the ser vices sector
In 2008, the service sector accounted for 38.1 percent of the GDP and 26.7 percent of the
employment. Since the beginning of the reforms, the share of services in the GDP has gone through
different stages of change: i) it declined in the 1986-1988 period when Viet Nam was still in the
social-economic crisis and when agricultural development was given priority to ensure food
security; ii) it increased during 1988-1990 as the market economy policy became more effective,
and threat of food insecurity was relieved; iii) it fell down sharply in 1991 when the entire economy
experienced a shock because the traditional markets in the former socialist blocs collapsed; and iv)
it increased during 1991-1995 as the economy gradually escaped from the economic crisis, stepped
up its transition to the market economy and conducted industrialization and modernization which
created a higher demand for services.
Although since 1996 the service sector has been expanding considerably, its share in the GDP has
declined because manufacturing and mining sectors grew rapidly, and because skewed resources
were given to industrialization and modernization priority at the expense of service development.
Indeed, the annual growth target of 12-13 percent for service sector set in the 1996-2000 Five Year
Plan was not achieved. Neither was the target to increase the share of service sector in GDP to 4546 percent by 2000. Service share in the GDP declined during 1996-2004 and it was not until 2005
has the growth rate of the service sector been higher than the average growth of economy.
Figure 2:
Share of service sector in the GDP of the economy (%)
50
44.1
45
38.6
40
35
38.7
38
38.1
38.1
38.1
38.5
2000
2005
2006
2007
2008
Prel 2009
33
30
25
20
15
10
5
0
1986
1990
1995
Sources:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical Publishing
House; GSO (2004). Viet Nam 20 Years of Reforms and Development (1986-2005). Hanoi:
Statistical Publishing House; GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical
Publishing House; GSO (2008 and 2009). Annual Report 2008, Quarterly Report I/2009, and
Half Year Report I/2009
38
In comparison of service share in the GDP, Viet Nam ranks 8th in 10 Southeast Asian economies in
2006, below Singapore (65.17%), East Timor (55.1%), the Philippines (54.19%), Thailand
(44.41%), Cambodia (43.68%), Malaysia (41.35%) and Indonesia (40.06%) but above Brunei
(25.91%) and Laos (25.53%). Viet Nam ranks 33rd in 39 countries and territories in Asia outside
Southeast Asian region, below India (54.88%) and China (39.91%) and such transitional economies
as Taijikistan (47.77%), Kyrgyzstan (46.91%) and Uzbekistan (46.46%), but higher than others such
as Armenia (36.75%), Mongolia (35.86%), and Azerbaijan (22.47%). Viet Nam also ranks 141st in
165 economies in the world.
Figure 3: Share of service sector in GDP of Viet Nam and some countries in 2007 (%)
90
80
65.8
70
60
40
38.1
39.4
40.4
42
76.5
56.8
52.4
50
68.4
71.5
68.8
44.7
30
20
10
US
A
(2
7)
EU
ng
ap
or
e
Si
Ja
pa
n
l
Br
az
i
a
Ru
ss
i
In
di
a
In
do
ne
sia
Ch
in
a
PR
M
al
ay
sia
Th
ai
la
nd
Vi
et
na
m
0
Sources:
GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical Publishing House;
In line with the share in the GDP of the service sector, share of service employment in total
employment is also modest. Latest UNESCAP figures indicate that Viet Nam ranks below a number
of transitional economies, and most countries in Southeast Asia and Northeast Asia in terms of
labor share of services.
Table 7: Share of service employment in total employment of selected economies in Asia and the
Pacific (%)
Agriculture
Industry
Services
Regions and Countries
East and Northeast Asia
China
Hong Kong, China
Japan
Macao, China
Mongolia
Republic of Korea
Southeast Asia
Brunei Darussalam
Cambodia
Latest
32.3
56.6
0.3
4.5
0.1
39.9
7.9
44.5
1.4
70.3
Year
(07)
(02)
(05)
(05)
(05)
(05)
(05)
(07)
(01)
(01)
39
Latest
21.4
22.7
15.2
28.3
25.2
16.8
26.9
19.0
21.4
10.5
Year
(07)
(02)
(05)
(05)
(05)
(05)
(05)
(07)
(01)
(01)
Latest
46.3
20.7
84.5
67.2
74.7
43.3
65.2
36.5
77.2
19.1
Year
(07)
(02)
(05)
(05)
(05)
(05)
(05)
(07)
(01)
(01)
Indonesia
44.0
(05)
Malaysia
14.8
(04)
Philippines
37.0
(05)
Singapore
0.3
(04)
Thailand
42.6
(05)
Viet Nam
57.9
(04)
North and Central Asia
16.5
(07)
Armenia
46.9
(04)
Azerbaijan
39.3
(05)
Georgia
54.4
(05)
Kazakhstan
33.5
(04)
Kyrgyzstan
48.0
(05)
Russian Federation
10.2
(05)
Asia and the Pacific
37.5
(07)
Sources: UN-ESCAP. 2009. Statistical Yearbook
“Employment by sectors.” April 21st 2009.
18.0
(05)
38.0
(05)
30.1
(04)
55.1
(04)
14.9
(05)
48.1
(05)
23.3
(04)
76.4
(04)
20.3
(05)
37.1
(05)
17.4
(04)
24.7
(04)
26.2
(07)
57.2
(07)
16.0
(04)
37.1
(04)
12.1
(05)
48.6
(05)
9.3
(05)
36.2
(05)
17.4
(04)
49.1
(04)
12.5
(05)
39.5
(05)
29.8
(05)
60.0
(05)
21.7
(07)
40.9
(07)
for Asia and the Pacific 2008. Table 16.2
However, what is more important is the absence of a modern and efficient service economy in Viet
Nam, guided by some leading service sectors, which have sustained rapid growth, access to high
technology, and potential to generate high export values, and attract large proportion of foreign
investment. Although the service sectors such as business services, banking and securities, tourism,
and distribution services have revealed this prospective, and the government has not come out with
concrete long-term strategies to ensure that priority is given to their development. The development
of crucial “soft” and “hard” infrastructure service sectors such as education, health,
telecommunication and transports has also been talked for years but it is facing a constraint of
financial resources and those service sectors have many internal weaknesses as demonstrated below
which may not be resolved quickly.
Distribution services
The expansion of distribution services offers a dynamic evidence for a rapid growth in wealth of the
Vietnamese society. Within ten years (1996-2006), numerous super markets, family marts, and
commercial centers have appeared in the whole country. The supermarkets and commercial centers
increased from 12 in 6 provinces and cities of Viet Nam as of the end 1996 to almost 200 in 25 out
of 64 provinces and cities plus 20 other supermarkets and 35 commercial centers under construction
by 2006. Major world retail and wholesale distributors such as Metro Cash & Carry (Germany), Big
C (France), Parkson (Lion Group, Singapore), Zen Plaza (Japan) and Diamond Plaza (South Korea)
have also come to establish their presence in Viet Nam recently. E-commerce is developing very
fast despite a lack of mechanism to ensure the security of this kind of transaction.
The distribution processes are diversified, shortened, and modernized thanks to the application of
new technology and management skills by the distributors. Major distributors have developed longterm strategies to ensure reliable supplies of goods and services. From 1996 to 2006, the
supermarket systems successfully brought down the share of imported goods in their inventory from
almost 100 percent to just around 30 percent. In some superstores, made-in-Viet Nam products
already accounted for almost 85 percent of sale. In addition, each supermarket system has some
2000-3000 domestic suppliers and becomes important advertising channels for the Vietnamese
products.
Yet, the growing advanced distribution channels increasingly compete with the traditional retail
market systems in the delivery of goods and services. With the advantage of capital, scale of
40
activities, modern system of logistics, and good business strategy, foreign distributors are gradually
taking over the urban and upper-income level market of Viet Nam. At the same time, the
supermarkets and commercial centers have a high set of requirements for quality which is hardly
met by the small domestic suppliers. However, it is expected that in the next ten years, traditional
retail distributors still play a big role because of the habits of the customers, especially those in the
countryside, and their mobility and closeness to the buyers.
Banking services
With total banking assets making up nearly 140% of GDP, banks still remain the major source of
domestic financing for growth. Currently, Viet Nam's banking sector comprises 5 SOCBs, 36 JSBs,
45 foreign bank branches, 55 foreign bank representative offices, and 5 joint venture banks. In
2008, 5 100% foreign-owned bank subsidiaries have been licensed but they have not started their
official operation. Non-bank credit institutions include 2 social policy banks, 17 finance companies,
13 financial leasing companies, the Central's Credit Fund and 1019 local People's Credit Funds.
Vietnamese banks are still of small size compared with regional peers. The averaged equity capital
of SOCBs is around $US 260 million in 2008. The penetration ratio of the banking sector is still
low. In 2007, there were 8.2 million bank accounts serving the total population of around 84
million, equivalent to a penetration rate of 10%. Five million of such accounts are held by
individuals. It is estimated that less than 10% of the population use bank services regularly.
Over the past decade, Vietnamese banking services have gone through a rapid modernization. There
was an introduction of online banking services and electronic payment systems such as Paynet,
VinaPay, VASC Payment, and VietPay even though their application is still limited. The new-born
ATM market also expands rapidly. There are currently 29 banks which issue credit cards, with a
total number of ATM to 7 millions. Nonetheless, besides some popular modern services mentioned,
current banking services are very much traditional and monotonous. Low technology, poor
infrastructure (such as lack of ATM machines) and lack of skilled labor are major constraints to the
introduction of complicated services and further expansion of the modern banking.
Securities services
Besides the traditional banking sector, stock and bond markets have emerged in recent years yet
remain small. Stock market capitalization increased from 2% of GDP in 2003 to 15% as at the end
of 2008 after surging to 43% in 2007 due to a market bubble. Bond market is of similar size, with
total outstanding bonds accounted for 15% of GDP in 2008. There are two securities markets with
two exchange centers namely HCM City securities exchange center (SEC) which has operated since
2000 and Hanoi SEC, which has been launched in 2005. As of the end 2008, there are 531,428
trading accounts and 102 securities companies operating in the two exchanges; there are 338
companies, including many giant corporations such as Hoang Anh Gia Lai Group, PetroViet Nam
Finance Corporation, Vinaconex, FPT etc which have their share listed; total trading value of the
two exchanges in 2008 was VND 180,978 billion with an average daily trading value of VND
737.94 billion. In terms of size and popularity, securities sector in Viet Nam are immature.
However, Vietnamese stock exchanges are very volatile, boomed and burst after the waves of
speculations, making securities services very unstable and risky business. Many of the movements
in the stock exchanges are also linked with the real estate bubble. Lack of stringent regulations and
supervision mechanism is encouraging fraud and speculation on the stock markets.
Insurance services
41
There are currently 27 non-life insurers, 11 life insurers, 8 insurance brokers and 1 reinsurer in the
market. As part of the liberalization process, there are now 13 wholly foreign-owned insurers, the
state insurers Bao Viet, Bao Minh, PetroViet Nam Insurace and Vinare have been partly equitised
and listed in the stock market and the compulsory cession to VinaRe was eliminated. In 2008, the
total direct premium of Vietnamese insurance industry reached VND 27.000 billion, equivalent to
2,2% of GDP. Life insurance gained VND 10.339 billion; non – life insurance reached VND 10.879
billion; and reinsurance value (VinaRe) was recorded at VND 1.050 billion.
In 2007 the Vietnamese non-life market ranks 66th in the world with a minor market share of just
0.04% and it was the 11th-largest non-life market in Asia. But the largest premium share belongs to
the life insurance which attracts participation of both domestic and foreign major companies such as
Prudential, Bao Viet, Manulife, Prevoir, ACE Life, Great Eastern Life and Cathay Life. In terms of
financial capacity, total assets of life insurance companies was VND 47,813 billion and total
investment of life insurance companies was VND 39,253 billion in 2008.
Despite its rapid growth in number of companies and products, Vietnamese insurance service is said
of lacking professionalism. Technology, business efficiency, and customer care service have not
been quickly improved. Current competition strategy in the market is based on reduction of
technical premium rather than classification of policy holders, risk types and customer care.
Compensation procedures are time consuming and cumbersome. In the post-WTO accession, the
inherent worrisome issue for Vietnamese insurance companies is the outreach, hence competition,
of any oversea insurance service providers without their establishment in the domestic market.
Business services
Business and professional services concentrate in major cities like Ho Chi Minh City and Ha Noi,
which accounted for 90% market shares of business development services (e.g. accounting and
auditing services, legal services, management services, marketing and advertising, technical
consulting services). Despite its rapid growth over the past year and big potential of development in
the future, business and professional services in Viet Nam are still immature and not many
enterprises have been adapted to their uses.
Legal services, arbitration and conciliation services have evolved gradually in recent years, in terms
of both service diversification and quality. This field of business has had participation of numerous
foreign lawyer organizations and law firms such as Baker & McKenzie, Vovan & Associés, Russin
& Vecchi, Lucy Wayne & Associates, and Clifford Chance. The scopes of operation for these
organizations have been expanded. For example they can create partnerships with Viet Nam’s
lawyers organizations to provide consultancy services on Vietnamese laws.
There are currently more than 160 enterprises providing financial and accounting, auditing
consultancy services, employing more than 5,000 staffs. There have been four 100% foreign
invested service providers operating in Viet Nam, which are KPMG, PwC, Grant Thornton,
Ernst&Young and nearly 10 Viet Nam’s accounting and auditing enterprises recognized by major
international accounting and auditing companies as their members like A&C, U&I, UHY, ACPA,
ACA Group, AC&C, Vietauditor, and DTL.
Architectural, engineering and integrated engineering services have been growing fast thanks to a
boom in real estate sector. Real estate is also the area which attracts most foreign investment with a
share of 36.8 percent of the total in 2008. There are more than 600 architectural, engineering and
integrated engineering services providers, of which class I and class II enterprises (or equivalent)
account for nearly 50%, the remaining of them are class III or class IV enterprises at local level.
Among these providers, state owned enterprises account for about 75%, foreign invested enterprises
42
account for 3% and private ones account for 22%. So far, the activities of those companies mostly
focus on designing services (accounting to nearly 50-60% of their revenues) and surveillance (1020%).
The development of computer and related services involves with a growth of the number of private,
small and medium sized enterprises. The types of services provided are increasingly diversified to
include consultancy services, software development and implementation services, data processing
services, database services, maintenance and repair services. Taking outsourced activities from
overseas are contributing to main business of computer service providers in Viet Nam.
The growth rate of Viet Nam’s advertising sector has been quite high, at about 20-30% per year,
making the advertising market a focus of foreign advertising enterprises while the number of
domestic advertising enterprises is also rising. There are currently more than 7,000 enterprises in
the advertising sector, with total revenue of USD 500 millions in 2008. However, among these,
only less than 100 are capable of operating as real advertising companies, and only a few can
provide advertising strategies for their customers.
Transport services
Transport services of Viet Nam consists of all modes of transport, including road transport, railways
transport, maritime transport, air transport and inland waterways transport. The volume of goods to
be transported increased from 140.7 million tons in 1995 to about 570 million tons in 2007, and the
numbers of passenger increased from 564.4 million in 1995 to 1,628.9 million in 2007. There are
about 1,050 registered companies involved in the road transportation at present. In 2006, the
railway system carried approximately 11.6 million passengers and 11.0 million ton freights but this
is only a marginal share in the overall transportation demand. As of 2007, Vietnamese maritime
fleet comprises a total of 1,199 ships - with a combined capacity of 2,937,327 GT and 4,384,880
DWT. However, only a handful of ships are designed to carry cargo and passengers. Most of them
are meant for general cargo, with a sizeable number of special-purpose dedicated vessels like oil
tankers and liquid bulk carriers, and container vessels are still not many. Although Viet Nam does
not have big airports and airlines, air travel has experienced high growth rates recently.
International passengers totaled 8.5 million in 2007; with the average annual growth rate (AAGR)
of 15.5% between 2003 and 2007. Over the past five years, the AAGR of international passenger
volume at the Noi Bai Airport was almost 26.5%. Air traffic volumes in other airports also recorded
phenomenal growth - averaging nearly 15%.
Telecommunication services
The growth of telecommunication services is rapid. The current market for telephone includes 82.25
million subscribers on whole network, of which 85.5 percent are mobile subscribers, and 14.5
percent for fixed-line telephone. The current market for internet comprises 20.67 million internet
users, in which total number of broadband subscribers reached 2 million. The penetration rate is
97.5 percent for the telephone service and 24.20 for internet service. Viettel Corporation, which is
owned by the Vietnamese Military, is leading the mobile market with a market share of around
34.1%. The next largest mobile operators are MobiFone and VinaPhone, which had market shares
of approximately 28.4% and 25.6% respectively. Present focus is on significant changes in the
mobile sector, which have experienced significant growth rate. Competition and growth in the
mobile sector has been associated with the recent wave of tariff cuts, which have been introduced
by the various operators. However, the sector is also facing major weaknesses involving overcapacitated infrastructures, the existence of unregistered and inactive prepaid users, and poor
customer services.
43
Education services
In terms of infrastructures, as of 2007, there are 345 universities and colleges, 273 professional
secondary and vocational training schools, 11,696 kindergartens and 27898 schools at the primary
and secondary levels. The number of schools and classes has increased rapidly recently except a fall
in the number of the primary-secondary schools and lower-upper secondary schools and in the
number of classes at the primary and lower secondary levels. There is a puzzling trend that despite
pronounced achievement in educational universalization at the lower level, the number of primary
and lower secondary pupils is declining whereas population continues to grow. In 2007, there are
totally 6860.3 thousand pupils at the primary level and 5803.3 thousand pupils at the lower
secondary level.
The pupils per teacher (P/T) ratio has constantly declined in the kindergarten, primary and
secondary levels even though it increases at the higher levels (i.e. professional secondary and
vocational training, university and college), reaching 31.46 for university and college level and
40.33 for professional secondary and vocational training level in 2007. In comparison, the
proportion of pupils reaching grade 5 in 2006 is above 90 percent, which is at the medium level in
the Asia-pacific region, and higher than in some Southeast Asian countries, such as Indonesia, and
the Philippines. By 2008, 47 out of 64 provinces and cities have completed lower secondary
education universal. The proportion of pupils finishing lower secondary level (grade 9) is 79
percent. The proportion of pupils who passed the upper secondary accomplishment exams fell from
93.7 percent in 2005-2006 to 80.42 in 2006-2007 but reached 83.8 percent in 2008-2009.
There is a concern over various aspects of the development of educational services in Viet Nam as
reflected in the country’s falling UNESCO Education Development Index (EDI) – covering
universalization of primary education, adult literacy rate, gender equality in education and quality
of education. The latest EDI released in 2008 ranks Viet Nam for the last available 5 year period
79th out of 129 countries, a regression of 9 places from the 2007 EDI. Other concerns over the
educational services are about the adjustment of educational fees, reforms of curriculum and exam
system, encouragement of research at the university level, and improvement of quality of students
and pupils to match international standards.
Health services
The healthcare system of Viet Nam is exalted as better than those of many countries with the same
income per capita. Poliomyelitis and tetanus among infants were eliminated in 2000 and leprosy in
2005. The mortality rate of children under 5 years old decreases from 58‰ in 1990 to 25.0‰ in
2008 whilst children under 1 year old from 44.4‰ to 15.5‰. The average life expectancy in Viet
Nam was 71.8 years in 2008, longer than in many countries with the same income per capita. In
2007, Viet Nam had 13,438 healthcare service institutions with 210,800 beds. The number of
doctors was 6.3 per one thousand people in 2008.
According to WHO data, during 2000-2008, Viet Nam had 27 hospital beds per 10,000 inhabitants
on average. This ratio is significantly higher that the one Southeast Asian region (9), and the lower
middle income countries (16) but still lower than the ratio of the upper middle income countries
(42).
The WHO estimates that countries with fewer than 23 health-care professionals (counting only
physicians, nurses and midwives) per 10,000 population will be unlikely to achieve adequate
coverage rates for the key primary health-care interventions prioritized by the MDGs. In this
respect, Viet Nam has only 14 healthcare professionals per 10,000 inhabitants. Viet Nam’s per
capital total expenditure on health in PPP was $US 151 in 2006 but that of lower middle income
44
countries and upper middle income countries were $US 181 and 707 respectively. In addition, Viet
Nam’s share of general government expenditure on health in total government expenditure is
considerably lower than those in the lower and upper middle countries (6.4 percent comparing with
8.2 percent and 9.8 percent in 2006). Other major issues of the health sector include its poor
outreach to the remote areas and the marginalized people, inadequacy in training and utilisation of
human resources, poor state management, and low quality of services partially due to the lack of
modern technology and skilled staffs.
Tourism services
The Vietnamese tourist sector has enjoyed a rapid growth compared to the average of the world and
surrounding regions. From 2001 to 2008, the number of international guests has been doubled,
reaching 4.26 millions, whereas the number of domestic tourists has increased by 19 times, reaching
19.5 millions. Income from tourist sector increases 23.8% annually and recorded at VND 61
trillions in 2008. The number guests who come to Viet Nam for tourist purposes accounts for 26
percent of total foreign visitors, whereas these shares are 16 percent, 9 percent and 10 percent for
business, family visiting and other purposes respectively. Most of the visitors are from ASEAN,
Western Europe, and Northeast Asian region (Korea and Japan).
There are currently 230 foreign companies and 1,542 domestic companies that provide both
domestic and overseas tourist services in the market. However, domestic companies are modest in
both capital investment and staffs. In addition, the application of information technology in tourist
sector is low. Only around 60-70% three star hotels are using hotel management computer
programs. Electronic payment is not popular even in big hotels. Passenger vehicles are old and
inconvenient for long travel. There are currently 207,014 hotel rooms nationwide but there is a low
accommodation density in scenery sites. Hotels that meet international standards only account for
21 percent of the total. Numerous government guest houses and hotels were also built long time ago
and degrading.
Average income from one foreign tourist in Viet Nam is $US 450, which is lower than the world
level ($US 700) and in neighboring countries such as Thailand ($US 1,300). About 90 percent of
tourists who come to Viet Nam are the first-time tourists. Yet, the share of multiple entry tourists is
80 percent for Thailand and 50-60 percent for China. Despite its recent development, Vietnamese
tourist service sector is still facing many difficulties, for example, poor services, inadequate
customer care, degradation of and pollution in the tourist sites, lack of professional staffs, low
technology application, and absence of strong alliances among tourist providers to increase their
service quality and competitiveness.
2.3 Str uctur e of the Vietnamese Ser vice Industr y
The biggest service sector is the distributive trade sector, which accounted for almost 14 percent of
the GDP in 2008, whereas the next three biggest service groups are transport, post and tourism
(4.53 percent), hotel and restaurant (4.38 percent), and real estate and consultancy (3.63 percent).
Their shares in the GDP of the service sector are 36.28 percent, 11.89 percent, 11.50 percent and
9.53 percent respectively. These are also the sectors which have experienced rapid growth. Large
shares and relatively high growth rates of final demand services such as hotel and restaurant, and
part of real estate and distribution occur as the economy has grown fast, brought wealth to the
society and stimulate consumption which was discouraged in the centralized distribution system. In
the current economic crisis, growth of those sectors appears slowing down but it will certainly
bounce back as the economy recovers. Recent expansion of transport and real estate are taking place
in the process of liberalization of those sectors, especially with the participation of the private sector
45
into the business, and as greater resources are channeled into the infrastructure development of the
economy.
46
Table 8: Share in GDP of service groups (%)
1986
1990
1995
2000
2005
2006
2007
2008
Service sector
33.06
38.59
44.06
38.74
38.01
38.06
38.12
38.10
Trade
12.69
13.01
16.38
14.23
13.56
13.63
13.66
13.82
Hotels and restaurants
3.17
4.23
3.77
3.25
3.49
3.68
3.93
4.38
Transport, post, tourism
1.67
3.45
3.98
3.93
4.36
4.5
4.44
4.53
Financial intermediation
0.23
1.17
2.01
1.84
1.80
1.81
1.81
1.84
Science and technology
0.33
0.54
0.61
0.53
0.63
0.62
0.62
0.62
Real estate and consultancy
4.34
6.14
5.41
4.34
4.01
3.78
3.80
3.63
State management
3.34
3.32
3.62
2.73
2.75
2.74
2.74
2.77
Educations and training
2.50
2.72
2.62
3.36
3.21
3.15
3.04
2.60
Health and social works
1.34
1.56
1.59
1.36
1.48
1.45
1.41
1.25
Sports and culture
0.50
0.46
0.55
0.58
0.50
0.47
0.45
0.41
Activities of party and membership organizations
0.17
0.10
0.10
0.14
0.13
0.12
0.12
0.13
Community, social and personal services
2.17
1.86
2.18
2.23
1.94
1.93
1.92
1.94
Private household with employed persons
…
0.02
0.24
0.22
0.17
0.17
0.17
0.17
Sources:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical Publishing House; GSO (2004). Viet Nam 20 Years of
Reforms and Development (1986-2005). Hanoi: Statistical Publishing House; GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical
Publishing House; GSO (2008 and 2009). Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/ 2009.
47
Table 9: Growth rate of service groups (%)
Average annual growth rate
1996- 20012006
2000
2005
5.70
6.96
8.29
5.85
7.45
8.55
5.63
8.74
12.42
6.45
7.38
10.13
7.48
7.73
8.18
5.69
8.55
7.38
4.66
3.91
2.94
2.58
5.49
7.57
5.63
7.46
8.42
5.57
7.40
7.84
7.80
6.20
7.68
2007
2008
1996-2008
Service sector
8.68
7.18
6.72
Trade
8.67
6.34
6.92
Hotels and restaurants
12.72
8.54
6.09
Transport, post, tourism
10.42
13.84 7.94
Financial intermediation
8.82
6.63
7.66
Science and technology
7.67
6.14
7.10
Real estate and consultancy
4.07
2.49
4.02
State management
8.22
6.38
4.79
Educations and training
8.68
8.04
6.96
Health and social works
7.99
7.67
6.79
Sports and culture
7.98
7.83
7.19
Activities
of
party
and
membership organizations
12.49 5.94
7.42
8.05
6.92
8.77
Community, social and personal
services
8.02
5.95
7.25
7.91
6.31
7.02
Private
household
with
employed persons
5.84
3.39
7.45
8.49
7.94
5.37
Sources:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical
Publishing House; GSO (2004). Viet Nam 20 Years of Reforms and Development (19862005). Hanoi: Statistical Publishing House; GSO (2008). Statistical Yearbook 2007.
Hanoi: Statistical Publishing House; GSO (2008 and 2009). Annual Report 2008,
Quarterly Report I/2009, and Half Year Report I/ 2009
Nonetheless, shares of backbone services of the economy such as financial intermediation,
science and technology and education are small even though these are rather fast growing
sectors. Share in GDP of science and technology service has been almost unchanged at the
level of 0.62 percent of the total GDP or 1.63 percent of the GDP of service sector in the past
few years, whereas that of education and training service has been declining since the year
2000 to 2.60 percent of the total GDP or 6.83 percent of the GDP of service sector in 2007.
48
Figure 4: Share of service sectors (%) in 2007
0.34%
1.08%
6.83%
3.28%
5.09%
0.45%
36.28%
7.27%
9.53%
1.63%
4.83%
11.50%
11.89%
Trade
Financial intermediation
State management
Sports and culture
Private household with employed persons
Hotels and restaurants
Science and technology
Educations and training
Activities of party and membership organizations
Transport, post, tourism
Real estate and consultancy
Health and social works
Community, social and personal services
Sources:
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical
Publishing House; GSO (2004). Viet Nam 20 Years of Reforms and Development (19862005). Hanoi: Statistical Publishing House; GSO (2008). Statistical Yearbook 2007.
Hanoi: Statistical Publishing House; GSO (2008 and 2009). Annual Report 2008,
Quarterly Report I/2009, and Half Year Report I/ 2009.
New services such as securities, paid household services, and different kinds of business
service activities associated with market economy (e.g. consultancy, auditing, accounting,
market research, etc) are emerging fast and contributing to the dynamic and diversification of
the service sector though their shares are minor. At the same time, old services which
accounted for the large share in the commanded system such as state management are
shrinking in relative term. Share of state management service fell down from 3.34 percent of
the GDP in the beginning of the Doi Moi to 2.77 percent in 2008.
Low shares in the GDP of a number of service sub-sectors are resulted from a small size of
the service sector in the economy. However, there is a sharp skew in terms of distribution
within the service sector as final demand services take a major share and leave small portion
to be owned by intermediate services such as education which is the source for long-term and
sustained growth or financial service which is a stipulator of rapid growth. In comparison,
shares of distribution and catering services, finance and insurance services and health and
social services in the GDP of the service sector were less than 20 percent, almost 14 percent
and 13 percent for China in 2002 when service sector accounts for around 40 percent of the
GDP even though construction is added into the service sector (ADFAT, 2005: 14). In India,
where services account for around 48 percent of the GDP, banking and insurance services
accounts for more than 14.5 percent of the service GDP in 2001.
49
Table 10: Share of employment of service sectors
GDP
Employment
Thousands
people
Share in the Share of
Share
in
entire
GDP of
entire
service
service
economy (%)
sector
sector
--100.00
100
100
26.10
Entire economy
Entire service sector
Trade
Hotels and restaurants
Transport, post, tourism
Financial intermediation
Science and technology
44171.9
11535.8
5291.7
813.9
1217.3
209.9
26.9
11.98
1.84
2.76
0.48
0.06
45.87
7.06
10.55
1.82
0.23
36.28
11.50
11.89
4.83
1.63
Real estate and consultancy
216
0.49
1.87
9.53
State management
793.2
1.80
6.88
Educations and training
1356.6
3.07
11.76
Health and social works
384.3
0.87
3.33
Sports and culture
136.4
0.31
1.18
Activities of party and membership
organizations
192.9
0.44
1.67
Community, social and personal
services and hired household
services
896.7
2.03
7.77
GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical Publishing House
7.27
6.83
3.28
1.08
0.34
5.09
Regarding the shares of each service sub-sector in the GDP and total employment, there are
clearly two categories of services. Those which stipulate growth and contribute to GDP
increase are science and technology, financial intermediation, hotels and restaurants, real
estate and consultancy and to a lesser extent transport, post and tourism. Those which
generate employment are trade, education, sport and culture, party and organization services,
community, social and personal services. Science and technology is most effective in terms of
growth stipulation whereas party and organization services are most effective in terms of
employment generation. These are also evidenced by the level of GDP per worker for each
sector as science and technology, real estate and consultancy maintain big gap from the
others, followed by and financial intermediation and transport, post and tourism. It is
important to know that although state management is often seen as source of employment, it
indeed contributes to GDP growth more than job growth because of the downsizing of the
government agencies. Sectors such as distribution service which remains more the source of
employment so far just because it is still underdeveloped and the forms of modern distribution
have not fully grown.
50
Table 11: GDP per worker in 2007
GDP per worker (thousand, 2007 price)
25,899
37,808
29,534
55,232
41,706
98,866
262,570
201,430
39,505
25,668
42,027
38,087
Entire economy
Entire service sector
Trade
Hotels and restaurants
Transport, post, tourism
Financial intermediation
Science and technology
Real estate and consultancy
State management
Educations and training
Health and social works
Sports and culture
Activities of party and membership
organizations
7,387
Community, social, personal services and
hired household services
26,639
GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical Publishing House
2.4 Pr ofiles of Ser vice Fir ms in Viet Nam
Service enterprises account for 61.19 percent of the total enterprises in the Vietnamese
economy. The number of service enterprise also grows faster than the number of enterprise in
the economy. Health, education, business services and science and technology are those
sectors which have experienced most rapid increase in the number of enterprises thanks to the
opening of the economy which allows for greater participation of the non-state sector into the
delivery of both old and newly emerged services. In terms of shares, commercial sector owns
the largest portion of the total service enterprise (65.35 percent), followed by real estate and
consultancy (13.75 percent), transport, post and tourism (9.58 percent), and hotels and
restaurants (6.37 percent). Thus, the shares of other service sectors are negligible. For
example, despite its rapid growth in terms of number, companies operating in the field of
science and technology still account for less than 0.01 percent of the total service enterprises.
51
Table 12: Service Enterprises by Sectors, 2000 and 2006
2000
2006
2006/2000
(%)
310,5
335.2
Entire economy
42288
131318
Service sector
23973
80350
Trade and repair of motor vehicles and
household goods
17547
52505
299.2
Hotels and restaurants
1919
5116
266.6
Transport, post, tourism
1796
7695
428.5
Financial intermediation
935
1741
186.2
Science and technology
6
33
550
Real estate and consultancy
1375
11050
803.6
Educations and training
77
785
1019.5
Health and social works
25
256
1024
Sports and culture
120
491
409.2
Community, social, personal services and
hired household services
173
678
391.9
GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical Publishing House
Share in
2006 (%)
100
65.35
6.37
9.58
2.17
0.04
13.75
0.98
0.32
0.61
0.84
The majority of service enterprises in Viet Nam are small both in terms of employees and
capital. Most service enterprises have less than 9 employees and very few enterprises employ
more than 200 staffs. For example, more than 82 percent of post and telecommunication
enterprises employ less than 9 persons. These proportions are around three quarters for the
groups of trade and repair of motor vehicles and household goods and community, social,
personal services and hired household services respectively. Sport and culture activities have
highest proportion of enterprises with more than 200 staffs, at 8.11 percent, whereas the
groups of commerce and repair services, and community, social, personal and hire household
services have lowest share, at 0.65 percent, for each.
52
Table 13: Share of service enterprise in terms of number of employees in 2006
Size of employees
Sectors
5<
5-9
10-49
50-199 > 200 Total
Trade and repair of motor vehicles and
household goods
20.61
53.78
22.10
2.86
0.65
100
Hotels and restaurants
18.10
41.71
32.00
6.65
1.54
100
Transport, and storage
6.49
41.53
38.34
10.38
3.25
100
Post and telecommunication
49.89
32.77
12.05
2.11
3.17
100
Financial intermediation
26.48
42.62
23.38
5.17
2.35
100
Science and technology
6.06
63.64
24.24
3.03
3.03
100
Real estate and consultancy
27.77
47.01
20.51
3.44
1.27
100
Educations and training
2.73
43.36
38.67
12.89
2.34
100
Health and social works
15.48
46.23
25.87
7.74
4.68
100
Sports and culture
10.18
46.61
27.29
7.82
8.11
100
Community, social, personal services
and hired household services
20.61
53.78
22.10
2.86
0.65
100
Source: author calculated from GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical
Publishing House
Except in the financial sector, more than three quarters of service enterprises have the capital
of VND 5 billions or less. Science and technology sector and post and telecommunication
sector have the lowest proportion of enterprises with more than VND 5 billions at 6.06
percent and 6.35 percent respectively. However, 53.76 percent of enterprises in the financial
service sector have the capital of more than VND 5 billions.
Table 14: Share of service enterprises in terms of size of capital in 2006
Sectors
Trade and repair of motor vehicles
and household goods
Hotels and restaurants
Transport, and storage
Post and telecommunication
Financial intermediation
Science and technology
Real estate and consultancy
Educations and training
Health and social works
Sports and culture
Community, social, personal services
and hired household services
Source: author calculated from GSO
Publishing House
Amount of Capital (VND billion)
0.5 < 0.5-1.0 1.0 – 5.0 5.0-10.0
> 10.0
Total
8.48
24.77
11.92
53.07
24.76
15.15
15.35
33.51
8.98
24.85
7.11
7.76
12.41
4.02
27.74
3.03
10.12
4.35
14.84
13.24
100
100
100
100
100
100
100
100
100
100
18.00
23.26
14.59
19.66
5.92
15.15
21.38
33.38
11.33
27.49
58.04
38.02
52.44
20.93
15.57
63.64
46.92
27.84
56.25
29.94
8.38
6.20
8.64
2.33
26.02
3.03
6.23
4.49
8.59
4.48
45.13 20.35
18.44
3.69
12.39
100
(2008). Statistical Yearbook 2007. Hanoi: Statistical
In many service sectors, state-owned enterprises (or state agencies) are still the main and
biggest providers. In some cases, they enjoy monopoly such as Viet Nam Social Insurance in
pension for public sector, Viet Nam Railway Corporation in rail transport service, and Viet
Nam News Agency in news agency sector. Or they have oligopoly and control large share of
53
the market. For instance, VINALINES controls more than 53 percent of total shipping
capacity of maritime transport. The airline services are dominated by Viet Nam airline (in
passenger services), Service Flight Corporation of Viet Nam (SFC) (helicopter services), and
Viet Nam Air Service Company (VASCO) (air support services). In banking, five stateowned commercial banks (BIDV, Vietcombank, Agribank, Vietinbank, and MHB) owned 51
percent of total banking assets, and almost 57 percent of total deposits in 2008. In the
telecommunication sector, Viettel Corporation, MobiFone and VinaPhone held 88 percent of
the mobile market, whereas VNPT/VDC, Viettel and FPT Telecom possessed more than 90
percent of the ADSL market in 2008.
While the activities of the SOEs are still regulated by the 2003 SOE law, according to the
Enterprise Law in 2005 (Article 166), within four year since the Enterprise Law enters into
force (on 1/7/2006), SOEs which were established under the 2003 SOE Law must be
transformed into limited liability companies or joint-stock companies in line with the
Enterprise Law. In March 2007, the Prime Minister issued Decision 38/2007/QD-TTg which
classifies the SOEs into two categories: the SOEs of which 100 percent registered capital is
state-owned, and the SOEs to be equitized but state still controls over 50 percent of stocks.
All SOEs are scheduled for equitization before 2010.
Current step of SOEs reforms is the pilot establishment of the major state economic groups
and special general state corporations in key economic sectors on the basis of 18 state general
corporations (so-called the 91 general corporations) which were established in 1994 under the
Decision 91/TTg by the Prime Minister. By 2009, 8 state economic groups and 12 special
general state corporations have been created, including services providers such as VNPT, Viet
Nam Railway and State Capital Investment Corporation. These economic organizations are
put under the direct administrative management of the Prime Minister. 24 State Economic
Groups are organized according to holding (parent) company – affiliated company models. 25
Holding company is state-owned and operates according to the SOE Law. Affiliated
companies are limited liability companies or joint-stock companies. Although the aim of this
restructure program is to increase the specialized capability and competitiveness of the
important SOEs, some economic groups already took advantage of their capital scale to
venture into their non-core business activities such as securities, banking and real estates more
than on the expansion and improvement of their core services.
Over the past years, the participation of the private sector, including foreign investors, into the
service sector has been significantly expanded. In the airline, Pacific Airlines (Jetstar Pacific)
was established as the first joint venture. In November 2007, the government approved the
establishment of the first privately-owned airline known as Vietjet Aviation Joint Stock
Company, and in May 2008, the second company Indochina Airlines. In maritime,
GEMATRANS (Asia) Co., Ltd. and APM – Sai Gon Shipping are two joint-venture
companies with significant roles in container transport. In banking sector, from 1997 to 2008,
the share of joint stock commercial banks increased from 11.86 percent to 32.45 percent in
terms of assets, and from 10.6 percent to 31.23 percent in terms of deposit. In 2008, five
foreign banks – HSBC and Standard Chartered (UK), ANZ Bank (Australia and New
Zealand), Shinhan Bank (South Korea), and Hong Leong Bank (Malaysia) – were given
permission to set up fully-owned subsidiaries which allow them to compete for market shares
in earnest (BMI 2009, QIII: 29). In the telecom market, besides Vinaphone, MobiFone, and
Viettel, there are also the joint ventures such as S-Fone, Hanoi Telecom (HT Mobile), Gtel
24
25
Except Bao Viet Financial Group which is put under the administrative management of Ministry of Finance.
Except Bao Viet Financial Group which is a joint-stock company.
54
Mobile in mobile service and FPT in fixed line. In the insurance sector, dominant service
providers are joint stock and private companies such as PVI, Bao Minh, Bao Viet, AAA, and
BIC, which account for 83 percent of the non-life insurance market. Distribution services are
attracting major foreign distributors such as Metro Cash & Carry (Germany), Big C (France),
and Parkson (Lion Group, Singapore).
In public services, the government has actively called for socialization, accepting the delivery
of services such as education, health and culture and sport, by private sector and the NGOs to
increase service quality and to reduce the burden of state budget. New forms of state – non
state coordination in public services delivery such as public-private partnership have been
also experimented under the assistance of international NGOs and development agencies. The
context of liberalization has made the understanding of public services as being provided only
by the government become less relevant. The opening of domestic service market presses the
providers of services such as education, healthcare, sport and culture and publication to see
the need of commercialization to sustain.
2.5 Competitiveness Issues Related to Development of Ser vice Sector
Competitiveness Index: The Global Competitiveness Report 2008-2009 (GCR) has ranked
Viet Nam 70th out of 134 countries in 2008 for competitiveness index with the score of 4.1 out
of 7. Viet Nam ranked 64th in 2006 (out of 122 countries) and 68th in 2007 (out of 131
countries). Taking into account new economies inserted to the list, Viet Nam’s
competitiveness ranking has fallen from 68th in 2007 to 69th in 2008. Comparing with other
Southeast Asian and some East Asian economies, Viet Nam performs better than the
Philippines and Cambodia (Laos and Myanmar have not been ranked) but worse than China.
Survey to produce the inputs to the GCR 2008-2009 indicates that the relative strength of the
Vietnamese economy are overall macroeconomic stability, health and primary education,
labor market efficiency and market size, whereas the weaknesses are infrastructure, higher
education, innovation and technology readiness.
55
Table 15: Ranks of selected economies in global competitiveness index
Ranks in 2008
Score in 2008
Ranks in 2007
Singapore
5
5.53
7
Japan
9
5.38
8
Hongkong
11
5.33
12
South Korea
13
5.28
11
Taiwan
17
5.22
14
Malaysia
21
5.04
21
China
30
4.70
34
Thailand
34
4.60
28
Brunei
39
4.54
n/a
Indonesia
55
4.25
54
Viet Nam
70
4.10
68
The Philippines
71
4.09
71
Cambodia
109
3.53
110
Source: Viet Nam’s ranking fell 2 grades in Global Competitiveness Index Table..
09/10/2008.
http://Viet Namnet.vn/kinhte/2008/10/807594/
Competitive Business Environment: Viet Nam ranks 82nd out of 121 economies in 2006, and
76th out of 127 economies in 2007 for its business competitiveness index. When counting the
number of newly enlisted economies, the rank is however unchanged. Vietnamese business
environment is attractive in term of labor regulations, political stability, security and public
health though the attractiveness in labor regulation can be a double-edged sword since it may
be resulted from inadequate labor regulations. Figure 5 indicates that over the past three years,
Viet Nam has made further progress to reduce the impression of corruption in the business
environment despite some major corruption scandals discovered recently, and to change the
perception about the inefficiency of the government bureaucracy thanks to the administrative
reforms. Nonetheless, Viet Nam has done little to improve the impression about its poor
infrastructures and insufficient qualified labor force. Since 2007, the perception of policy
instability has increased considerably, probably because of expectation about policy changes
after the WTO accession, and this may affect the business environment for service sector
more than the manufacturing since the latter was already quite open. One important remark on
macroeconomic stability condition in 2008 is the high inflation rate, which caused a lot of
difficulties to the service business, especially the real estate and banking sectors.
56
Figure 5: Business Environment: The Most Problematic Factors for Doing Business in Viet Nam
20
19.04
18.82
17.9
18
16.5
16
13.49
14
14.8
14.1
13
12
9.47
10
12.6
10.6
9
7.9 8.2
8
8.38 8.3
8.2 8.1
6.86
7.7
7.73 7.6
6.4
6
4
2.18
3.81 3.4 3.9
3.1
3.26
2
0.87
2
3.7
3.1
1.96 2.1 1.9
2.18 1.8
1.4
1.96
1.2 0.9
0
0
0.6
he
al
th
pu
bl
ic
th
ef
t
2006
Po
or
an
d
rim
e
C
In
ef
fi c
Ta
ie
nt
x
ra
go
te
ve
s
rn
m
en
tb
ur
ea
Fo
uc
re
ra
ig
cy
n
cu
rre
nc
y
re
gu
R
la
es
ti o
tri
ns
ct
iv
e
la
bo
rr
eg
G
ul
ov
at
er
io
nm
ns
en
ti
ns
ta
bi
lity
/c
ou
ps
re
gu
la
ti o
ns
Ta
x
fin
an
ci
ng
to
Ac
ce
ss
Po
or
w
or
k
et
hi
c
in
Po
l ic
na
tio
na
ll
y
ab
or
fo
rc
e
in
st
ab
il it
y
pt
io
n
or
ru
C
wo
rk
fo
rc
e
ed
uc
at
ed
y
su
pp
l
In
ad
eq
ua
te
In
ad
eq
ua
te
ly
of
i
nf
ra
st
ru
ct
ur
e
In
fl a
tio
n
0
2007
2008
Sources: WEF. Global competitiveness report, 2006-2007, 2007-2008, 2008-2009.
Note: From a list of 14 factors (in 2006 and 2007) and 15 factors (in 2008), respondents were asked to select the five most problematic for doing
business in their country/economy and to rank them between 1 (most problematic) and 5. The bars in the figure show the responses weighted
according to their rankings.
57
Factor conditions: At present, Vietnamese economy is still at the factor-driven stage of
growth. So is the service sector in Viet Nam. In other words, growth of service sector depends
much on factor endowment such as labor, capital, infrastructures, and natural resources. Out
of 134 economies, GCR 2008-2009 ranks Viet Nam 93rd for infrastructures, and 98th for
higher education and training with the respective scores of 2.9 and 3.4 out of 7, lower than
number of economies in East and Southeast Asia such as China, Thailand, and even the
Philippines which rank below Viet Nam in their overall GCI, and higher only than Cambodia.
Poor infrastructures and education and training at the higher level are the barriers to the
enhancement of the competitiveness of the service sector. Especially, poor quality of higher
education and training serves as a bottleneck to the expansion of modern and sophisticated
service sectors. However, Viet Nam still possesses certain comparative advantages in many of
its services, for example, natural and cultural resources for the development of tourist sector
and other culture and recreation-related activities. In 2008, Tourist magazine Conde Nast
Traveller listed Viet Nam among top 20 most favorable tourist destinations in the world. In
addition, macroeconomic and political stability and efficient labor market are other
advantages to attract foreign investment into the service sector. Viet Nam ranks 47th for its
labor market efficiency, higher than China but lower than Indonesia and Cambodia.
Demand conditions: GCR 2008-2009 ranks Viet Nam 40th out of 134 economies with the
score of 4.4 over 7, higher than Brunei and Cambodia but lower than the Philippines.
Comparative advantage in size of Vietnamese service market lies in large population, and
rapid economic growth that generates higher incomes for consumers. The recent boom of
retail trade market and real estate sector is a clear example. The Global Retail Development
Index 2008 released by American consultancy firm A.T.Kearney ranks Vietnamese retail
market first in the world. Industrialization and modernization also create higher demand for
intermediate services such as transport, telecommunication, banking and education. In
addition, the process of international economic integration has enlarged the export markets for
Viet Nam’s trade in services especially in those sectors it possesses comparative advantage
such as tourism. GCR 2008-2009 ranks Viet Nam 29th for its foreign market size variable,
showing that the business opportunities in foreign market are even more attractive than in
domestic market.
Firm structure, strategy and rivalry: In such services as banking, rail transport, airlines,
telecommunication, broadcasting, pension for public sector and news agencies, monopoly and
oligopoly by large SOEs or government agencies exist. Nonetheless, competition among
dominant service suppliers has become fiercer over the past years to gain the share of the
markets in such booming sectors as commerce, telecommunication, banking, airlines and
insurance. Current competing strategies are mostly based on prices rather than quality of the
services. Measures to stipulate sophisticated demands of customers are lacking. GCR 20082009 ranks Viet Nam 84th for its business sophistication as a comparative disadvantage. In
addition, as indicated above, the majority of the Vietnamese service firms, especially in the
private sector, are small in both labor and capital sizes in the face of foreign giants.
58
Table 16: Ranking of pillars for competitiveness of selected economies, 2008-2009
South
Hongkong Korea Taiwan Malaysia China Thailand Brunei Indonesia
9
28
40
30
56
57
41
68
5
15
19
23
47
29
39
86
Viet
Nam
71
93
Singapore Japan
Philippines Cambodia
Institution
1
26
105
103
Infrastructure
4
11
92
97
Macroeconomic
stability
21
98
3
4
18
38
11
41
2
72
70
53
105
Health
and
primary
education
16
22
43
26
20
23
50
58
47
87
84
90
111
Higher
education and
training
8
23
28
12
13
35
64
51
69
71
98
60
127
Goods market
efficiency
1
18
2
22
14
23
51
46
91
37
70
81
88
Labor market
efficiency
2
11
4
41
21
19
51
13
16
43
47
101
33
Financial
market
sophistication
2
42
1
37
58
16
109
49
75
57
80
78
130
Technological
readiness
7
21
10
13
15
34
77
66
54
88
79
70
123
Market size
41
3
26
13
16
28
2
21
116
17
40
34
95
Business
sophistication
14
3
13
16
12
22
43
46
89
39
84
57
110
Innovation
11
4
24
9
7
22
28
54
91
47
57
76
112
Sources: WEF. Global competitiveness report, 2008-2009.
Note: For those economies ranked lower than 50 in the overall GCI, any individual variables ranked higher than 51 are considered as advantages.
Any variables ranked lower than 50 are considered as disadvantages.
59
Related and supporting industries: Intermediate services in Viet Nam are less developed and
given less attention than the final demand services. Weakness in infrastructure and higher
education factors is indeed resulted from poor performance of such service sectors as
transport, and higher education. According to GCR 2008-2009 ranking, quality of overall
infrastructure, including road, port, airlines and electricity, represents the comparative
disadvantages of the economy. GCR 2008-2009 also ranks Viet Nam 79th for its technological
readiness, listing legal element, availability of latest technology, mobile telephone and
broadband internets subscribers as comparative disadvantages. Vietnamese financial market is
ranked 80th, higher than China, but below Indonesia, and the Philippines for its
sophistication, and it is regarded as unsupportive and constitutes a comparative disadvantage
of the economy. Even though new supportive service sectors have emerged as business
services, the process of “externalization” or “outsourcing” (i.e., purchasing business support
services from external providers) is still limited or cut short because Vietnamese small or
informal enterprises tend to produce all kind of service inputs by themselves.
2.6 Viet Nam’s Tr ade in Ser vices
Service trade volume has increased constantly during the 1991-2008 period (except the year
1999) at an annual rate of 24.1 percent. From 1991 to 2008, the annual growth rates of service
export and import volumes are 22.6 percent and 25.9 percent whereas those of the total export
and import volumes are 20.1 percent and 21 percent respectively. The share of service trade in
total foreign trade turnover increased from 6 percent in 1990 to 30.4 percent in 1995 before
falling to 19.8 percent in 2000, 11.5 percent in 2005 and 9.5 percent in 2008.
Figure 6: Service trade volume of Viet Nam, 1990-2008 ($US millions)
15011
16000
13636
14000
10892
12000
10000
8606
7322
8000
6000
4129
4547
5683
5762
5533
5954
6192
6646
2547
4000
2000
8745
308
719
1136
1466
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Author calculated from WTO (2004). Statistics. GSO (2008). Statistical
Yearbook 2007. Hanoi: Statistical Publishing House; GSO (2008 and 2009). Annual
Report 2008, Quarterly Report I/2009, and Half Year Report I/ 2009.
During the 2001-2008 period, the annual growth rate of service export is 12.15 percent, which
is however still lower than that of goods export (above 20 percent). By the end of 2008, the
proportion of service exports in total exports of the economy is just 10.2 percent which is
below the average world level (20.0 percent) and even below the average level of the
transitional economies (14-15 percent).
60
At the same time, Viet Nam’s service imports have increased considerably, from $US 2.304
billions in 1996 to $US3.382 billions in 2001, $US 5.036 billions in 2005, and $US 7.931
billions in 2008. As a result, service trade deficit has been rising fast, from $US 61 millions in
1996, when it first occurred, to $US 872 in 2004 at its climax, and to $US 819 million in
2008.
Table 17: Service Exports and Imports of Viet Nam, 1990-2008
Export
Import
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Turn-over
(USD
million)
Change
(%)
Share in Turn-over
(USD
export
(%)
million)
Change
(%)
Service
exports
Share in minus
imports
imports
(USD
(%)
million)
4.4
56
10.4
179
14.0
312
15.0
78
17.8
19
19.6
165
17.1
-61
21.4
-623
21.3
-530
20.6
-547
17.2
-550
17.3
-572
15.8
-750
13.8
-778
11.5
-872
10.9
-215
11.4
-692
10.3
-716
8.9
-819
182
7.0
126
449
146.7
17.7
270
114.3
724
61.2
21.9
412
52.6
772
6.6
20.5
694
68.4
1283
66.2
24.0
1264
82.1
2147
67.3
28.3
1982
56.8
2243
4.5
23.6
2304
16.2
2530
12.8
21.6
3153
36.8
2616
3.4
21.8
3146
-0.2
2493
-4.7
17.8
3040
-3.4
2702
8.4
15.7
3252
7.0
2810
4.0
15.8
3382
4.0
2948
4.9
15.0
3698
9.3
3272
11.0
14.0
4050
9.5
3867
18.2
12.7
4739
17.0
4265
10.3
11.6
4480
-5.5
5100
19.6
11.4
5792
29.3
6460
26.7
11.7
7176
23.9
7096
9.8
10.2
7915
10.3
Source:
WTO (2004). Statistics. GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical
Publishing House; GSO (2008 and 2009). Annual Report 2008, Quarterly Report
I/2009, and Half Year Report I/ 2009
Tourism, airlines, maritime transport and finance are four largest export sectors, accounting
for around 93.1 percent of total service export in 2008. During the 2005-2008 period, shares
of tourism, airlines, and maritime transport increased from 53.9 percent, 15.4 percent and 12
percent to 56.7 percent, 18.6 percent, and 14.6 percent respectively. In contrast, the share of
financial services decrased from 5.2 percent in 2005 to 3.2 percent in 2008. Tourism, airlines
and the group of “other services” account for more than 37 percent of total service import in
2008. However, largest portion belongs to the cost of insurance and freight paid for
transportation in foreign trade, accounting for almost 53 percent of total service import value
in 2008.
61
Table 18: Trade of selected service sectors, 2005-2008 ($US million)
2005
2006
2007
2008
Share
in
2008 (%)
I. Export
4,265
5,100
6,460
7,096
100
1. Tourism
2,300
2,850
3,750
4,020
56.65
2. Airlines
657
890
1,069
1,322
18.63
3. Maritime
510
650
810
1,034
14.57
4. Post and telecommunication
100
120
110
80
1.13
5. Finance
220
270
332
230
3.24
6. Insurances
45
50
65
60
0.85
7. Government services
33
40
45
50
0.70
8. Other services
400
230
279
300
II. Import
4,480
5,792
7,176
7,915
4.23
100
1. Tourism
900
1,050
1,220
1,300
16.42
2. Airlines
630
700
820
800
10.11
3. Maritime
170
210
250
300
3.79
4. Post and telecommunication
31
30
47
54
0.68
5. Finance
230
270
300
230
2.91
6. Insurances
130
160
210
150
1.90
7. Government services
30
40
40
50
0.63
8. Other services
850
850
1.030
850
10.74
2,482
3,259
4,181
9. Cost of insurance and
freight in imports
1,509
52.82
Sources:
Statistical Yearbook 2007. Hanoi: Statistical Publishing House; GSO (2008 and 2009).
Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/ 2009. Author
calculated based on those data.
2.7 Tr ends in Demand for Vietnamese Ser vices
The Vietnamese economy has been undergoing a difficult moment under the impact of the
global economic and financial crisis. The y-o-y GDP growth rate in the first half of 2009 was
3.9 percent for the whole economy whereas those of the first (agriculture, aquaculture, and
forestry), second (manufacturing and construction) and tertiary (services) sectors were 1.25
percent, 3.48 percent and 5.5 percent respectively. These are the contractions comparing with
the growth rates of 6.5 percent for the whole economy and 3.04 percent, 3.48 percent and 7.6
percent correspondingly for three sectors in the first half of 2008.
62
Because of economic difficulties, deamand for some services has been contracting since 2008.
The growth rate of the number of foreign tourists to Viet Nam declined from the recored 17.2
percent in 2007 to merely 0.6 percent in 2008. Banking sector also had a hard time because of
high inflation that forced the interest rates to rise above the ceiling of 10 percent in the past
years to as high as 19 percent per year for deposit rate and 21 percent per year for lending
rates. Stock market recessed as VNIndex lost almost 65.7 percent of its value against 2007.
Demands for martime transport declined considrably. The number of orders and freight has
fallen since the end of the second quarter of 2008 as much as 70 percent by the mid 2009. The
use of major cargos for some domestic cabotage routes is virtually suspended to cut cost.
Vinalines estimates that in 2009, volume of maritime transport would decline by 10 percent,
whereas turnover and profit would decline by 15 percent and 40 percent respectively in
comparison with 2008. In 2008, aggregate consumption grew at 9.01 percent in real price
against 10.63 percent in 2007. The growth of government consumption was 7.5 percent (8.9
percent in 2007) and that of household consumption was 9.16 percent (10.8 percent in 2007)
(CIEM, 2009: 16).
Despite economic recession, Viet Nam proves attractive for distribution service. In 2008, total
trade volume was $US 47 billions, and grew 20 percent on the y-o-y basis. It is also expected
to reach $US 53 billions by 2010. According to market research company TNS Viet Nam,
Vietnamese middle class has emerged quickly and become wealthier. In 2008, 45 percent of
Vietnamese housholds have their monthly income within the range of VND 4.5 millions and
VND 20 millions and one third of the urban households have their monthly income above
VND 6.5 millions. Over the past two years, although inflation rate was as high as 36 percent,
this does not seem to affect much confidence of the Viet Namee consumers. Average saving
of the Vietnamese has declined from 17 percent in 1999 to just 9 percent in 2008. The semiannual Nielsen global consumer confidence index published in April showed that Vietnamese
consumers were the most optimistic in the world when it came to believing that the domestic
economy would exit the current downturn by the end of 2009 (BMI 2009, QIII: 19, 20).
Younger generation and the wealthier middle class are now more selective to their service
consumption. They also care more about the the brandnames and quality of services provided.
Survey has indicated that 90 percent of consumers said that they would like to pay more for
quality goods and services.
Although banking sector had a difficult year in 2008, its demand still remains high and
continues to grow in the coming years. The proportion of ATM users among urban consumers
increased from 2 percent in 2006 to 9 percent in 2008. The number of ATM cards is expected
to reach 15 million ATM cards by 2010, and 30 millions by 2020. The proportion of urban
consumers who have their banking account increased from 29 percent in 2006 to 38 percent in
2008. By 2010, it is prediected that 70 percent of public employees and 50 percent of
employees in the private sector, equivalent to 20 million people, will be paid through their
banking accounts. These proportions are expected to reach 95 percent and 80 percent by 2020
respectively, equivalent to 45 million people. In addition, TNS Viet Nam predicts that by
2010, 70 percent of service suppliers such as commercial centers, restaurants and
supermarkets will be able to accept credit card payment, and this ratio is expected to reach 95
percent by 2020.
Telecommunication is among a few service sectors which have been less affected by the
current economic contraction. Despite its rapid expansion over the past years, Vietnamese
telecommunication market still appears to have strong growth potential. Penetration rate of
the mobile network has increased from 53 percent in 2006 to 84 percent in 2008. In the rural
63
areas, one person out of three households is now using cell phone. One third of Vietnamese
households are now able to connect to the internet and 50 percent of Vietnamese households
possess computers. Besides the popular uses of internet such as to read news, listen to the
music and chat, e-commerce is developing quickly together with the advertising services on
the web.
In the long run, trend in demand for Vietnamese services depends on a number of important
factors such as the growth of the economy, population and foreign markets as well as pattern
of consumption by the customers, including the business sector. According to the recent BMI
Reports, Viet Nam would join the 100 million population club by 2020. Business Monitor
International Reports (BMI) have suggested two scenarios for the Vietnamese economy from
now to 2018. Optimistic scenario proposed by the 2009 First Quarter Report predicts that the
economy would grow at 5 percent in 2009, which is close to the target set by the National
Assembly. This growth rate however was revised in the 2009 Third Quarter BMI to be just
2.9 percent, and the economy was predicted to fully recover by 2014. With the first and
second scenarios, GDP per capita of Viet Nam would reach around $US 3900, and $US 2600
respectively by 2018. Large population and higher income would raise the demand of the
Vietnamese service market.
In addition, two important trends of service development in the world that may have
important effects on the demands for Vietnamese services by outsiders are increased service
outsourcing and of service commercial presence abroad. Unfortunately, Vietnamese service
firms and their workers are not well prepared to fulfill the increased demand of its trading
partners for the knowledge based services, especially for the so-called “strategic business
services” such as software development, information processing, R&D, technical services,
marketing, business mangement and human development services which have been growing
above 10 percent per annum recently in the developed economies. Lack of this capability put
Viet Nam at the risk of losing its both domestic and foreign service markets to regional
competititors such as Southeast Asian economies and China.
64
Table 19: Optimistic Scenario of Growth
Year
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Real GDP growth, 8.2
8.5
6.2
5.0
9.3
8.8
8.2
8.0
8.0
8.0
% change y-o-y
Population, mn
84.4
85.6
86.8
89.5
90.84
92.0
93.1
94.2
95.3
96.5
GDP per capita, 723
829
975
939
1149
1407
1724
1976
2266
2597
US$
Source: BMI Viet Nam 2009, QIII, pp 19 (year 2006-2008). QI pp 2 (year 2009-2010); pp 29 (year 2011-2018).
2016
8.0
2017
8.0
2018
8.0
97.6
2977
98.7
3415
99.8
3918
Table 20: Pessimistic Scenario of Growth
Year
2006
2007
2008
2009
2010
2011
2012
2013
Real GDP growth, 8.2
8.5
6.2
2.9
5.0
7.0
7.7
7.9
% change y-o-y
Population, mn
84.4
85.6
86.8
88.0
89.2
90.4
91.6
92.8
GDP per capita, 723
829
975
1024
1065
1229
1432
1587
US$
Source: BMI Viet Nam 2009, QIII, pp 19 (year 2006-2013) & 31 (year 2014-2018).
65
2014
8.0
2015
8.0
2016
8.0
2017
8.0
2018
8.0
94.1
1753
95.4
1937
96.7
2141
98.0
2365
99.3
2614
2.8 Viet Nam’s ser vices gap
There is a popular misconception in such transitional economies as Viet Nam given the
resource constraint that the country needs to have an industrialization process which focuses
more on the manufacturing than the service sector. In fact, the labor and natural resource
intensive industrialization in Latin America and China have proved to be unsustainable
development process. In contrast, such economies as Hong Kong gave priority to the
development of the service sector and have become a developed service economy. Similarly,
some thirty years ago, India made a right decision by prioritizing the high-tech services
including the information technology.
Since the end of the 20th century and the beginning of the 21st century, the service sector
proves to be both the source of and the shield from the economic instabilities in many regions
in the world as well as at the global scale. In the aftermath of the 1997-1998 financial crisis,
the Asian tigers shifted their focus more decisively to the sustained growth of the service
sector. After the WTO accession, to ensure a balanced and harmonized socio-economic
development, China also accorded greater emphasis to the service sector and saw it as the
supporter and promoter of the manufacturing sector.
Viet Nam has strived to accomplish 8 Millennium Development Goals (MDG) by the year
2015 and to become a new Asian tiger in the first decades of the 21st century. The Resolutions
of the National Party Congress set the goal to make Viet Nam become a basically
industrialized country by the year 2020. Although Vietnamese service sector has been an
increasingly important source of economic growth, its GDP share is still modest and has
remained almost constant over the past years. At present, the service sector accounts for 38.5
percent of the GDP, below the share in the GDP of service sectors in a number of transitional
economies and the economies in Southeast Asia (e.g. Singapore, the Philippines, Thailand,
Cambodia, Malaysia and Indonesia). In other transitional economies, whose GNI per capita
exceeds $US 2000 (low medium income threshold) such as Romania, Bulgaria, and Russia,
the service sector account for more than 50 percent of the GDP, and whose GNI per capita
exceed $US 4000 (high medium income threshold) such as Hungary, Latvia and Litva, the
service sector accounts for more than 60 percent of the GDP (UNDP, 2006: 2). Even in the
major cities of Viet Nam, the GDP share of the service sector is still not high. For instance,
service sector accounts for 57.5 percent, 50.4 percen 43.6 percent, 48.3 percent and 42.7
percent of the GDP of Hanoi, Ho Chi Minh city, Hai Phong, Da Nang and Can Tho
respectively. To the same extent, the share of service employment in the total employment of
the Vietnamese economy is low. Service sector accounts for merely 26.7 percent of total
employment in 2008 whereas these shares were 36.5 and 40.9 percent in Southeast Asia and
Asia-Pacific region respectively in 2007. Nonetheless, the GDP share of Vietnamese service
sector may be underestimated because of the exclusion of the informal service activities and
such sectors as construction and utilities supply from the official service statistics. This
statistical gap needs to be bridged in order to have fuller assessment of the development state
of the Vietnamese service sector.
Within the service sector, final demand services such as retail distribution, hotels and
restaurants and tourism account for the major share both in terms of the GDP and
employment. For instance, the distributive trade sector accounted for more than 36 percent of
the GDP and almost 46 percent of the employment of the service sector in 2007. In contrast,
the shares of backbone services such as financial intermediation, science and technology and
education are small even though these are rather fast growing sectors. Although new services
66
such as securities, paid household services, and various kinds of business service activities are
emerging fast, their shares are minor. Part of the reason is the emergence of a wealthier and
consuming economy. Another part is a mentioned misconception that directs the priority of
the producers in the market and the policy to the development of consumer or final demand
services.
In this regard, the “prioritization” of services in the development strategy of Viet Nam must
take into account the overall development level of the country and its foothold in the
international market in order to come up with realistic goals. For example, it is more realistic
for Viet Nam to choose to become a competitive service provider next to China which already
established its firm position as the world manufacturer. In addition, the industry and services
have a strong inter-linkage, which should be taken into account in the overall development
strategy to ensure that both sectors grow side-by-side and are supportive to each other. The
service structure also indicates that high value-added intermediate services which are critical
for enhancing the competitiveness of the whole economy remain underdeveloped and are not
capable of meeting the needs of the economy. In this respect, the General Framework for a
National Strategy for the Services Sector in Viet Nam up to 2020 suggested prioritizing the
service sectors which have significant multiplier and ‘breakthrough’ potential for the increase
of competitiveness and overall economic development: telecommunications/ICT, education
and training, and business services.
Although services comprise over half of Viet Nam’s enterprises (UNDP, 2006), the size of the
majority of Vietnamese service firms is still small both in terms of capital and employment. In
addition, there are a large number of very small and unregistered service providers including
individuals and households who have their business in the informal sector. Nonetheless, there
are a few big providers in the service sectors under the monopoly and oligopoly of the state
such as telecommunication, airlines, rail transport, maritime transport, banking, insurance,
and pension. Overall, the competitiveness of the Vietnamese service sector is low and this is
also true for sectors that have such comparative advantage as tourism. Productivity levels are
comparatively low and caused by various reasons such as low skilled labor force, small
economy of scale, low technology and outdated facilities. In addition, current competitive and
marketing strategy among the service firms still focuses on the price rather than quality
dimension. Recent establishment of the so-called economic groups in some service sectors is
said to increase the competitiveness of Vietnamese companies in terms of scale and market
share and to provide the regulatory mechanism of the state on the economy in the face of
global economic integration. However, this may strengthen the monopolies of the state and
distort competitiveness dynamics in the service sector.
Overall, the share of Vietnamese trade in services in total foreign trade is still modest and on a
trend of decline in 2008. In addition, Vietnamese services trade deficit is growing. Maritime
transportation accounts for a large share of service trade deficit because of high cost of freight
and insurance paid to foreign companies. Service exports concentrate on a few sectors such as
tourism and computer and grow slower than goods exports. Viet Nam’s service export
strategy is an import substitution strategy rather than an export-growth strategy. In the long
run, expectations for service exports are low given the limited competitiveness capability of
potential export service sectors.
Foreign investment in the Vietnamese service sector remains relatively low and this is
contrasted to the trend of increased foreign investment in the service sector in the world.
Moreover, the realized foreign investment is often far below the total amount committed. The
67
FDI flow may not be sustainable since it concentrates on the booming sectors of the economy
such as real estates and hotels and restaurants. In this respect, the FDI sector has minor effect
on the improvement of the competitive capability of the Vietnamese service sector and while
Viet Nam wishes to diversify the investment capital, it is actually still relying heavily on the
State budget.
Finally, Vietnamese socialist-market oriented economy requires the service development
strategy to take into account the needs of the low-income and most vulnerable segments of the
population. In reality, there exists a huge accessibility gap among the regions and among the
social strata to basic services such as healthcare, education, and basic public utilities.
Constraint on the government resources in investment and consumption subsidies serves as a
bottleneck in the improvement of the quality and delivery of public services and widens
socio-economic gaps across the regions and social groups. Last but not least, there is an
emerging concern on the environmental and sustainable dimensions in the development of the
service sector.
68
CHAPTER 3: THE PREREQUISITES FOR STIMULATING THE SERVICES
SECTOR GROWTH
3.1 Key dr iver s of gr owth and suppor ting infr astr uctur e for development of the ser vice
sector in Viet Nam
It has become a commonplace that the more developed an economy is, the higher the share of
its service sector. However the positive association between the weight of the service sector in
the economy and the level of development is not a mechanical one. In addition, growth and
development economists do not fully agree on the exact nature of the positive correlation
between the service sector share of output and per capita income.
Traditional theories of economic development stressed the shift from agriculture to industry in
the course of economic growth, while the shift away from manufacturing towards services has
not received uniform explanation, but generally it was believed that the increasing share of
services in GDP was due to lower services productivity and higher prices. After years of
lengthy theoretical debates about the relative importance of manufacturing and services to
economies, and the inter-relationship between the two, it is by now accepted as a fact that
services have become a major driving force in economic growth, and rather than services
following and supporting manufacturing, manufacturing is seen as flowing to those countries
and areas where services infrastructure is efficient and well developed.
Recent work by Eichengreen and Gupta (2009) has found that the relationship between
service sector growth and economic development has significantly changed over time because
of the application of new technologies, especially information and communications
technologies (ICT), to the production of services. These technologies allowed services that
once had to be produced and consumed locally to be sourced at long distances and traded
across borders. 26 Analyzing how the relative size of the service sector evolves over the
growth process, Eichengreen and Gupta (2009) have found that:
First, there are two waves of service sector growth. The first service sector growth
wave occurs at rather low per capita income: the share of service output already begins
to rise at relatively modest incomes but at a decelerating rate as growth proceeds, until
it levels out at roughly US $1800 per capita income (in year 2000 US purchasingpower-parity dollars). The second waive begins to rise at roughly US $4000 per capita
income: the share of the service sector then begins to rise again, before eventually
leveling off a second time.
Putting these two waves in historical context, Eichengreen and Gupta (2009) also
found that there was an upward shift in the second wave of service-sector growth after
1990. In order words, the second wave starts at lower levels of income after 1990 than
before.
As far as general conditions explaining country variations, it was found that the twowave pattern and especially the greater importance of the second wave in medium-to26
Barry Eichengreen and Poonam Gupta: “The Two Waves of Service Sector Growth”, NBER Working Paper
No. 14968, May 2009
69
high-income countries is most evident in countries (1) which better enable the
diffusion of information and communications technologies, (2) with economies having
greater trade openness (both in general and in services in particular), and (3) that are
close to major financial centers which have a comparative advantage in the provision
of financial services. The increase in the service sector share at all levels of income
but especially the second wave at higher income levels reflects increased scope for
producing and exporting modern (financial, communications, computing, legal,
technical and business) services in which medium-to high-income countries specialize.
Eichengreen and Gupta (2009) conclude that the countries which satisfy the most the above
three criteria are in the best position to capitalize on the opportunities afforded by ICT,
competitive financial services and services export markets.
The growth of the services sectors obviously is induced by growing demand for services.
However, there are preconditions on both the demand and supply sides: for example, if
potential consumers are not familiar with the benefits to be gained from purchasing high
quality or cheaper business services, or are prevented to purchase such services from external
sources because of governmental policies, demand will remain latent; on the supply side,
potential constraints which may hinder the development of local capacities to satisfy demand
are numerous and may include inadequate infrastructure, poor human resources, difficulties to
obtain finance, etc.
Box 4
Factors driving outsourcing
One of the reasons why business services are growing rapidly relates to the increased
outsourcing by firms of activities that they had previously conducted internally. Reasons for
this growth include pressure on corporations to concentrate operations on core competencies,
to reduce costs and to exploit external, specialized expertise more effectively.
 Cost and efficiency. Outsourcing firms that provide support services to other firms are
often able to do so at lower cost while offering a wider choice of innovative products.
This reflects the positive effects of competition – in-house firms are likely to be
shielded from competition, a condition which lowers the pressures to be efficient and
the incentives and need to innovate.
 Competence. The increasing sophistication of information, financial, computer,
research and training needs by business and the rapid evolution of new techniques and
products in these fields have made it difficult for firms to maintain competitive
competence in these areas. Doing so would require the accumulation and maintenance
of a knowledge base in diverse disciplines that in most instances firms would be hardpressed to justify.
 Specialization. The trend in industry in recent years has been towards consolidation
and concentration on core competencies, a development which has provided new
opportunities for independent suppliers of both goods and services.
Source: OECD: The Service Economy, 2000
It is generally recognized that in market economies, the key driving force of service sector
development and growth is the existence of a strong private sector, a genuine spirit of
70
entrepreneurship (of both firms and individuals) that permeates the whole economy, and a
strong competitive environment for both manufacturing and service firms which compels
them to constantly search for better productivity and competitiveness.
3.2 What Stimulates Gr owth in the Ser vice Economy?
It logically follows that the primary tasks in order to promote services sector development are
to remove structural impediments to competition – for example through privatization – and
supply side constraints, and to create a business environment favourable to enhancing the
performance of services providers.
In Viet Nam, while the private sector has been progressively allowed to play an increasing
role in the economy since the launch of the Doi Moi, the state sector still enjoys a dominant
position in many services sectors which hinders the development and unfettered growth of
services. In some sectors State-owned enterprises (SOEs) enjoy legal monopoly, in some
others they are in a de facto monopoly or oligopoly situation.
Table
Number of acting enterprises as of 31 December
by types of enterprise
(in percentage of the total number of enterprise)
2000
2003
State owned enterprise
13,62
6,73
Central
4,89
2,64
Local
8,73
4,09
Non-state enterprise
82,77
89,60
Collective
7,65
5,76
Private
48,59
35,62
Collective name
0,01
0,02
Limited Co.
24,73
41,89
Joint stock Co. with State capital
0,72
0,93
Joint stock Co. without State capital 1,07
5,38
Foreign investment enterprise
3,61
3,67
100% foreign capital
2,02
2,60
Joint venture
1,59
1,07
Total
100,00 100,00
Source: GSO, Statistical Yearbook 2008
2004
5,01
2,14
2,87
91,55
5,83
32,67
0,02
44,59
0,89
7,54
3,44
2,55
0,89
100,00
2005
3,62
1,62
2,00
93,11
5,61
30,67
0,03
46,49
0,97
9,34
3,27
2,52
0,75
100,00
2006
2,82
1,33
1,49
93,97
4,74
28,42
0,02
48,48
1,04
11,27
3,21
2,54
0,67
100,00
2007
2,24
1,10
1,14
94,57
4,29
25,98
0,03
49,85
1,03
13,39
3,19
2,58
0,61
100,00
For example, in the banking sector, the number of financial institutions is much larger,
nevertheless the market is still dominated by the four major and one minor State-owned
commercial banks (SOCBs), and those joint stock banks (JSBs) and joint venture banks where
SOCBs have a strategic position. (See Table …)
71
Table
Banking Sector in Viet Nam
(Percentage of banking sector markets)
Source: Suiwah Leung: “Banking and Financial Sector Reforms in Viet Nam”, ASEAN
Economic Bulletin Vol. 26, No. 1 (2009), pp. 44-57
In the fixed line telecommunication sector, PSTN-based telecommunication services remain
under the monopoly control of state-owned operator VNPT. Where competition is allowed,
i.e. in the fixed wireless services sector, VNPT’s main competitors are also state-owned: EVN
Telecom, which is the telecoms arm of EVN (Electricity of Viet Nam), and Viettel, which is
owned by the Army. In the mobile phone sector, where until mid-2003, the market was
nominally a duopoly, both incumbent operators – MobiFone and VinaPhone – are indirect
wholly owned subsidiaries of VNPT and have a 72% market share. Previously the telecom
sector was partially opened to foreign companies, but primarily as suppliers of equipment and
finance for constructing network infrastructure for operation by Vietnamese companies.
(Relaxed market access limitations might be expected due to WTO accession commitments,
which will bring in further competition.
Another example is the insurance market, which also continues to be dominated by SOEs.
The former state-owned monopoly Bao Viet remains by far the largest insurance company
overall. PJICO, PVIC and PTI are also all owned by different state-owned enterprises.
Finally, one should not forget that for many business services to develop, large state-owned
manufacturing, infrastructure, mining and utility firms are the only potential clients. However,
in Viet Nam major SOEs having a dominant position in these sectors tend to either produce
business services in-house or purchase them from other State-owned firms leaving not much
room for private sector competitors to grow and/or to acquire skills and competences. (Cavico
Corp., which is the largest private infrastructure and mining company based in Viet Nam, may
be an exception. However, it is a US-owned company and does not seem to have domestic
competitor in SOE-dominated services markets.) However, in the absence of a vibrant
domestic market with high level of competition, it is unlikely that internationally competitive
and exportable services can be developed. The solution therefore seems to lie in the
establishment of pro-competitive policies which should include but not limited to procompetitive equitization and privatisation policies since it would make little sense to transfer
a monopoly right or a dominant market position from the State to the private sector. The main
As shown in Chapter 2, in Viet Nam growth of many, but not all, services sectors depends
much on factor endowment such as labor, capital, infrastructure, and natural resources. While
72
these are important constraints for major sectors, such as information and communication
services, strategic business services, transportation, banking etc. that a comprehensive
services sector development strategy indeed should address, there are many services, which
are not regarded “strategic” but could easier contribute to job creation, reduce poverty, ensure
fairer distribution of occupations across the country’s territory. These are local services
provided to either private individuals or micro-enterprises which require little capital and
which can be supplied by self-employed persons.
In addition to the structural impediments to competition that SOEs create in some major
sectors, another problem is that SOEs are sometimes used as by the government a direct
regulatory tool, which further distorts the market in favour of the state sector.
For example, although formally policy lending from SOCBs to SOEs has ceased, certain
regulations (supposedly for prudential purposes) still mean that SOCBs continue to
discriminate against borrowings by the private sector in favour of SOEs. SOCBs are allowed
to provide unsecured lending to private enterprises, but only to firms with at least two
consecutive years of profits. Therefore, unsecured lending is not available to start-up
businesses. 27
Another problem with SOEs is the low progress in separating business administration from
the state management functions. There are still many enterprises, general corporations under
ministries, making obstacles to equalization of SOEs. 28
In view of the above, a priority objective is to remove impediments to the establishment of
fully competitive markets and level playing fields resulting from excessive state ownership
and pro-SOEs policy biases. In this regard, continued reform of the economy through the
ongoing equitization and ownership transfer processes could also help raise incumbent firms
efficiency which would also be required to maintain annual GDP growth at high level.
3.2.1 Developing Services that Are “Strategic” for Economic Development
The choice of sectors, policy instruments and the adopted strategies to develop services
considered “strategic” is highly contextual. During the last twenty to thirty years, various
Governments have adopted fairly diverging policy approaches to services sector development.
Section 2.8 of the previous Chapter discussed in the context of Viet Nam’s “services gaps”
the need to take into account the strong inter-linkages between the productivity growth of the
industrial and services sectors. This a powerful argument in favour of the adoption of an
overall development strategy to ensure that both sectors grow side-by-side and are supportive
to each other, rather than opting for selective, thus discriminatory sectoral development
policies. Still, in the case of Viet Nam where significant gaps exist, there might be a need for
some “prioritization” of services sectors in favour of those, which have significant multiplier
and ‘breakthrough’ potential for the increase of competitiveness and overall economic
development. There seems not be a contradiction between the need for an overall
development policy and the selective sector prioritization as the sectors suggested to focus on
on a priority basis – telecommunications/ICT, education and training, and business services –
27
Suiwah Leung: “Banking and Financial Sector Reforms in Vietnam”, ASEAN Economic Bulletin Vol. 26, No.
1 (2009)
28
MPI: “Mid-Term Review: Implementation of the Five-Year SEDP 2006-2010”
73
are more to be seen as basic enabling services for the whole economy than simply service
sectors on their own.
3.2.2 Creating an Enabling Business Environment for the Service Sector in Viet Nam
For a competitive and efficient services sector to develop, service providers, be they domestic
or foreign, state-owned or privately owned, need a transparent, predictable and nondiscriminatory framework, and which puts the least hardship on enterprises.
Allowing competition to grow in the services sectors is extremely important because it is a
constantly growing competitive pressure which fosters the growth and new entry of firms that
are particularly innovative and successful in meeting consumer demand. While increased
competition is difficult to accept by non-competitive firms, from national point of view it is
the whole economy which benefits if new and successful firms succeed and prosper, and if
less successful firms decline or close down. Accepting this principle is nothing less than a
mark of entrepreneurship It is therefore important that the business environment be geared
towards the creation and prosperity of such innovative firms allowing high entry/exit rates and
avoiding unnecessary obstacles to business operations.
In the case of Viet Nam, improving the business environment for services is particularly
important not because its poor regulatory performance – in fact the business environment has
been unchanged for the last couple of years – but because the existence of a regulatory
competition in which other countries are doing better. According to the World Bank’s “Doing
Business” world rankings, while Viet Nam’s key indicators have not changed in absolute
terms, its rank has deteriorated: it has ranked 87th in “Doing Business 2008”, 92nd one year
later and 93rd in this year’s edition.
Chart
Doing Business 2010:
Viet Nam Compared to Global Good Practice Economy As Well As Selected Economies
World Bank and IFC: Doing Business 2010 – Viet Nam, 2009
74
A key element in improving the business environment is better regulation. Currently, in terms
of “Starting a Business” and “Closing a Business” Viet Nam’s rank is respectively 116 (108
in 2009) and 127 (124 in 2009). According to the World Bank, starting a business in Viet
Nam is comprised of 11 procedures and takes 50 days, while closing a business takes 5 years.
Reform of regulatory structures, e.g. regulations on entry and on business operations, is the
key to creating new opportunities in services sectors. The current reform process that many
countries have embarked upon is driven by the recognition that certain regulations may no
longer be needed, either because technological change has enabled competition in markets
that were previously considered natural monopolies, or the given sector should be re-regulated
e.g. because the liberalized market conditions direct the public policy’s focus on new
elements, such as pro-competitive regulatory principles, environment protection, or consumer
protection.
3.2.2.1 Legal framework for services
The bulk of the legal acts currently relating to the business sector originates in the in the early
1990s when market-oriented reforms have been undertaken. The legal framework has been
changing over time: Viet Nam rewrote almost all of its laws and regulations affecting
commercial activities and judicial procedures between 2002 and 2008, to comply with the
country’s BTA and WTO requirements as a result of which enormous improvements have
been achieved in governance and the rule of law.
Despite these externally led improvements, the overall legal system in Viet Nam is regarded
as excessively cumbersome and which does not fully meet the requirements of a favourable
business environment. In this regard it is worth quoting the qualification of Viet Nam’s legal
framework by the Mid-Term Review - Implementation of the Five-Year SEDP 2006-2010
“The legal framework is not complete, of low quality, which is reflected in being not clear,
not specific, not logic, not consistent, not transparent, not predictable, not effective and not
efficient. The enforcement of low-quality legal regulations is very troublesome, costly, timeconsuming, and requires a lot of efforts, particularly with regard to investors and enterprises.
On the other hand, low-quality legal regulations create favourable opportunities for rent
seeking by incumbents, investors and entrepreneurs who abuse regulations to serve their
interests and his/her related persons other than serving and protecting interest of the whole
society” 29
Moreover, there are widespread concerns among businesses about the independence of the
judiciary and its capacity to interpret and enforce the law. Therefore, it is not uncommon that
local and foreign firms prefer to resort to arbitration or other non-judicial means rather than to
resort to the judicial system. 30
One of the characteristics of the Vietnamese legal system is the excessive reliance on sectoral
law-making and less on generic laws. There are construction laws, accounting laws, civil
aviation laws, SBV laws, and the Maritime Code, to name a few. There are also government
decrees for the implementation of these laws. The government or ministries can also issue
Decisions to set out the strategy for a given sector. 31 This leads to a proliferation of laws even
29
MPI: “Mid-Term Review - Implementation of the Five-Year SEDP 2006-2010”
Business Monitor International: “Vietnam Business Forecast Report, Q4 2009”
31
MPI and UNDP (2006)
30
75
in cases where a generic law would do the same effect. This is likely to be a legacy of the
former command economy system, where each and every economic branch had “its” own
ministry, but it is not certain that such degree of reliance on sectoral law-making is efficient in
a market oriented economic system. (The major laws and other legal and administrative acts
relating to services are listed and analyzed in detail in Chapter 7 of Part II.)
A major issue in the legal system is that the practice of issuing lower-in-rank legal acts to
implement or to guide the implementation of laws is sometimes used not to implement the
law, but to “correct” the policy intentions embodied in the law. This is a serious question not
simply because of the inevitable inconsistencies between the law and the “implementing”
decree or guideline, but because this practice undermines the rule of law and creates
uncertainties about real policy intentions.
One of the consequences of the excessive sectoral approach is that the line ministries have the
tendency to cover all possible service activities by a specific law, even though the existing
generic laws would be sufficient to provide a codified framework for the relevant business.
The policy environment for services in Viet Nam is still characterized by a fairly complex
system of laws, ordinances, and by-law documents being prepared, issued or implemented by
line ministries, agencies and provincial governments. Although the consultation process of
legal drafting has recently been institutionalized, the preceding policy-formulation stage still
suffers from a lack of transparency (see in detail in Chapter 6), which causes conflicting legal
provisions in Viet Nam’s legal system.
A related issue is that sometimes, legal acts do not contain any information about the policy
intention and/or the rationale behind their provisions. A recent example is “Decision
No. 961/QD-TTg of July 3, 2009, promulgating the Government’s program of action for
service development during 2009-2011” which does not provide explanation as to why the
various actions mandated by its 15-page-long appendix are needed.
A communication gap also seems to exist between the law-making central bodies and the
implementing agencies. Provincial authorities sometimes “resist” the legal changes and
continue acting along the line of outdated laws. For example, it was reported to the VBF that
local authorities across the country failed to implement new legal provisions, which allowed
49% foreign ownership in local companies in accordance with Viet Nam’s GATS
commitments and continued restricting foreign participation at the level of 30%. Provincial
authorities applied the same limitation vis-à-vis real estate businesses, even though the
relevant sectoral law and the Investment Law did not restrict foreign ownership in real estate
companies. 32
The opposite situation, i.e. when local authorities do not use the power conferred to them by
law but prefer to seek administrative guidance from the ministries for each individual
implementing action. This leads to non-observance of prescribed deadlines and also to
inconsistent implementation of laws and regulations across the country.
3.2.2.2 Service Sector Regulations
32
Mid-term Vietnam Business Forum, June 2008
76
Effective and well-balanced regulations are key to promoting competition in services markets
and an effective competition is crucial or services productivity growth.
It is widely recognized that “domestic” regulations 33, i.e. the regulatory requirements and
restrictions imposed on services and services providers can also act to limit growth and
competition in services. These regulations have traditionally been used to address market
failures, such as externalities related to investment in networks or infrastructure, or
asymmetric information between services producers and consumers.
In Viet Nam, the regulatory framework (including the regulations themselves, the regulatory
tools, processes and procedures, as well as the regulatory bodies) is largely the legacy of the
command economy and is ill-adapted to the requirements of a market economy. There has not
been a holistic framework for coverage of services sector regulations covering the issues
commonly addressed in more developed service economies.
Recent attention to services sector regulation has resulted largely from requirements of
international treaties on trade in services, such as the BTA and the GATS and the ASEAN
Framework Agreement on Services. One of the major consequences of the WTO obligations
is that Viet Nam’s regulations must be transparent, made known to the public, regulations
must be fair and impartial and based on objective criteria and least trade restrictive. A related
issue is that regulators should be independent. Another requirement is that regulatiry decision
should be challengeable. As far as licensing is concerned, a particular Vietnamese obligations
is that licensing procedures, where they are applied, can not in themselves constitute a market
access restriction.
Investment and business licenses remain the most important regulatory tools employed in Viet
Nam. While tremendous efforts have been made during the past two years to make domestic
regulations more consistent with its WTO obligations, large room for discretionary decisions
seems to persist in the licensing system. For example, the State Bank of Viet Nam subjects
some activities (bond trading) by foreign banks that cannot be restricted under Viet Nam’s
BTA and WTO obligations to specific approvals.
A related issue is that in Viet Nam each activity of a business should be clearly covered by the
license. If a foreign enterprise would like to expand the scope of its activities the business
license should be amended no matter if the new activities are presumed to be liberalized
according to international treaties or by virtue of Viet Nam’s law.
The business approval processes are excessively laborious. Investor obligations to approach
multiple government agencies in a given sequence is unduly time consuming. Paperwork for
foreign invested and local business establishments in “conditional” areas are beyond
excessive and subject to an opaque approval process. 34 The excessive reliance on licenses as
regulatory tools probably stems from the old system where a business activity was legal if it
was positively allowed. The persistence of this practice raises questions beyond the WTO: a
more favourable business environment could be created in Viet Nam if the number of ex-ante
authorization and licensing procedures were reduced and replaced by ex-post verifications of
firms.
33
They are referred to as “domestic” because these regulations are also the most important barriers to trade in
services, which – in contrast to trade in goods – are not applied “at the border” but “behind the border”.
34
Vietnam Business Forum June 2009
77
One of the sectoral regulatory tools used in Viet Nam is master planning. Sectoral master
plans are being drafted for 5-10 years for steel, automobiles, motorcycles, electronics, textile
and garment, etc. – and in the service sector for example for distribution services.
The MPI’s Mid-term Review Report of the Implementation of the SEDP 2006-2010 has
strongly criticized the results achieved through master plans: “Quality of master planning
work in Viet Nam remains low, with lack of a long-term vision, and insufficient economic,
social and environmental underlie.” However, one might consider whether master planning,
which as a planning technique was developed in the beginning of the twentieth century, is
suitable for today’s realities. Indeed master planning does not seem to be able to adapt to
rapid changes in factors such as time, demand, technological changes etc. In addition, in Viet
Nam private stakeholders and civil society is not associated with master planning, which
remains a pure administrative task.
The authors of this report concur with the MPI and UNDP (2006) in that one of the most
fundamental issues for Viet Nam is to clarify the objectives it wishes to achieve through
domestic regulation. It would be of the highest importance for both efficient regulations and
businesses that as part of the CSSSD a comprehensive review of the whole regulatory
framework be undertaken during the next one to two years. Indeed, promoting the
development and growth of services should start by removing the obstacles to this process. It
is now widely recognized that reforming the regulatory framework, e.g. regulations on entry
and operations, is the key to boost innovation and creating new opportunities in the services
sectors. Reforming regulations is also key to reducing business costs and improve
competitiveness. OECD countries regulatory reform processes have been also driven by the
recognition that certain regulations may are longer be needed, e.g. because technological
changes has enabled competition in markets that were previously considered natural
monopolies, and failing to adapt regulations to such changes would reduce competitiveness of
the economy as a whole.
3.2.3 Innovation in Services
Innovation is one of the main drivers of productivity growth in services. However, innovation
policies remain ill adapted even in OECD countries to the growing importance of innovation
in services, and to the new potential for product and process innovation that is due to
information and communications technology (ICT). Recent successes of some service sector
reforming countries (e.g. Korea and India) have however demonstrated that an innovation
policy adapted to the concrete situation of a country can be a powerful tool to boost
productivity for the economy as a whole, not just a narrow service sector.
Innovation in knowledge-based economies increasingly depends on the combination of
entrepreneurship, ICT, innovation and human capital.
In order to develop a well adapted innovation policy, policy makers should consider how
existing public R&D can better address the needs of the services sector and improve the links
between services sector firms and public research. In modifying policies related to intellectual
property in services, there is a need to strike a careful balance between innovation and the
diffusion of service innovations to other industries.
78
In the case of Viet Nam, the best strategy seems to link innovation related activities in
services to manufacturing industries, which use the most local R&D. This would include the
development of industry/service clusters for example clustering ICT goods manufacture and
ICT services.
However, one must be aware that while innovation in services is of utmost importance for
Viet Nam, given the present level of economic development and current state of the services
sector, it would be illusory to expect that innovation would result in new services or
technologies. Rather the ambition should be to develop R&D capacities with the objective of
increase adapting existing services or technologies to local conditions and absorption
capacities.
In Viet Nam an innovation policy for the whole economy has yet to emerge as what is present
seems to have focused so far primarily on the manufacturing sector and agriculture. Public
R&D should more explicitly address services sector needs.
One of the reasons why innovation policy for services has not yet emerged so far may relate
to the overwhelming share of SOEs in interested services sectors.
Intellectual property rights are of limited but growing importance to innovation in services –
especially in knowledge intensive business services like software, computing, R&D services
and communications, precisely where Viet Nam would like to develop competitive
advantages. Unfortunately protection of IPRs is at present not among the most popular
business tools in Viet Nam.
While it is a fact that the role of R&D in Viet Nam’s economic output is very low, just 0,6%
of GDP (0,2% according to ), this figure only reinforces the argument in favour of an
innovation policy, which builds upon interlinkages between innovation services and
prioritized sector within Viet Nam’s industrial policy.
3.2.4 Human Resource Development
Since most services involve direct contact with customers, human resources are key to
services sector performance. Education policies, and particularly public education, are
important to help workers adjust to globalization and structural change and should help
provide the qualifications that are needed in services.
In Viet Nam, with an ever-expanding private sector since the launch of Doi Moi, the demand
for educated workers has risen, especially the demand for human resources with high
technical capability and new management skills. One of the recurring themes throughout the
preparation of the present study was that the weakest point in Viet Nam in developing
efficient services is the lack of appropriate education, knowledge of foreign languages and
professional skills.
Table 1 in Chapter 4 shows the specific development needs in terms of education and training
of the various development stages of the Vietnamese economy.
The authors of this report believe that the education system of Viet Nam, which has one of the
best bases among developing and transition economies, should be further improved with more
79
emphasis on equity issues, in particular giving equality of chances among people of various
social and geographical origin. Of critical importance is the radical improvement of the
university sector, which currently does not meet the standards of the internationally most
competitive universities.
While improving the public education system is very important, one should not expect
dramatically improved impacts on the services sector in the short run. This par excellence
public service sector does not seem to attract the policy attention it deserves. Investment by
the State in education and training is very modest compared to some industrial sectors, which
should meet their financing needs from the market sources. Education and training received
only 5,4% of all State investment during the period 2005-2007, while typically non-public
sector activities such as manufacturing received 9,8-10,3%, construction 4,6-4,8%, and
transport, storage and communications around 22%.
In this present situation increasing the share of education and training in the State budget is an
urgent task, but should be coupled with deep educational reforms. Indeed, more budget
resources alone are unlikely to radically raise the quality of the services outputs of the public
education system; without reforms, more money would simply result in more, but not better
quality outputs.
Since Doi Moi, Viet Nam has already introduced reform measures in the education sector, and
among others, a private higher education has already emerged while foreign private
universities also entered the education market. The reforms of the past ten years resulted in a
quantitatively expanded size of the higher education system. In terms of quality, however, the
higher education system still faces tremendous weaknesses and problems that are unlikely to
be overcome without further reforms.
Table
Statistical profile of the professoriate in
Vietnamese higher education
Statistical indicator
Profile
Total number of academic employees
39.985
Number of teaching staff
32,205 (80.5%)
Percent of faculty who are women
36,2%
Percent of faculty who are full or associate professors
5,1%
Percent of faculty with doctorates
17,8%
Percent of faculty with master’s degrees
41,6%
Percent of faculty with bachelor’s degrees
40,6%
Source: Gerald W. Frye: “Higher Education in Viet Nam”, in Yasushi Hirosato and Yuto
Kitamura (Editors): “The Political Economy of Educational Reforms and Capacity
Development in Southeast Asia”, Springer, 2009
One of the main issues is the low quality and inadequate numbers of qualified professors. The
most common academic background of a university professor is holding only a master’s or
bachelor’s degree (see Table above). Its professorate is also aging: 80% of full professors and
30% of associate professors are over the age of 60. Currently, the country produces only 500
new Ph.D graduates per year. The Government’s goal is to have 20.000 doctorates by the year
2020, half of whom would be trained outside Viet Nam. Fellowships for foreign studies are
80
limited. The following governments offer fellowships to Vietnamese, with the statistic in
parentheses indicating the number of fellowships available: Canada (10), UK (70), France
(200), Australia (150), USA (75, Fulbright and Viet Nam Education Foundation), and
Thailand (80). 35
Table
Basic Indicators on education and human resource development
in Viet Nam
Note: Expenditures on R&D as a percent of GDP is 0,6% according to MPI: “Mid-Term
Review - Implementation of the Five-Year SEDP 2006-2010”
Source: Gerald W. Frye: “Higher Education in Viet Nam”, in Yasushi Hirosato and Yuto
Kitamura (Editors): “The Political Economy of Educational Reforms and Capacity
Development in Southeast Asia”, Springer, 2009
Equity of access is also an issue in the present education system. Current demand for higher
education greatly exceeds the number of university seats available. In 2005, over 1,5 million
students sat for the national university entrance examination, but all higher education
institutions could admit only about 230.500 students. In addition, those in the richer southern
zone of the country have much greater access to private universities. There is, for example,
only one private university in the poorer central zone. Thus, in remote mountainous areas,
particularly ethnic nationalities, having much less access to secondary education and quality
secondary education are seriously disadvantaged in terms of opportunities for higher
education. About 40% of Viet Nam’s college students are from the richest 20%. The lowest
20% economically account for only 12% of those in college. While inequalities have
35
Frye (2009)
81
increased in recent years, the level of Viet Nam’s inequality both as a nation as a whole and in
the higher education sector is low compared to many other developing countries. 36
Better results can be achieved in the short to medium run from twinning universities (and
sometimes high-schools) with private firms (e.g. in the framework of partnerships and/or cofinancing agreements) with clearly set performance requirements imposed on educational
institutions.
Supplemented actions to foster life-long learning is equally important as a vibrant services
sector needs constant adaptation.
Finally, the most immediately available tool to raise the skill of services people is the
presence of foreign directed enterprises. FDI therefore should also be encouraged especially
in those areas where foreign firsm can be expected to train locally hired people and provide
them with promotion opportunities.
3.3 For eign and Domestic Competition in Ser vices
Higher than average service prices, coupled with below average service quality, clearly is one
of the main causes of low level of competitiveness of Viet Nam. Creating a fierce competition
is clearly a prerequisite for enhancing quality and choice of services in Viet Nam.
Opening up the domestic services markets to international trade and “investment trade” (i.e.
FDI) in services would significantly remedy this poor situation as it would exercise
competitive pressure on incumbent firms currently shielded against free competition. Market
openness is important for increasing innovation and productivity in services and investment.
It opens new markets for services and exposes domestic firms to greater levels of competition.
In the absence of international competition, some sectors and the firms within them remain
sheltered from market pressures and have little incentive to innovate. This can lead to lower
than optimal levels of productivity, higher costs and prices, a misallocation of resources and
less investment in innovation.
Opening up domestic service markets to trade and FDI provides more competition, bring new
services to the market and create new possibilities for domestic providers through export.
Foreign affiliates have a positive impact on the performance of the domestic economy, mainly
by increasing a country’s investment opportunities and driving research and development
(R&D) and productivity.
The success of certain well-known services firms demonstrate that opening up investment
market to foreign firms is crucial to the development of internationally competitive services.
For example in Europe many of the most successful airline companies (e.g. Wizzair and
EasyJet) in recent years would not have existed if formal FDI barriers to airline markets had
not been removed. In certain other cases, e.g. Carrefour, the threat of foreign competition and
the ability to expand in international markets thanks to open borders acted as a powerful
incentive to grow, expand internationally and raise productivity. 37
36
Frye (2009)
37
OECD: “Growth in Services. Fostering Employment, Productivity and Innovation”, 2005
82
In Viet Nam, increased competition – from whatever sources – would be a crucial element of
the CSSSD. Indeed, in the present conditions when the most important sectors are
characterized by SOEs’ monopoly positions, the absence of competition from private
enterprise does not allow incite incumbent firms to invest in research and development, to
improve the quality of services they provide, or to increase business efficiency. In theory, a
strong application of the recently adopted Competition Law to SOEs – where SOEs do not
enjoy legal monopoly rights – could also be envisaged, but in economic terms this would not
produce enough competitive pressure.
The example of sectors, such as telecommunications, where competition has emerged
between SOEs, demonstrate that the competition had its effect only on prices, but not on
better quality services or new service products.
Increased competition and quality of services will help reduce the cost of doing business
throughout the economy. One example of interlinkages is the multiplier effects of lowering
logistics cost and improve the quality of service of the logistics industry in Viet Nam. Doing
so would eventually contribute to strengthening the competitiveness of Vietnamese export
products, which in turn would provide producers of exporting raw materials (e.g. farmers and
fishermen) with better and less expensive access to overseas markets. Increased access to
export markets would return a higher margin to the producers and contribute poverty
alleviation especially in rural areas, which have formerly been disadvantaged by poor logistics
service.
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CHAPTER 4: THE STRATEGIC DEVELOPMENT OF COMPETITIVENESS
WITHIN THE SERVICES SECTOR - COMPETITIVENESS AND EFFECTIVENESS
OF SERVICES IN VIET NAM
4.1 Intr oduction
4.1.1 Services and economic development
The supply of services is related to different factors, including so-called comparative
advantages, the dynamic of manufacturing and levels of development. Considering recent
studies, experts propose a sequence relating the supply of services to different stages of
development that, overall, corresponds to what is reported in Table 1-1.
Table 1-1:
Stages of development and services
Stage
de Corresponding
development
major services
Creation of a Basic
utilities
social
and (energy, safe water)
economic base and construction
Required
professional skills
Mainly low skills
plus
specific
skills
Implication
for
education and training
Mainly
basic
education
plus
secondary schools and
specific training
Building up of Transportation and Low skills plus Basic,
intermediate
economic
telecommunication
intermediate and and higher education
infrastructures
high skills
plus specific training
Take-off of a Financial
and Predominantly
All levels of education
performing
business services
intermediate and do matter, intensive
and
selfhigh skills
training becomes quite
sustained
essential, on the job
private
and
specialized
economy
institutions
Source: Ministry of Planning and Investment (2005).
The implications of table 1-1 are manifold:
•
•
•
There might be a need to better assess priorities for investments especially when there
are limited public resources to support the development of services;
Education and training are major and permanent pillars of economic development and
must receive high attentions at all levels of development;
The successful development of an efficient private sector requires well-developed
financial and business services.
Financial services are essential for the full mobilization of private savings (what is labelled
“financial deepening’ by development economists) and their most efficient allocation among
competitive uses; so-called business services such as, for instance, accounting and auditing,
are also important for effective and better management and the successful development of
private and public enterprises.
84
In addition, there must be a clear understanding of the role of the State when moving from a
what was a centrally planned (or command) economy, characterized inter alia by the absence
of market mechanisms, to a market-oriented economy or, in the Vietnamese context, a socalled socialist-market oriented economy in which prices are key-signals for both the supply
and demand of factors of production, goods and services.
Thus, the role of the state should concentrate more on strengthening a business-conducive
environment – with adequate and transparent legislation and its full and fair enforcement,
which also requires addressing corruption and improving governance at all levels (central,
regional, local) of the administration; and imposing predictable and stabilizing macro-policies
– than on direct involvements in business-like activities for which the profit-oriented private
entrepreneurs can perform quite effectively when responding to needs and demands.
4.1.2 The service economy in Viet Nam
According to World Bank figures (see the website “‘countries’ at a glance”), services
contributed to about 38% of GDP in 2007, which is comparable to figures that are reported for
Indonesia and China (Table 1-2; Box 5 discusses data accuracy) and lower than the
corresponding shares in the Philippines and Thailand.
Considering the share of services in GDP, when comparing countries that have similar levels
of development, there seems to be no specific norm – nevertheless, in the long run, the share
of services should grow with incomes, which, a priori, does not imply that dispersion across
countries have to narrow overtime.
In fact, the development potentials are quite strong for both services and industry (that
includes manufacturing) whereas the share of agriculture in GDP – which the highest for Viet
Nam in the group of countries reported in Table 1-2 – should be expected to decline overtime.
In addition, there are obvious inter-linkages between services and industry, which implies that
these sectors should grow side-by-side.
Table 1-2
GDP structure – selected countries (2007)
Countries
Agriculture
Industry
Viet Nam
20
42
China
11
49
Indonesia
14
47
Philippines
14
32
Thailand
11
44
Source: The World Bank website
85
Services
38
40
39
54
45
Box 5: national accounting and the parallel economy
Most often, available statistical data cover mainly legal economic activities.
In developing countries, the practice of national accounting may encounter difficulties for
various reasons, including the lack of sufficient resources and adequate expertise in the
administration. In many developing countries, the so-called parallel economy may reach
high level, sometimes above 50% GDP.
In the case of Viet Nam, there are several estimates of the importance of parallel
economic activities; some figures reach 70% for specific activities such as, for instance,
retail trade, which underlines the limitation of available statistics and international
comparisons.
It should be noted that the existence of parallel economic activities contributes to the
emergence and the strengthening of the private sector, which allows the meet private and
social needs.
In the long run, the share in GDP of the informal sector should be expected to decline
with the modernization of state administration and the need for a more stable and legal
business environment.
4.2 The scope of this study
Relying on domestic and international statistics, section 2 proposes a quantitative analysis of
competitiveness of the services sector in Viet Nam.
Referring to the so-called (and rather controversial) World Competitiveness Index and four
SWOT analyses, section 3 includes a qualitative analysis of competitiveness of services, from
both international and domestic perspectives.
Section 4 considers services effectiveness. The focus is on social and environmental
dimensions of services, which compliment previous sections.
In a last section, policy recommendations are proposed to improve the development of
services in Viet Nam.
4.3 Competitiveness analysis (I): quantitative analysis
4.3.1 The meaning of competitiveness
Like efficiency, competitiveness is a complex concept. Broadly speaking, competitiveness is
the ability of a firm (the micro-level), a sector (meso-level) or a nation (macro-level) to offer
products and services that meet quality standards of local and world markets at prices that are
competitive and provide adequate returns on the resources that are employed or consumed on
producing them (see the website BusinessDictionary.com).
S. Garelli, Professor at the International Institute for Management Development (IMD,
Switzerland) and Director of the Word Competitiveness Report Project 2002 proposes another
definition of competitiveness that is based on the OECD; thus, competitiveness is “the degree
to which a country can, under free and fair competition, produce goods and services which
86
meet the test of international markets, while simultaneously maintaining and expanding the
real incomes of its people over the long term”. 38
These definitions combine supply and demand sides, domestic and international dimensions,
short-term and long-term perspectives. However, they are definitely not self-contained. Some
terms would require additional definitions and/or explanations for the sake of complete
clarification, assuming that is possible; this is certainly true for “quality standards”, “adequate
returns”, “free and fair competition”, etc. Garelli does not refer at all to domestic markets that
do matter for key-services related, for instance, to education and health; in addition, he does
not distinguish micro and macro levels. De facto, it seems difficult to build a consensus on the
final meaning of these terms. In addition to the lack of consensus, there are measurement and
judgmental problems – for instance, how does one assess the degree of freedom and fairness
of markets in the real world?
Taking into account the above-mentioned remarks, the proposed quantitative analysis of the
competitiveness of services supplied by Vietnamese enterprises relies on a set of indicators
combining domestic and international data sources.
The resulting picture is a complex one which may help:
(a) Isolate some key-factors and important dimensions that do matter to assess the degree
or level of competitiveness of Vietnamese services and
(b) Propose practical/relevant policy recommendations.
4.3.2 Viet Nam GDP growth and structure in perspective (international comparison)
GDP growth performances
GDP and sectors growth rates for Viet Nam and different groups of countries are reported in
Table 2-1.
Overall, for the two reference periods, 1990-2000 and 2000-2007, Viet Nam GDP growth
performances are higher than what is observed for the three income levels groups of countries
that are distinguished. However, Viet Nam falls somehow below the East Asia & Pacific
region – the gap between that group of countries and Viet Nam even doubled between the two
periods, from 0.6% (8.8% minus 7.9%) to 1.2% (9% minus 7.8%).
The growing growth gap between Viet Nam and East Asia & Pacific reflects the growing gap
that is also observed for services, which grew from 0.5 percent to 1.9.
Further investigation into greater details of the evolution of services in Viet Nam and
neighbouring countries would be required to be more conclusive and draw more specific
policy recommendations. However, one must bear in mind that Viet Nam does better than the
middle-income countries (even if the gap is narrowing overtime!). In addition, as already
mentioned, there might be statistical problems that limit the scope and the relevance of
international comparisons.
38
http://members.shaw.ca/compilerpress1/Anno%20Garelli%20CN%20Fundamentals.htm
87
Table 2-1: Real gross domestic product and sectors annual growth rates (%)
Countries/
GDP
Agriculture
Industry
Services
Group
of 1990- 2000- 1990- 2000- 1990- 2000- 1990- 2000countries
2000 2007 2000 2007 2000 2007 2000 2007
Viet Nam
7.9
7.8
4.3
3.8
11.9
10.3
7.5
7.4
Low
income 3.4
5.6
3.3
3.5
4.5
7.3
3.6
5.8
countries
Middle income 3.9
6.2
2.3
3.6
4.7
7.1
4.3
6.2
countries
East Asia & 8.5
9.0
3.5
4.0
11.0
10.1
8.0
9.3
Pacific
High
income 2.7
2.4
1.3
0.7
1.9
1.7
2.9
2.5
countries
World
2.9
3.2
2.0
2.5
2.4
3.0
3.1
3.0
Source: The World Bank (2009).
GDP structure
Table 2-2
Gross domestic product structure (%)
Countries/
Agriculture
Industry
Group
of 1995 2007 1995 2007
countries
Viet Nam
27
20
29
42
Low
income 32
25
23
30
countries
Middle income 13
9
35
37
countries
East Asia & 19
12
44
47
Pacific
High
income 2
1
30
26
countries
World
4
3
30
29
Source: The World Bank (2009).
Services
1995 2007
44
45
38
46
52
53
36
41
68
72
65
69
The share of services in world GDP grew from 65% to 69% between 1995 and 2007.
Considering low, middle and high income levels regions, the services share in GDP is the
highest (and grew also most significantly) in the richest countries, from 68% to 72%.
These figures show that, on average, there is a rather positive relationship between the share
of services in GDP and levels of incomes. In addition, the richest countries might benefit from
comparative advantages that could be related to their level of development, which may render
more difficult the development of services in low and middle-income countries.
4.3.3 Productivity in Viet Nam services
88
Aggregate figures
Productivity and products quality are essential determinants of competitiveness. Most often,
high productivity levels should correspond to competitive prices and allow increasing market
shares on world markets. It also increases the purchasing power of domestic populations, with
lower prices and higher incomes.
As indicated in table 2-3, the sectors distribution of employed labour shows the importance of
employment in agriculture in Viet Nam, which is quite higher than in the other four reference
countries. One fourth of the Vietnamese labour force is also employed in services, which is
lower than what is observed in the other countries.
Considering productivity, one striking feature is the very low labour productivity in Viet
Nam, in all sectors; labour productivity is also the lowest in agriculture and the highest in
industry – a common feature of all reference countries. Subsequently, labour mobility from
agriculture to industry and services could definitely boost Viet Nam GDP growth.
It is striking that labour productivity is definitely much higher in industry than in services in
all reference countries, and in Viet Nam too. Such a common characteristic indicates that
services should perhaps not be prioritized relative to industry and should instead develop sideby-side with.
Table 2-3:
Labour productivity – international comparison (2007)
Viet Nam
China
Indonesia
Thailand
Labour force employed (millions workers) and sectors distribution of the
(millions and %)
Total
43.5 100 754.2 100 110.4 100 36.1
100
employed
labour force
Agricultural 25.2 58
324.3 43
41.2
41
15.3
43
labour
Philippines
labour force
34.6
100
12.7
37
Industrial
7.7
18
188.5 25
18.9
18.8 7.4
20
5.2
15
labour
Service
10.6 24
241.3 32
40.3
40.2 13.3
37
16.7 48
labour
Production (million USD) and labour average productivity (USD and level in %)
Total GDP
68643
3205507
432817
245351
144062
GDP
per 1579 100 4249 100 4308 100 6785 100 4164 100
worker
Agricultural 545 34
1087 26
1471 34
1762 26
1588 38
output p. w.
Industrial
3758 237 8329 196 10756 249 14497 213 8836 212
output p. w.
Services
2457 155 5312 125 4183 97
8242 121 4663 111
output p. w.
Source: World Bank (2009) and own calculations.
89
Main services
Table 2-4 presents the evolution of the main services in Viet Nam, as reported by the General
Statistical Office, from 2005 till 2007.
In 2007, in terms of turnover, the main service sector was wholesale and retail trade with
almost the two thirds of the total services turnover; it is followed by transport, storage and
communication, construction and financial intermediation. It should be noted that trade
turnover does include the values of commodities supplied by other sectors, in particular
industry. Thus, reliable data on value-added would be needed to be more conclusive about the
relative importance of the service sectors.
Considering growth, the most dynamic sectors were education (with 142.7% growth over the
reference period), electricity, gas and water, and hotel and restaurant.
Overall, the reference services turnover grew by 67.7%, which corresponds to an equivalent
and impressive annual growth rate of 29.5%; such a change is remarkable and it does not
seem properly captured by aggregate data reported by other sources, including the World
Bank.
Table 2-4: The dynamic of service sectors
Total
turnover
(Billion
VND)
Sectors
2005
2007
Electricity, gas and Water
42135
73063
Construction
130935
207983
Trade
818676
1380793
Hotel and restaurant
17053
29492
Transport, storage, communication
125618
215380
Financial intermediation
126528
203509
Science & technology
442
419
Real
estate,
renting,
Business 37998
68617
activities
Education
868
2107
Health and social work
1108
1779
Culture and sport
2072
3097
TOTAL
1303433
2186239
Source: General Statistical Office (2009) and own-calculations.
Share % Growth %
2007
2007/2005
3.3
9.5
63.1
1.3
9.8
9.3
0.02
73.4
58.8
68.6
72.9
71.4
60.8
-5.2
3.2
0.09
0.08
0.14
100.0
80.5
142.7
60.5
49.4
67.7
Two key-sectors (“Transport” and “business services”)
Additional information is provided in Table 2-5 on two sectors seen as high priorities by the
Vietnamese Authorities, namely: transport (that is reported as a single sector together with
storage and communication) and business activities (aggregated with real estate and renting).
Considering transport, the number of private domestic and foreign firms grew by 48% and
31% respectively between 2005 and 2007. Turnover and profit growth is also quite
impressive. Labor productivity growth (for which turnover per employee is used a proxy) is
90
also significant for domestic public and private enterprises and somehow disappointing for
foreign companies (see FDI in the table), with a decline of 17%.
An interesting feature of reported data is the seemingly high taxation rates, with rather big
differences between the three categories of companies – public, domestic private and foreign
ones.
Overall, public enterprises seem to be as dynamic as private ones. Moreover, turnover per
employee (or “labor productivity”) is the highest in foreign companies (more than three times
higher than domestic private ones), which underlines the importance of creating a business
conducive environment for attracting more FDIs – possibly with the revision of taxation.
To be more conclusive, additional information is required about taxation, with a clear
distinction between direct and indirect (VAT-like and/or turnover) taxes. More information is
also needed on competition conditions because, for some service sectors, state-owned
companies could act as quasi-monopolies (with, in addition, soft-budget constraint) and
corresponding markets might not be characterized by free and fair competition (see Annex 1
for “details” on the analysis of competition conditions).
Table 2-5: Basic statistics on two key-service sectors (2005 and 2007)
Indicators
Transport, storage and
Real estate, renting and
Communication
business
State
Private FDI
State
Private FDI
Number of
2005
262
6378
114
232
7990
452
Firms
2007
257
9451
150
232
14357
630
Change -1.90
48.18
31.57
0
79.68
39.38
%
Number
of 2005
239501 179802 11758
49061
128642 18635
Employees
2007
234734 230112 16669
43697
212228 24708
Change -1.99
27.98
41.76
-10.93
64.97
32.58
%
Fixed assets and 2005
76004
15784
3311
8238
16357
20558
long-term
2007
125912 34526
4160
11293
67788
20755
investment
Change 65.66
118.74 25.64
37.08
314.42
0.958
(billion VND)
%
Net turnover
2005
84806
30656
10156
9909
15393
12696
(billion VND)
2007
145677 57793
11910
10297
38893
19427
Change 71.77
88.52
17.27
3.91
152.66
53.01
%
Gross profit
2005
15819
554
798
1167
220
2626
(billion VND)
2007
25377
1350
1513
1489
4118
4348
Change 60.42
143.68 89.59
27.59
1771.81 65.57
%
Taxes and fees
2005
8247
842
930
1295
697
2526
(billion VND)
2007
12221
1299
763
1438
2470
1406
Change 48.18
54.27
-17.95
11.04
254.37
-44.33
%
Key financial indicators and ratios (million VND or %)
Fixed assets per employee
536.402 150.039 249.565 258.438 319.411 840.011
91
Turnover per employee
620.604 251.151 714.499 235.645 183.260
Profit asset ratio
20.15
3.91
36.37
13.18
6.07
Profit turnover ratio
17.42
2.33
12.70
14.46
10.58
Tax turnover ratio
8.38
2.24
6.40
13.96
6.35
Tax profit ratio
48.1
96.22
50.42
96.57
59.98
Productivity growth (20052007)
75.26
47.30
-17.27
16.67
53.15
Source: General Statistical Office (2009).
Notes: The calculation of productivity growth is based on turnover per employee.
786.263
20.94
22.38
7.23
32.33
15.40
4.3.4 Revealed comparative advantages
The main services exported by Viet Nam are reported in Table 2-6.
Tourism represents more than 55% of total exports in 2008 and that share also grew between
2005 and 2008. Other important services are air transport and shipping. Air transport is partly
related to tourism.
Table 2-6: The dynamic of Viet Nam exports of services (2005-2006)
Service
2005
2008 (Estimates)
categories
Value
mil. Share
Value
mil. Share
USD
%
USD
%
Total exports
4265
100
7096
100
Tourism
2300
53.9
4020
56.6
Air transport
657
15.4
1322
18.6
Shipping
510
11.9
1034
14.5
Source: General statistical office (2009) and own calculations.
Index
2005=100
166.3
174.7
201.2
202.7
The so-called Balassa’s revealed comparative advantages (BRCA) are provided in Table 2-7
(see also Box 6).
Viet Nam has a strong revealed comparative advantage in tourism/travel (and, to a much
lesser extent, transport). Despite statistical problems, these outcomes could help policy
makers make optimal choices when selecting services for their development support, in
addition to allow free market forces play their role.
Table 2-7: Viet Nam revealed comparative advantages in services (2007)
Viet Nam
World
BRCA
Service categories
Value (mil. USD) Share (%) Share (%) ShV/ShW
Total
6460
100
100
1
Tourism/travel
3750
58.1
25.7
2.26
Transport
1879
29.1
28.4
1.02
Insurance & Finance 397
6.1
9.7
0.62
Computer, telecoms... 434
6.7
36.3
0.18
Source: World Bank (2009), General Statistical Office (2009) and own-calculations.
Note: BRCA= Balassa’s Revealed Comparative Advantage.
Box 6: Balassa’s Revealed Comparative Advantage
92
The Revealed comparative advantage is a measure widely used in international economics to
calculate the relative advantage or disadvantage of a certain country in a certain class of goods
or services as evidenced by trade flows.
It was first proposed by (the Hungarian-born US economist) Béla Balassa in 1965.
Thus, RCA = (Eij/ Eit)/(Enj/Ent), with:
E = exports, I = country index, j = commodity index, n = set of countries and t = set of
commodities.
In other words, a country X is said to have a comparative advantage in a commodity Y and
vis-à-vis a set of reference countries (which could be the rest of the world) when the share of
Y in the exports of X is larger than the corresponding share on the exports of the reference
countries. Other CA definitions were also developed. It should be noted that the BRCA index
is more about the product-concentration of exports than comparative advantage per se.
4.4 Contr ibution of ser vices to GDP gr owth
The contribution of services to GDP growth can change overtime. According to IMF
calculations of the sectors contributions to GDP growth (see Figure 2-1), services may
become relatively more important in recent years, especially when manufactures seem to be
more affected by the evolution of global economic conditions.
Figure 2-1:
Source: IMF (2009).
4.5 Competitiveness analysis (II): qualitative analysis
4.5.1 Competitiveness in the global economy
Considering the “Global Competitiveness Index” (GCI) proposed by the World Economic
Forum, Viet Nam reaches a score of 4.10 in 2008-2009 (with a corresponding rank equals to
93
70, just after oil-rich Azerbaijan), slightly above the Philippines and significantly below two
key-neighbours, namely China and Thailand.
Table 3-1: Global competitiveness index 2008-2009
Countries
Rank
China
30
Thailand
34
Indonesia
55
Viet Nam 70
Philippines 71
Source: World Economic Forum.
Score
4.70
4.60
4.25
4.10
4.09
Box 7:
Questioning the GCI
The calculation of the GCI combines various factors, including legislation and
governance.
Despite the wide range of factors taken into account by the GCI, the index does not seem
to correlate strongly with long-term GDP growth rates, namely the indicator or keyvariable which may definitely matter for the well-being of a country and its population
and does reflect productivity and international competitiveness.
In 2008, the US and Switzerland occupy top GCI positions; for decades, these two
countries economies grew much slower than the Chinese one. In addition, it is commonly
admitted that US external deficits are largely financed by Chinese current account
surpluses. In other words, there could be systematic biases or conceptualization problems
in the formulation and calculation of the GCI; its values seem to have very little
relationship with actual competitiveness and observed (or revealed) economic
performances.
4.5.2 SWOT analysis: all sectors
Strengths and weaknesses of Viet Nam’ services sector
Strengths
(i)
The government of Viet Nam is committed to support the development of services
and international economic integration, at regional and global levels.
(ii)
There is a growing understanding of the potential benefits of Viet Nam unique
geographical location and participation in a region that is de facto fast growing.
(iii)
Plans have been adopted to support the development of existing industrial parks
and creating new ones mainly in coastal regions (the maritime façade of Viet Nam
has a total length of about 3000 km), which will impact on the demand and supply
of services.
94
(iv)
The quantitative and qualitative development of services is supported by a series
of general and specific laws and decrees, and policy measures.
(v)
Top priority sectors that will receive most attention during the next decade are
clearly identified, namely: education, transports and business services.
Other priority sectors are: telecommunications, tourism, banking and finance.
These sectors have strong inter-linkages with other economic sectors and some of
them (in particular transport and communication) provide key-inputs to
manufacturing.
(vi)
Telecommunications have developed considerably following the creation of stateowned companies and the participation of private investors.
(vii)
The country has joined WTO, which creates commitments that can serve as an
institutional anchor for the reform process.
(viii) The ASEAN Free Trade Agreement and other FTAs stimulate the development of
trade, industrial production and related services.
Weaknesses
(i)
The quality of services is still slow.
(ii)
Productivity in service activities is also low.
(iii)
Too much importance is still attached to the role of state-owned enterprises in
service sectors.
(iv)
In some sectors, a lack of genuine competition and market contestability
might seriously hinder the development of competitive services, which can be
detrimental for buyers and consumers.
(v)
Poverty and low incomes hamper the development of services.
(vi)
There is a lack of coordination among state bodies in designing and
implementing service-related policies.
(vii)
Domestic savings are not sufficiently mobilized by the banking system, which
could reflect a lack of confidence in the banking sector and low incentives to
deposit savings in banks.
(viii)
There is insufficient qualified labour force and managerial skills.
(ix)
The regulatory framework is complex, sometimes seen as inappropriate and
even contradictory, and not always properly enforced.
(x)
Private businesses are not effectively consulted by legislators and policy
makers when preparing new laws.
Opportunities and risks for Viet Nam’ services sector
Opportunities
95
(i)
Viet Nam must fully take advantage of the opportunities offered by WTO
membership, and free trade and “economic cooperation” agreements.
(ii)
Viet Nam is an active member of AEAN, which provides opportunities for joint
businesses.
(iii)
The growing presence of foreign-based companies contributes to the expansion of
services provided by Vietnamese firms; that helps learning from best practices,
improve workers and managerial skills and facilitate access to new technologies
and knowledge.
(iv)
The services base in terms of human resources is rather “young”, which allows for
more flexibility and adaptation.
(v)
The large industrial parks there are being created or planned in coastal and inland
regions will have to be fully exploited to develop corresponding services (seen as
providers of inputs), which implies the adoption of a coherent development
strategy based on inter-linkages between sectors.
(vi)
The drift toward a knowledge-based society should allow using resources from
domestic scientific and research institutions, and help their development.
(vii)
The on-going reform process creates windows of opportunities for innovative
policies and far-reaching actions.
(viii) The recovery from the world economic crisis provides opportunities for significant
reallocations of productive capacities, which may benefit low-wage countries like
Viet Nam, in manufacturing (e.g. with “outsourcing”) and service sectors.
(ix)
Vietnamese government and businesses can learn from the present crisis to
strengthen services, in particular in the banking and financial sector.
(x)
There exists a quite large overseas Vietnamese community with qualified labour
forces that could be better attracted to invest in new businesses or cooperate with
existing ones.
Risks
(i)
Actual economic difficulties affect economic growth in all sectors, which may
impact negatively on the development of services.
(ii)
Free trade agreements and WTO commitments may worsen the position of the less
competitive Vietnamese companies in domestic markets due to increased foreign
competition.
(iii)
Well-performing domestic firms may still lack sufficient experience and strengths
and, as a result, be unable to oppose successfully takeovers and other strategic
actions from bigger foreign-based multinationals with large markets and financial
bases.
96
4.5.3 SWOT analysis: three priority sectors
Six sectors are perceived as very important for the development of Viet Nam economy – three
of them are top priority sectors, namely: education, business services and transportation.
Concise SWOT analyses are proposed for these top priority sectors.
Table 3-2: SWOT analysis of education services in Viet Nam
Attributes
the
Sector
of Helps the sector
Environment
Harms the sector
Strengths: there is a strong Weaknesses:
insufficient
political will to develop the infrastructures; material not
sector.
always appropriate; teachers lack
training and preparation; little
interface with business and
economic spheres; limited role of
the private sector; low salaries
and motivation; the quality of
private education is questionable;
lack of standards and curriculum
development; more emphasis on
quantity than quality.
Opportunities: young generation Threats: foreign competition is
teachers with strong learning growing
following
WTO
capabilities; new laws are accession; the adoption of new
prepared; there is an on-going laws and reforms could be too
reforms process that can be slow; the economic crisis may
beneficial; the private sector impact on funding.
could develop quickly following
new laws and reforms; an
ASIAN Institute of Technology
has been created which can help
the adoption of new technologies
(IT…); Vietnamese students
graduating abroad will go back
to Viet Nam and become
teachers; liberalization is taking
place in line with WTO
commitments.
Table 3-3: SWOT analysis of transportation services in Viet Nam
Attributes
the
Sector
of Helps the sector
Harms the sector
Strengths:
interesting
geographical location, with some
major economic neighbours (in
particular China and SEA); long
coast (3000 km); cheap labour
97
Weaknesses: lack of financing;
legal framework insufficient to
attract
FDIs;
insufficient
number of deep-sea water ports.
Environment
force; highways and airports
development
are
ongoing
priorities; strong political will to
develop transport.
Opportunities: the so-called
public-private-partnership may
grow overtime; the role of the
private sector can be enhanced
with new business friendly
legislation.
Threats: there is growing
competition from similar and/or
neighbouring countries; some
environmental concerns are
being raised about the impact of
ports.
Table 3-4: SWOT analysis of business services in Viet Nam
Attributes of the
Sector
Helps the sector
Strengths: enterprises are dynamic,
most of them are private; rather
young working population; the
market and competition are the
driving forces.
Environment
Opportunities: WTO membership
may offer unique market access
opportunities; the economy and the
resulting demand for services is
growing fast; possibility to learn
from FDIs, which create also a
demand for domestic services.
Harms the sector
Weaknesses: inadequate
and insufficient training
and education; competition
based more on price than
quality; lack of standards
and regulation; licensing
can be complex.
Threats: there is a fast
growing
foreign
competition,
especially
from large multinationals
(e.g. see advertisement
services).
4.6 Effectiveness of the ser vices sector
4.6.1 The meaning of effectiveness
Effectiveness is a complex concept. Broadly speaking, a given activity (that can be related to
the production of both goods or services) could be said to be effective if it accomplish a
purpose or produces an expected result. Efficiency is a synonym of effectiveness.
Cost-effectiveness analysis compare costs of production and related outcomes. An activity is
said to be cost-effective if it can produce an output at reasonably low costs in the long run. It
is similar to cost-benefit and competitiveness analyses. Thus, considering the later, one may
assume that, on average, cost-effective products should be competitive.
Considering most services, in addition to the satisfaction of economic needs through efficient
market mechanisms and low cost outputs, effectiveness analysis should also refer to so-called
social needs (for instance, in terms of health and education), rural/urban imbalances, regional
disparities and environmental issues – and this is particularly important for a country that
wants to achieve a “socialist-market oriented economy”.
4.6.2 Social/universal needs
98
Poverty in Viet Nam
Poverty is a multi-dimensional phenomenon. In addition, there are also different definitions of
poverty and they may lead to different conclusions. Despite semantic issues, it is generally
accepted that poverty is related to situations such that a person or a household is unable to
satisfy basic needs in terms of food, clean water, clothing and shelter. It also corresponds to
limited access to acceptable levels and quality of education and health services, which may
lead to permanent situations of deprivation and poverty-trap.
Figure 4-1: HDI evolution in Viet Nam and key-regions
Some early studies undertaken by the General Statistical Office and based on Viet Nam
Living Standards Surveys show that the proportion of population seen as poor declined
considerably in the 1990s, from 75% in 1990 to 58% in 1993 and 37% in 1998. In 2002, the
corresponding figure was 29%. About 15% of the population would presently live under the
poverty line. These big changes underline the importance of economic and social progress
achieved in Viet Nam and which are well summarized by the UNDP Human Development
Index. Thus, Viet Nam HDI trend is comparable and very close to what is observed in EastAsia.
Provision of basic services (the case of education)
99
The eradication of poverty must remain a long-term goal of social policies in Viet Nam. For
that purpose, basic public utilities and services, in particular education, general and specific,
at all levels, should continue to play key-roles to better support the poor and vulnerable
groups. In fact, education is seen as a top-priority service that should receive specific
attentions and support from Vietnamese authorities during the next decade.
Education must address poverty, with targeted specific actions, eventually supported by
micro-loans for promoting small businesses and increasing training opportunities in private
and public enterprises. In addition, education must also be adapted to meet the actual and
future needs of the private and public sectors. In that respect, a permanent, dynamic and
constructive interface must be build and strengthened between the economic and business
spheres and the education system to better focus curricula development in secondary and high
education and deliver educational and training programmes that are more adequate for
businesses, including self-employment. Considering very specific needs, permanent and adult
education is a must, allowing people to combine work with, at the same time, gaining – for
instance, with evening courses and on-the-job training – more qualifications.
Nevertheless, some developments are not optimistic: 1) the share of education in GDP has
declined from 3.2% in 2005 to 2.6% in 2008; 2) the speed of education reforms is low (for
instance, more than a decade of pilot experiences was required to take a final decision about
the upper-secondary education curriculum). Such tendencies/features could have negative
long-term consequences on economic growth, personal incomes, inequalities and poverty
alleviation – which also implies that weaknesses and threats indicated by SWOT analysis
would persist.
4.6.2 Regional disparities
Growing disparities
Despite strong growth and a significant reduction of poverty, regional disparities in terms of
development and poverty remain important; they even grew overtime, despite awareness and
actions of the authorities.
The highest rates of poverty are found in mountains regions (which is similar to what is
observed in most countries), 5 to 8 times above what is observed in the Red River Delta and
the Southeast Region.
Table 4-2: Regional disparities in Viet Nam, 1998, 2002 and 2006
100
Rural poverty
There are sharp dividing lines between rural and urban areas. The rural areas are generally
characterized by very low-density and rather dispersed population, and are predominantly
agricultural. Such features do not favour the emergence of highly developed services. In
addition, productivity is low in agriculture, which corresponds to low incomes, high poverty
levels and implies that the demand for manufactures and services is, on average, rather low.
The role of transportation, communication and business services
The development of basic infrastructure (e.g. roads and bridges; telecommunication
infrastructure) and related services should reduce the isolation of remote regions and also
lower transportation costs for products and people. The development of specific business
services could also help promote SMEs and raise levels of employment and incomes.
As the example of the Sapa region demonstrates, tourism can help develop activities in a
remote region inhabited by an ethnic minority, fostering its integration in the new Vietnamese
society and economy and, at the same time, achieve an interesting model of equitable and ecotourism.
4.6.3 The environment and sustainable development
A long-term approach
The growth of services must be fully integrated in a sustainable development strategy, from
economic, social and environmental perspective. In other words, it must be affordable and
must not lead to social disintegration, the long-term depletion of natural resources and the
irreversible deterioration of the environment.
Economic sustainability (the case of transport)
Transportation infrastructures are costly. They may represent large investments, partly
financed by external borrowing. There must be strict calculations of all the financial
implications of new infrastructures, taking into account realistic maintenance costs – that
should not be underestimated.
For most goods, there are competing modes of transport (e.g. railways versus road). The state
must guarantee a fair competition between all modes by imposing adequate fares, fees and
taxes.
Most often, the true economic and environmental costs of road transportation are
underestimated which may lead to a misallocation of resources, substantial losses for the state
and lower welfare for the society.
Social cohesion and tourism
101
The development of tourism must not conflict with the well-being of local populations. In
some regions, excessive tourism may negatively impact on communities and their way of
living.
Depletion of natural resource and environmental degradation (the case of tourism)
Tourism is partly driven by the state of the environment. Tourism may also impact on the
environment in many negative ways. Such an interface requires a balanced strategy that
integrates in a single and coherent picture economic and environmental considerations.
102
4.7 Policy r ecommendations
Lessons and recommendations can be derived from the outcomes of both quantitative and
qualitative analysis of competitiveness and effectiveness.
General and specific policy recommendations are proposed.
4.7.1 Main recommendations
(i)
Transparent legislation, rules and procedures
A business-conducive environment requires transparent rules and procedures. To some extent,
legal frameworks related to services could be simplified.
The effective and fair enforcement of legislation is also important, which requires addressing
corruption and bureaucratic practices.
(ii)
Enhancing competition
The actual (positive and negative) roles of state-owned enterprises in various services sectors
have to be assessed thoroughly, in particular from the perspective of effective competition
(with corresponding market concentration indicators and price-setting behaviours), long-term
development and also the enforcement of “hard-budget constraints” (that relates to bankruptcy
legislation and banking practices).
(iii)
Role of Foreign Direct Investments (FDIs)
As indicated by quantitative analyses, (labour average-) productivity is the highest in foreignowned companies. As a result, there could be much more focus on the role of FDIs to foster
economic growth.
(iv)
Management and labour qualifications
It is essential to raise the level of qualification of management and labour. For that purpose,
an effective and permanent interface must be built between the education system and the
economic and business spheres.
4.7.2Other recommendations
(v)
Crisis, adjustment and outsourcing
The restructuring of the world economy and relocation of economic activities may create
unique opportunities for outsourcing for both industry and services; they could be identified
and lead to concrete actions to attract FDIs (some South and East Asian countries and Ireland
could be relevant examples).
(vi)
Tourism
Following revealed comparative advantages, tourism must be developed further, with
domestic and foreign investments.
103
(vii)
Productivity
Productivity levels are low in Viet Nam, which justifies the creation of a “productivity
council” that would help identify problems and find solutions to raise the productivity in all
sectors.
(viii) Pro-poor actions
There is still poverty in Viet Nam that can be reduced with services development.
(ix)
Support to Small and Medium-sized Enterprises (SMEs)
SMEs must receive a special attention, especially in rural and remote areas, which requires
more adequate business training and education – with the support of corresponding business
and financial services.
(x)
Reducing regional disparities
Some regions (e.g. highlands and mountainous regions) must receive more specific attention
from authorities, with the development of adequate public and private services and
infrastructures.
(xi)
Raising environmental concerns
Some services (e.g. transport and tourism) may impact negatively on the environment. The
state must adopt laws and instruments to reduce environmental risks and correcting damages.
104
Selected references
Central Institute for Economic Management (2008): Viet Nam’s Economy 2007 (a reference
book).
General Statistical Office (2008): Statistical Yearbook of Viet Nam 2007.
General Statistical Office (2009): The Situation of Enterprises through the Results of Surveys
conducted in 2006, 2007, 2008.
International Monetary Fund (2009): Viet Nam: 2008 Article IV Consultation – Staff Report;
Staff Supplement and Statement; Public Information Notice on the Executive Board
Discussion; and Statement by the Executive Director for Viet Nam, IMF Country Report No.
09/110.
Ministry of Planning and Investment (2009): Result-based Mid-term Review Report for
Implementation of the Five-year Socio-economic Development Plan 2006-2010.
Ministry of Planning and Investment (2007): Viet Nam’s IPs, EPZs and EZs – Ideal Places
for Manufacturing Base – A Guide for Investing in Viet Nam’s IPs, EPZs and EZs.
Ministry of Planning and Investment (2006) and United Nations Development Programme
(UNDP): General Framework for a National Strategy for the Services Sector in Viet Nam up
to 2020.
Ministry of Planning and Investment and United Nations Development Programme (2005):
Services Sector Development – A Key to Viet Nam’s Sustainable Growth.
Ministry of Transport (2006): National Transport Development Strategy in Viet Nam till
2020.
NGUYEN Quang Kinh and NGUYEN Quoc Chi: “Education in Viet Nam: Development
History, Challenges, and Solutions”, mimeo.
The World Bank (2009): World Development Indicators 2009.
The World Bank (2008): World Trade Indicators 2008 – Benchmarking Policy and
Performance.
United Nations Conference on Trade and Development (2008): Investment Policy Review Viet
Nam.
Viet Nam Business Forum: Annual Consultative Group Meeting 2008, December 1st 2008.
105
Annex 1
Assessing competition conditions
The implementation of competition policy in Viet Nam requires economic analysis for at
least:
1) Defining the market,
2) Measuring market concentration and
3) Assessing market dominance.
1. Defining the market
The definition of a market is essential for assessing market power.
The more narrowly the market is defined, the more likely a firm or a group of firms can be
found to have market power.
There are several methods for defining markets:
- cross-price elasticities,
- price correlations,
- shipment data (“geographical market definition”).
These approaches suffer from drawbacks. Nevertheless, they can still be useful for
narrowing the scope of competition investigations.
Considering cross-price elasticity, it is a traditional tool to define markets. If the cross
price-elasticity for products A and B is high, then A and B are said to be close substitutes
and, therefore, they belong the same market. Nevertheless, the cross-price elasticity is far
from being perfect: How high must be the elasticity to conclude that products are close
substitutes?
Price correlations are easy to calculate, but there might be spurious correlations because of
the influence of third factors, not properly identified or fully ignored; leads and lags might
matter, requiring dynamic specification.
Considering shipments, there are also diverging views: should actual or potential
shipments be the reference?
More recently, the “SSNIP (namely: Small Significant Non-transitory/permanent Increase
in Price) test” became a “must”. It was introduced in the US in 1982, and adopted by the
EC in 1997.
2. Measuring market concentration
Market concentration is related to the number of firms in a market and their respective
market shares.
Several indices can be used to measure concentration.
Two common indices of concentration are:
106
-
-
The “four firm concentration index”, which is the sum of the market shares of the four
largest firms in the market. One drawback of that index is that there is no justification
for choosing four firms instead of three or five – it is somehow arbitrary.
In addition, the index does not really provide significant information about the actual
market structure because the discrepancies and concentration within the four largest
firms are not perceived.
The “Herfindahl-Hirschman Index”, unlike the four-firm concentration ratio, reflects
both the distribution of the market shares of the top four firms and the composition of
the market outside the top four firms.
It also gives proportionately greater weight to the market shares of the largest firms, in
accord with their relative importance in competitive interactions.
3. Assessing market power
Again, several indices are proposed.
A very common index of market power is the “Lerner index” that is the difference
between the firm’s market price and the marginal cost of production divided by the price.
The higher is the index, the stronger is the market power. Once more, limitations and
difficulties are underlined: the calculation of the marginal cost of production at any given
point in time is rather complicated, even impossible.
The SSNIP approach, already mentioned, can be used to assess market power. For that
purpose, it is required to calculate the “critical elasticity of demand” (the elasticity value
necessary to leave profit unchanged following a price increase). The SSNIP approach has
been criticized because it does not take into account the cost structure and, as a result, it
may overestimate market power, etc.
4. Implications for Viet Nam
Viet Nam is confronted with the various challenges of liberal transition for which the
“contestability of markets” is essential for growth and consumers’ welfare.
Competition conditions on the major service markets should be assessed carefully,
referring to the three levels of economic analysis proposed here above: defining markets,
measuring concentration and assessing dominance; telecommunications is an obvious
candidate for such an analysis.
107
CHAPTER 5:TRADE IN SERVICES: WHAT STRATEGY FOR VIET NAM?
5.1 Intr oduction
A review of the recent empirical research suggests that: (i) further opening of the Viet Nam’s
financial, telecom and infrastructure services would contribute to the country’s overall
economic performance and FDI inflows; (ii) better trade-related services would positively
impact Viet Nam’s export volume; (iii) more efficient infrastructure services would
encourage higher value exports, (iv) improved transport (maritime and air), infrastructure
services and regulatory environment would enhance the global competitiveness of the
Vietnamese companies, (v) more FDI s in producer services would stimulate manufacturing
productivity and exports and (vi) efficient distribution services in Viet Nam would increase
the country’s benefits from international trade.
Based on the desk research and a series of interviews with experts in Viet Nam, the following
areas are recommended as focus in a national services export strategy for the next 15 years:
e-commerce, computer-related services, engineering services, construction services,
transportation (in synergy with the ASEAN partners) and freight forwarding services, “green”
hospitality and specialized medical services, FDI support and promotion services, equipment
maintenance (ships & airplanes) and the temporary labor migration. In our view a sectorbased strategy MPI/UNDP, 2005) should be complemented by a niche-based approach since a
single sector involves service providers with both strong and weak export potential.
The recommended priority service imports aim at strengthening Viet Nam’s infrastructure by
focusing on: banking, telecom and computer-related services, transport, education & training
and energy-related services. Service trade strategy for Viet Nam should also modernize the
country’s consumer service base and encourage imports of intra-sector inputs required for
export development. To implement such objectives there is a need for more FDI in
distribution, franchising in consumer services and imports of environment-related services,
medical services, safety and security services and R&D services.
It is urgent to increase the business community’s awareness of service export opportunities, to
strengthen the service industry associations’ role in shaping regulations and infrastructurerelated decisions in Viet Nam and to ensure that the state-controlled service providers
VIETRADE and training institutions intensify their efforts to improve Viet Nam’s
performance in global service markets. The suggested Viet Nam’s service export strategy
comprises (i) preliminary awareness-building and networking activities aimed at mobilizing
the main actors and (ii) projects aimed at improving export readiness, advocacy and more
service-friendly regulation and infrastructure. The Vietnamese Services Forum should
become a focal institution for service industries, scholars and government in Viet Nam.
What can the Government of Viet Nam do to develop trade in services? This paper begins by
reviewing the current “service trade gap” in Viet Nam from an international perspective. It
follows with the discussion of the prerequisites for stimulating service trade, suggestions for
government strategy until 2020 and beyond (vision 2025) and input into an action plan to be
elaborated by the Government of Viet Nam.
108
5.2 The Fr amewor k of Inquir y
5.2.1 The Forms of Government Involvement in Service Trade
The main forms of government involvement in service trade are (i) regulation, (ii) trade
promotion, (iii) state trading (& government procurement) and (iv) public investment in
infrastructure (i.e. the “public good” that is particularly relevant for international trade in
services). A comprehensive government strategy for the Viet Nam’s improved performance in
services trade should refer, thus, to the four forms of government involvement that are
elaborated upon in Table 1.
Table 1: The Government Involvement in International Trade of Services in Viet Nam: A
Typology
Category
Form
General
Environment
Sector Regulation
Regulation
Examples
Regulatory FDI policy, rules on currency convertibility,
anti-trust legislation affecting service markets,
anti-corruption laws and practices, rules
affecting business operations;
Sector-specific regulations such as those
affecting foreign bank activities or telecom in
Viet Nam;
Trade Policy
Specific Issues
Market access conditions negotiated in the
WTO , ASEAN of BTA for services, unilateral
trade liberalization;
Visa practices, professional certification, work
permits for foreign employees; land ownership
laws
Trade
Promotion
Activities of National Trade Marketing intelligence in foreign markets,
Promotion Organizations
advocacy for service export firms; partner
search;
Support
for
Self-help
Business Organizations
Vietnamese Government’s support for the
international promotion activities of the
chamber of commerce, industry associations,
Commercial Diplomacy
etc;
Support for trade in services by commercial
sections of Viet Nam’s Embassies abroad;
State Trading
Export of services by state-owned and state-
109
State Trading
&
Government Government Procurement
Procurement
controlled enterprises in Viet Nam (.e.g. Viet
Nam Airlines);
Hardware
Government
Investment
in
Software
Infrastructure
(Public
Good)
Source: author’s classification
Airport facilities, telecom networks, road
infrastructure, warehousing facilities, etc;
Procurement of services purchased by
Vietnamese Government from foreign sources
(e.g. legal services);
Education
and
professional
training,
entrepreneurial and linguistic skills, service
culture, governance of state institutions.
5.2.2. Trade in Services: A Marketing Strategy Perspective
According to the WTO definition trade in services comprises four modes of supply crossboarder (mode 1), consumer movement (mode 2), commercial presence (mode 3) and
temporary entry (mode 4). The classification used in this paper (Table 2) focuses on clientprovider relationship which seems more suitable for strategy development.
Table 2: International Marketing of Services by Viet Nam:
A Client – Provider Classification & the Main Strategic Concerns
Services Marketed to The Main Strategic Concerns Simply Explained
Good regulation helps but it is only a starting point. Make it FDIfriendly, flexible with respect to various forms of foreign ownership
and easy to comply with (e.g. single desk to contact government);
Care more about modifying the “real life” rules of doing business
rather than dealing mainly with legalistic reforms; services are
1. Foreign firms in particularly affected by administrative culture and relationships.
Viet Nam
Professional skills have to be up-graded; training for lower-skill
workers requires particular attention.
Support for entrepreneurship and service exporting SMEs is a must.
Invest in infrastructure (transport, telecommunication, computer
networks, education, teaching English). Don’t neglect training
opportunities in the rural areas in Viet Nam.
Viet Nam has a great potential as tourist destination but a niche
110
approach is needed.
Opt for a selective and environment-friendly development of tourist
infrastructure. Cultivate Vietnamese style of hotel architecture and
2. Foreign visitors to ensure quality service to attract tourists from most attractive market
Viet Nam
segments. Develop transportation, telecom, and e-marketing.
Develop annexed activities related to certain sports, Vietnamese
cooking, medical services, etc. Put emphasis on rural tourism
development which has potential in Viet Nam.
Vietnamese culture is an advantage in hospitality services but
professional training is required to reveal that advantage even more.
Teach English to school children and young adults.
Reinforce the Viet Nam’s business and logistics hub for the Greater
Mekong sub-region.
3. Foreign owners of
equipment
Develop ship maintenance services and the airline support services.
temporarily
transferred to Viet Consider partnership with foreign leaders in both areas to gain access
to international customer networks, assure quality service through
Nam
training and couching and obtain access to capital.
The services are the strategic priority for Viet Nam since they are
beneficial both for merchandize trade and trade in services.
4.
Trade-related
services offered to Develop shipping and air transport facilities and cargo forwarding
exporters
and services.
importers
Improve trade finance and insurance and trading capacities. .
Protection of foreign investors should be improved to attract quality
investors.
5. Foreign investors in
Viet Nam (present and Need for a stronger and more proactive promotion and a single-desk
potential)
government service to newcomers to attract FDI into the service
sector in Viet Nam..
Activate trade representatives to “sell” Viet Nam to the most
attractive foreign investors.
Form local internet entrepreneurs.
6. Foreign clients for Simplify rules concerning creation of SMEs and their international
Viet Nam’s on-line activities.
services
Encourage computer literacy.
Viet Nam’s temporary labour transfer relies too heavily on lowskilled labor.
111
Combine the labor transfer arrangements with programs of
professional learning.
7. Foreign clients for
temporary
labour Offer a government-sponsored service to search for potential
inputs from Viet Nam employees abroad and to provide government support in contract
negotiations.
Deal with social security problems, health insurance, schooling
arrangements for the employees’ children, logistics, visas and other
travel arrangements. Protect your workers internationally.
8. Foreign clients for
services offered by the
Vietnamese
firms
temporarily
based
abroad
Support service exports by companies active in construction,
transportation, architectural services, entertainment, restaurant
services, art exhibitions, sport events, etc - all provide interesting
opportunities for Vietnamese firms offering services to foreign
clients on a temporary basis.
Support establishment of the Vietnamese distribution chains abroad
for products such as food, furniture, quality silk.. Develop such
9. Foreign clients for chains either through franchising or in partnership with foreign
services offered by companies. Develop exports of construction services.
subsidiaries of the
Vietnamese
firms Subsidiaries of the Vietnamese construction firms abroad will be an
abroad
important tool for gaining foreign contracts.
Give priority to computer-related services, engineering consulting,
restaurants, medical services. International franchising arrangements
might be a good expansion formula.
Source: own classification
5.3 Economic Development and Ser vice Tr ade in Viet Nam
5.3.1 The Relative Importance of the Viet Nam’s Service Sector
Services account for more than 70 per cent of economic activity in high-income countries.
Even in the lowest income economies, services generate at least 40 per cent of GDP. In Viet
Nam services account for less than 40 % of GDP which is low by international standards
Duiring the recent years, Viet Nam’s service activities were growing at a lower rate than GDP
and at a much lower rate than industrial production. The global financial crisis and weaker
macroeconomic performance in Viet Nam dampened the service growth in 2008 and
continued to do so in 2009. Viet Nam’s services are not enough diversified; over the last
decade only around 60 of the total 155 service categories set by the WTO were offered in Viet
Nam (The Prime Minister's Research Council, Viet Nam, 09 -12-2005).
5.3.2 Services in the Viet Nam’s Trade
In spite of a substantial growth in services exports (Table 3), the share of services in total Viet
Nam’s exports is only in the range of 10%. It is less than the average share of 15.6% (2007)
for developing countries and of 20% for developed countries as a whole. (The situation is
112
similar for imports). Imports of services by Viet Nam have grown overall at a higher rate than
exports (Table 3), particularly the import of telecom services increased significantly. The
main categories of service exports from Viet Nam are tourism, air transportation and shipping
(Table 4) which indicate a revealed pattern of comparative advantage. The most important
exports take place through mode 2 (tourism) and mode 4 (temporary migration of workers
abroad). That situation is different for world’s trade where more than 40 per cent of export is
taking place in mode 1(cross boarder), another 40 per cent in mode 3 (commercial presence)
with about 15 percent being in mode 2 (consumer movement or travel) and only about 2 per
cent in mode 4 (Hoekman, Kostecki, 2009). The major importation of services to Viet Nam
takes place through mode 2 (tourism and air transportation) and mode 3 (commercial presence
of foreign firms in Viet Nam).
Table3: Service Exports and Imports of Viet Nam, 1990-2008
Export
Year
Turnover
(USD
million)
Import
Change
(%)
TurnShare in
over
export
(USD
(%)
million)
1990
182
7,0
126
1991
449
146,7
17,7
270
1992
724
61,2
21,9
412
1993
772
6,6
20,5
694
1994
1283
66,2
24,0
1264
1995
2147
67,3
28,3
1982
1996
2243
4,5
23,6
2304
1997
2530
12,8
21,6
3153
1998
2616
3,4
21,8
3146
1999
2493
-4,7
17,8
3040
2000
2702
8,4
15,7
3252
2001
2810
4,0
15,8
3382
2002
2948
4,9
15,0
3698
2003
3272
11,0
14,0
4050
2004
3867
18,2
12,7
4739
2005
4265
10,3
11,6
4480
2006
5100
19,6
11,4
5792
2007
6460
26,7
11,7
7176
2008
7096
9,8
10,2
7915
Source: Annual Statistic Book 2008 and WTO statistics
Change
(%)
114,3
52,6
68,4
82,1
56,8
16,2
36,8
-0,2
-3,4
7,0
4,0
9,3
9,5
17,0
-5,5
29,3
23,9
10,3
Service
exports
Share in minus
imports imports
(USD
(%)
million)
4,4
56
10,4
179
14,0
312
15,0
78
17,8
19
19,6
165
17,1
-61
21,4
-623
21,3
-530
20,6
-547
17,2
-550
17,3
-572
15,8
-750
13,8
-778
11,5
-872
10,9
-215
11,4
-692
10,3
-716
8,9
-819
Viet Nam’s performance in service exports remains in line with that of the other dynamic
economies. A number of developing countries which became significant service exporters especially in transactions processing, related back-office services and information and
software services - include India and China which registered double-digit growth. Viet Nam’s
service exports (2003-7) and imports (1991-2007) have also grown at a double digit level.
113
Viet Nam’s share in world exports of commercial services was in the range of 0.18 per cent in
2007 and of 0.22 per cent for imports, placing Viet Nam as the 59th rank among the WTO
exporters of commercial services (compared with its 50th rank of merchandize exporters in
2007). Viet Nam ranked as 40th importer of commercial services, compared with its 41st rank
in merchandize imports during the same year (WTO, 2008). Viet Nam’s trade in services
slowed considerably in Q4 2008, a trend which affected all countries and continued well into
2009 due to the on-going economic slowdown. Table 4 reveals significant imbalanced for
several categories of service trade. In particular, Viet Nam’s shipping fleet has aged
considerably and a growing portion of merchandize exports are now being carried on foreign
vessels. Moreover, there has been a deficit in “other services” (not well specified in Viet
Nam’s published statistics) and a modest deficit in insurance services.
5.3.3 Viet Nam’s Development Objectives and Trade in Services
Service sector reforms are supported by manufacturing and agricultural interests in Viet Nam.
In order to benefit from the process of globalization with its attendant ‘splintering’ or
‘fragmentation’ of the production chain Vietnamese enterprises must have access to efficient
service inputs. As Viet Nam reduces tariffs and other barriers to trade in goods, effective rates
of protection for manufacturing industries would become increasingly negative if the latter
were continuously confronted with input prices that remained higher than they would be if
services markets were contestable.
Table 4: Service Exports and Imports of Viet Nam by Sub-sectors (2005-2008)
(US$ million)
2005
2006
2007
2008
estimates
I. EXPORT
4.265
5.100
6.460
7.096
1. Tourism
2.300
2.850
3.750
4.020
2. Air transportation service
657
890
1.069
1.322
3. Shipping
4. Telecommunication
service
510
650
810
1.034
100
120
110
80
5. Financial service
220
270
332
230
6. Insurance service
45
50
65
60
7. Government service
33
40
45
50
8. Other services
400
230
279
300
II. IMPORT
4.480
5.792
7.176
7.915
1. Tourism
900
1.050
1.220
1.300
2. Air transportation service
630
700
820
800
3. Shipping
170
210
250
300
4. Telecommunication and post service
31
30
47
54
and
postal
114
5. Financial service
230
270
300
230
6. Insurance service
130
160
210
150
7. Government service
30
40
40
50
8. Other services
850
850
1.030
850
2.482
3.259
4.181
9. Postage I, imported goods F
1.509
Source: Annual Statistical Book, Viet Nam, 2008.
The Doi Moi reforms and Viet Nam’s participation in the WTO and regional trade agreements
accelerated regulatory change and increased contestability of service markets in Viet Nam
(discussion below). But, the reforms have to continue to further reduce the impact of importsubstitution policy on services in Viet Nam (MPI and UNDP, 2006). Viet Nam also needs to
attract foreign direct investment (FDI) to strengthen its under-developed service sector.
5.3.4 Viet Nam and International Trade Agreements
Viet Nam participates in international trade agreements which affect trade in services: (i)Viet
Nam-US Bilateral Trade Agreement (BTA), (ii) the ASEAN Framework Agreement on
Services (AFAS), (iii) and the World Trade Organization (WTO).
BTA (Viet Nam - US) The Viet Nam- US Bilateral Trade Agreement (2001- ) reinforced the
commercial links between the United States (Hanoi’s most important trading partner) and
Viet Nam. Both countries signed in 2007 the Trade and Investment Framework Agreement
(TIFA) and initiated in 2008 negotiations on a Bilateral Investment Treaty. Under the TIFA
the US and Viet Nam advance the BTA and Viet Nam’s WTO commitments, aimed at
intensifying trade flows in services, goods and FDI s. (Reports on the business- relevant BTA
developments are available at the US Commercial Service site: www.buyusa.gov/Viet
Nam/en/us_Viet Nam_bta.html.
ASEAN As a member of the Association of Southeast Asia Nations (ASEAN) and the AsiaPacific Economic Cooperation Forum (APEC) Viet Nam participated in negotiations on
service trade liberalization and offered commitments in telecom, tourism financial services
and other areas under the ASEAN Framework Agreement on Services (AFAS). Following the
Framework Agreement on Comprehensive Economic Cooperation between China and
ASEAN, the Service Trade Agreement finally took effect in July 2007. According to that
Agreement and on the basis of its commitment made to the WTO, China has liberalized 26
sectors of interest to Viet Nam and other ASEAN countries in areas such as construction,
environment preservation, transportation, sports and business. On the other hand, Viet Nam
and its ASEAN neighbors committed to open their markets in finance, telecom, education,
tourism, construction, and medical services (Chunmei Yang, 2009). Moreover, the ASEAN
Single Aviation Market (SAM) progressively introduces an open-sky arrangement to the
region by 2015. The ASEAN SAM is expected to fully liberalize air travel between its
member states, allowing ASEAN to directly benefit from the global growth in air travel. A
detailed presentation of Viet Nam’s commitments under AFTA, WTO and Viet Nam-US
BTA is available at the World Bank’s site:
INTRANETTRADE/Resources
/Topics/Services/Viet Nam-tradecommit_Asean_services.pdf
115
WTO. Since its 2007 accession, Viet Nam continued to implement laws and regulations in
compliance with its WTO obligations. The Viet Nam’s WTO commitments affecting trade in
services were influenced by the fact that most service sectors in Viet Nam were in still in the
early stage of development (NCIEC/USAID, 2006). However, through 2015, Viet Nam is
expected to implement far-reaching regulatory, administrative and economic reforms that will
provide an increasingly favorable environment for foreign providers of services in Viet Nam
and open new markets for Vietnamese service firms. To this end, in 2008 Prime Minister Mr.
Nguyen Tan Dung announced “Project 30” (Box 8) which aims to reduce and simplify the
national and provincial regulations that affect economic operators throughout Viet Nam.
The schedule of specific WTO commitments on trade in services by Viet Nam covers 105
service sectors and sub-sectors (WTO, 2008 and MUTRAP II SERV-1 and SERV-2).
However, in a large number of instances Viet Nam reserved its right to limit foreign
ownership of service firms. Such is the case of telecom services where the eventual limits can
be 49 per cent or 65 per cent foreign ownership share, depending on the service concerned
(US Commercial Service, 2006). In a few other cases, foreign ownership may be 100%, the
most significant services concerned being accountancy services. In many instances, the
ownership limits imposed on foreigners will be progressively phased out and will reach 100%
after several years. For example, in the case of courier services, total foreign ownership is
permitted after five years of company’s presence in Viet Nam. An inquiry point for service
providers is currently being prepared in conformity with the Viet Nam’s GATS’ obligations.
(For Viet Nam’s GATS commitments see: www.wto.org doc. WT/ACC/VNM/48/ Add. 2).
Box 8
Trade in Services and Project 30
One of the main objectives of the Administrative Procedures Simplification Project
(Project 30) for state management for the period 2007-2010 is to reduce ‘red tape’ in
business. Project 30 has a real potential to improve the administrative environment in
Viet Nam both for domestic and foreign firms including service providers. The project
attempts to reduce red tape on a systemic basis. For example, it is building a web-based
electronic database of legal documents that will enhance transparency for regulators,
enterprises and citizens so that everyone knows what their respective rights and
obligations are.The Project’s effectiveness depends in large part on the contributions
from the managers who deal with administrative procedures and are invited to provide
feedback through their business associations or directly on the Project 30 website at
www.thutuchanhchinh.vn. The feedback should preferably contain constructive
suggestions for better ways to implement procedures that are necessary but not always
handled efficiently enough. It is expected that the project will make a difference in the
“service mentality” in Viet Nam and increase the country’s attractiveness for foreign
investors and service providers. Several successful pilot initiatives have been already
introduced under the Project’s umbrella. For example, more rapid business establishment
procedures were introduced at the industrial parks and the e-Customs procedures at the
Lao Cai border crossing are getting good reviews from the traders.
Source: “Viet NamNet Bridge” 07.08.2009 /http://english.Viet Namnet.vn/
The WTO, BTA and ASEAN/AFAS offer a mechanism for Viet Nam to pre-commit to a
reform path and to lock-in reforms that have already been achieved. Overall all the BTA and
AFAS arrangements result in GATS + commitments, i.e. commitments that go beyond those
116
undertaken by the WTO countries. The three agreements are equally important in opening
foreign markets for Viet Nam’s service providers abroad. Viet Nam is a promising player with
numerous opportunities for services exports, via Modes 1, 3, and 4 to the ASEAN countries
and some other targeted markets (discussed below).
5.4 The Impact of Policy Refor ms in Ser vices on Tr ade and Economic Per for mance
Modernizing Viet Nam signifies moving to a service economy, i.e. an economy where
services become “strategic” within the industries. International trade in services has an
important role to play in that process since trade in higher value-added goods is service-based.
Firms which are successful in global markets focus on R&D, optimal business processes,
international marketing and value chain management, development of human & social capital,
logistics and networking – all of which result from service activities. Those firms also need
efficient service inputs such as business support, education and training, banking, computerrelated services or telecom (Kostecki, 1994). There is significant of economic research
documenting the effects of policy reforms in services on economic performance, export
performance, gains from trade and country’s attractiveness for foreign investors. The
following strategic propositions for Viet Nam are inspired by the results of the empirical
research in question.
(i) A further opening of Viet Nam’s financial, telecom and infrastructure services would
contribute to the country’s overall economic performance and attract FDI s. In a crosssection, cross-country regression analysis, Mattoo, Rathindran and Subramanian (2006) show
that countries with open financial and telecom sectors grew, on average, about 1 percentage
point faster than other economies. Fully liberalizing both the telecom and the financial
services was associated with an average growth rate 1.5 percentage points above that of other
countries. Eschenbach and Hoekman (2006a) use three indicators of the ‘quality’ of policy in
banking, non-bank financial services and infrastructure, covering the 1990-2004 period, to
examine the influence of changes in services policy, including liberalization, on economic
performance over this period for twenty countries in transition. They suggests that changes in
policies towards financial and infrastructure services, including telecom, power and transport,
are considerably correlated with inward FDI and that services policy reforms are significant
explanatory variables for the post-1990 economic performance of the twenty transition
economies concerned. Finally, while Viet Nam has liberalized merchandize trade in line with
its WTO commitments, many service sectors are still under protection (MPI/UNDP (2005).
Liberalizing imports of service-intensive final products without liberalizing equally rapidly
imports of service inputs in Viet Nam may result in a negative rate of effective protection for
a series of industries in Viet Nam that should push for liberalization.
(ii) Improvements in trade-related services would positively impact Viet Nam’s export
volume. The academic literature has devoted attention to the effects of ‘trade costs’— the non
tariff costs of getting products from producers to consumers. Most trade costs are servicesrelated. The impact of diminishing transport fees on trade may be considerably larger
proportionately than those that can be obtained from liberalization merchandize trade because
transport generates real resource costs as opposed to rents (Deardorf, 2001). Insofar as
customs and public administration services generate redundant procedures and duplication of
fixed costs – which is the case of Viet Nam - the potential gains from liberalization of ‘traderelated services’ are particularly important.
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(iii) More efficient infrastructure services would encourage Viet Nam’s higher value exports.
Another range of trade costs originates in infrastructure-related services. Limao and Venables
(2001) estimated that unsatisfactory infrastructure accounts for 40 per cent of predicted
transport costs for coastal economies, such as Viet Nam. Francois and Manchin (2007)
suggest that infrastructure is a significant determinant not only of export levels, but also of the
likelihood exports will take place at all. They show that basic infrastructure (communications
and transportation) explains substantially more of the overall sample variation in exports than
do the trade barriers faced by developing economies. Numerous other studies have shown the
interdependence between the efficiency of domestic infrastructure services and a country’s
performance in trade. Francois and Reinert (1996) find that the importance of services for
export performance increases with per capita incomes—business, distribution and
communications services become the most important sectoral elements of overall exports in
terms of inter-industry linkages. Fink, Mattoo and Neagu (2005) show that international
communication costs are particularly important as a determinant of export performance in the
case of high value, differentiated products, whereas they matter less for more homogenous,
bulk type commodity trade. In other terms, they become increasingly important for Viet Nam
as the country’s exports graduate from that of raw materials and simpler products towards a
more sophisticated export portfolio.
(iv) Better maritime and air transport, customs clearance, infrastructure services and
regulatory environment would enhance the global competitiveness of Vietnamese companies.
Actions to reduce these excess costs and improve quality would enhance the competitiveness
of Vietnamese business, with an aggregate effect that is akin to a depreciation of the real
exchange rate. Wilson, Mann and Otsuki (2005) use a gravity model to evaluate the effects of
‘trade cost’ variables, (two of which are services-related - port efficiency, customs clearance),
of the regulatory environment more broadly and of service sector infrastructure (telecom, ebusiness) across 75 economies for the years 2000/1. The potential expansion in merchandize
trade from improvements in all the four areas—raising performance of ‘underperformers’ to
the average in the sample—is estimated to be about $380 billion. On average, the port
efficiency variable (including both maritime and air transport) accounts for more than half of
the trade costs imposed by policies in the four areas considered (Hoekman, Kostecki, 2009).
The model suggests that the impact might be equally important in the case of Viet Nam.
(v) Greater FDI s in producer services would stimulate Viet Nam’s manufacturing
productivity and exports. The dependence between policy reforms in services and inward FDI
in services on the one hand, and between total factor productivity growth performance of
businesses that use services and this FDI on the other hand is among the most robust
empirical results concerning services reforms. Arnold, Javorcik and Mattoo (2007) considered
the effects of allowing foreign providers greater access to services industries on the
productivity of manufacturing industries relying on services inputs. The results, based on
firm-level data from the Czech Republic for the period 1998–2003, showed a positive
relationship between FDI in services and the performance of domestic firms in manufacturing.
In similar study concerning Africa and based data from over 1,000 firms in 10 Sub-Saharan
countries, Arnold, Mattoo and Narciso (2006) find a positive relationship between firm
performance and the performance of three service input industries for which data were
collected through company surveys (access to communications, electricity and financial
services). The link between services sector reforms and manufacturing productivity and
export propensity was further examined by Arnold, Javorcik, Lipscomb and Mattoo (2008).
Basing their research on data for 10,000 Indian firms for 1990–2005, they show that the
reforms are associated with a substantial increase of FDI into services, outpacing FDI going
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into goods. They also suggest a strong positive relationship between policy reforms in
banking, telecom and transport and the productivity of Indian manufacturing sectors.
Companies that depended substantially on banking and telecom were characterized by higher
total factor productivity growth rates which is a strong argument for rapid liberalization of
banking and telecom in Viet Nam.
(vi Efficient distribution services in Viet Nam would increase the country’s benefits from
international trade. Gains from trade are both about exports and imports. Francois and
Wooton (2007) note that trade flows considerably depend on the degree of market power
exercised by the domestic trade and distribution sectors. In absence of competition, the
domestic distribution often serves as a considerable import barrier against trade in goods and
services. The study shows that the benefits of tariff reductions may be overstated if one
ignores the competitive situation in distribution. It also demonstrates that competition in
distribution matters in particular for smaller traders. This is intuitive, in that small players will
have less ability to counteract the market power they confront. To ensure competition in its
distribution services Viet Nam has to curb the dominant position of its state-owned
enterprises ensuring, at the same time, that the dominant market position is not taken over by
the multinational distribution firms entering the country.
5.5 The Pr er equisites for Stimulating Gr owth of Tr ade in Ser vices
5.5.1 Key Drivers of Service Growth.
There are several reasons for the rise in the share of services in output and employment as
countries become richer. First, one can observe that with the progressing economic
development there an increasing specialization and exchange of services through the market
(‘outsourcing’). The latter also coincides with an increased diversity and service quality that
may raise productivity of firms and welfare of consumers. Second, there is little doubt that
economic growth in turn increases demand for purchased services. However, it should be kept
in mind that the scope for (labour) productivity improvements in the provision of many
services is less than in agriculture and manufacturing. The latter implies that over time the
(real) costs of these services rises relative to merchandise, as is their share of employment
(Baumol, 1967; Fuchs, 1968).
Finally de-regulation and liberalization have a role to play. A recent study by the World Bank
on the discriminatory policies restricting entry in specific services markets of 30 developing
economies shows great heterogeneity of policies affecting trade in services (Gootiz and
Mattoo, 2008). Numerous sectors are open, especially for FDI, but in many other sectors
restrictions are imposed or the sectors are completely closed. International comparisons of
‘sensitive’ service sectors show considerable differences in comparative advantage and the
legacy of past policies. (For example, in India, a number of key sectors were liberalized in this
century. Barriers to entry have been eliminated especially in telecommunications and freight
transport, and are being removed in insurance and banking. Nevertheless, India continues to
maintain restrictions on foreign ownership and professional services like accountancy and
legal, retail distribution, postal and rail transport services are closed to foreign providers). In
numerous countries, including Viet Nam, barriers to entry in services markets, ranging from
telecommunications to banking or professional services, are maintained not only for foreign
companies but also against new domestic firms. Overall, the empirical studies show that
business services such as consultancy are among the least protected areas (also in Viet Nam)
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whereas protection is higher in transportation, professional services, finance and fixed-line
telecommunications (UNCTAD, 2005).
5.5.2 Supporting Infrastructure for Trade in Services.
Trade in services is considerably dependent on such diverse variables as the country’s human
capital, cultural characteristics, the size of FDI , infrastructure for trade, cost structure, the
nature of organizational change and the extend of trade entrepreneurship . In the case of Viet
Nam the pressure to increase trade in services will also result from such driving factors as the
country’s rapid economic growth, the emerging middle class and Viet Nam’s participation in
international trade agreements. Obviously, an appropriate infrastructure (both hardware and
software) is essential in that context (proposals 3.5(i), (iii) and (iv) discussed above). Much of
the growth in cross-border services trade over the last two decades has been in business
process outsourcing (BPO) services, (which are captured in the balance-of-payments category
‘other commercial services’). The rapid growth in trade in such activities has led to a
significant decline in the shares of more traditional services such as transport and travel and
that tendency is also affecting Viet Nam.
5.6 Str ategic Recommendations for Development of Viet Nam’s Tr ade In Ser vices
A strategy - in order to be meaningful and operational - has to be developed for every specific
forms of government intervention and as well, as for a defined range of services. A
framework for Viet Nam’s government strategy for trade in services is suggested in Table 5.
The matrix distinguishes between four forms of government intervention that may be used to
implement a strategy (regulation, trade promotion, state trading and infrastructure) and
specifies different groups of foreign clients served (listed in the left column from 1 to 9). For
example, government strategy concerning infrastructure (column 4) refer to software (general
education, professional training, command of English, couching, etc) and hardware (maritime
and air ports, telecom and computer networks). Depending on the service exports concerned,
the matrix enables its user to emphasizes different aspects of government intervention and its
related strategy.
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Table 5
Mapping Government Strategy for Trade in Services:
Policy /Client Matrix and Leading Concerns
Service
1. Regulation
2. Trade (& 3.
State 4. Infrastructure
marketed to
FDI)
Trading
Promotion
1. Foreign firms
X
X
in Viet Nam
2.
Foreign
visitors to Viet
X
X
Nam
3.
Foreign
owners
of
equipment
X
temporarily
transferred to
Viet Nam
4. Trade-related
services offered
X
X
X
X
to exporters and
importers
5.
Foreign
investors
in
Viet
Nam
X
X
(present
and
potential)
6.
Foreign
clients for Viet
X
X
Nam’s on-line
services
7.
Foreign
clients
for
temporary labor
X
inputs
from
Viet Nam
8.
Foreign
clients
for
temporary
service offered
X
X
X
by
the
Vietnamese
firms abroad
9.
Foreign
clients
for
services offered
by subsidiaries
X
X
X
of
the
Vietnamese
firms abroad
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Source: own classification, Note: ooo – particularly urgent need for a new strategy, omoderate need for a new strategy.
For example, in the case of software infrastructure for service exports provided to foreign
visitors (cell 2.4.) focus will be on hotel schools, training in quality improvement in
hospitality services, development of nursing skills, etc. In the case of infrastructure for service
offered on-line to foreign clients (cell 6.4) the emphasis will be on telecom networks, access
to the Internet or development of computer-related skills in the Viet Nam’s educational
system. The policy concerns that are emphasized in this paper as particularly critical for the
type of service considered are marked with “X” in Table 5 and considered in the discussion
below. It may be seen that most concerns refer to regulation, followed by service
infrastructure and trade promotion activities.
5.6.1 Improving the Regulatory Framework
A major factor determining both the attractiveness of Viet Nam to foreign providers and the
competitiveness of the Vietnamese exporters is the regulatory environment. As already
mentioned, an impressive agenda of reforms has been already introduced, but still more
market market-oriention, de-regulation and liberalisation is needed if Viet Nam is to evolve
into a middle-income economy prior to 2025. Such reforms should attract more and “better”
FDI s, facilitate the country’s trade in services enhancing the position of Viet Nam as logistic
(and a business) hub for the Greater Mekong sub-region (UNCTAD, 2008). What are the
negative aspects of regulation no which the government should act to improve the regulatory
environment for service trade?
1. Business climate. In terms of “ease to do business” in 2009 – an objective measure of
business regulations and their enforcement computed by the World Bank - Viet Nam
ranks 92 out of 181 countries. The “ease to do business” in Viet Nam is perceived in
2009 as less satisfactory than a year ago (5 points down compared with 2008) . Viet
Nam’s score is particularly weak on aspects such as “protecting investors (170th rank),
paying taxes (140) or closing a business (124).
2. Bureaucracy. Red tape within the Vietnamese administration has reduced productivity
of service providers operating in Viet Nam. Foreign firms (and the Vietnamese
software providers) often complain about ineffective protection of intellectual property
in Viet Nam. Bureaucracy is particularly burdensome at customs where there is not
enough coordination and not enough streamlining of the various control activities.
Project 30 (Box 8) is likely to bring some improvement that should be monitored.
3. Entrepreneurial freedom. The state's role in the Viet Nam’s economy has gradually
declined but continues to be perceived as an obstacle by business. A 2009 tax reform
package, which includes rate reductions for income and corporate taxes, is generally
seen as positive but several key institutional challenges still limit Viet Nam's overall
economic freedom in Viet Nam. In general, the regulatory and legal environment is far
from effective and transparent. Foreign investment is hindered by screening, nontransparent bureaucracy, and an unreliable legal system. Viet Nam’s economic
freedom score is 51, making its economy the 145th freest in the 2009 Index of
Economic Freedom by the Heritage Foundation. The country’s score has increased by
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0.6 point, reflecting moderate improvements. Viet Nam ranks 32nd out of 41 countries
in the Asia–Pacific region, and its score is less than the world average
(www.heritage.org).
4. Competitiveness. Viet Nam ranks 105 out of 134 countries in the 2008-09 Global
Competitiveness Report of the World Economic Forum. Its ranking is substantially
lower than that of Korea (13), Taiwan (17), Malaysia (21), China (30) or India (50).
Viet Nam enjoys a number of key advantages related to its relatively large domestic
market, its labour force characterized by a solid relationship between workers’ pay and
productivity in the economy (ranked 17th). But Viet Nam’s overall competitive
position is eroded by weaknesses in the quality of institutions as well as hardware and
software infrastructure (see below). The poor rating concerning institutions is due to
burdensome government regulation and weak auditing and reporting standards, where
it is ranked 105th and 106th, respectively. (WEF, 2009).
5. Corruption. The issue is an important business concern for foreign managers in Viet
Nam. The corruption perception index (CPI) of the Transparency International ranks
180 countries by their perceived levels of corruption, as determined by expert
assessments and opinion survey. In 2008, Viet Nam ranked on 121st position on that
list– worse than Egypt (115), India (85) or China (72) after the country has made
major headway toward building the foundation to limit corruption. In 2005, Viet Nam
passed an Anti-Corruption Law, which requires that high ranking officials report their
assets, and the assets of close family relations. A number of significant corruption
cases have been prosecuted over the recent years affecting high ranking government
and Party officials. New legislative measures are being developed to improve
government administrative procedures and to adjudicate complaints against
administrative rulings. But, for the time being, corruption is far from being
significantly curtailed.
Although there are substantial potential benefits from liberalizing key services sectors (section
3.5), these gains cannot be realized by a mechanical opening up of services markets in Viet
Nam. Government of Viet Nam has an important role to play in putting in place the
preconditions for an efficient set of service industries, bolstering the case for focusing on key
inputs like education and institutional) infrastructure. Equally important is the design of
reform programmes. A flawed reform programme can undermine the benefits of
liberalization. For example, if privatization of state monopolies is conducted without taking
actions to foster greater competition, the result may be merely transfers of monopoly rents to
private owners (possibly foreigners). Similarly, if increased entry into financial sectors is not
accompanied by adequate prudential supervision, the result may be insider lending and poor
investment decisions. If policies to ensure wider access to services are not put in place,
liberalization need not improve access to essential services for the poor. Managing reforms of
services markets, therefore, requires integrating trade opening with a careful combination of
competition and regulation.
Since FDI is the preferred mode of export of services by Viet Nam’s main trading partners,
adjustment will be associated with transfers of ownership. Opposition from affected
bureaucracies and from groups with non-economic concerns (such as the impact of
‘denationalization’ on national culture or communist ideology) may further increase the
complexity of liberalization efforts. The challenge for policymakers is to enhance foreign
competition while ensuring that the need for regulation of service providers is satisfied. This
requires that the case for liberalization be distinguished from the need for regulation or
123
regulatory reform. Regulation to achieve fiduciary, public health or cultural objectives should
be in place and strengthened where necessary, and should apply equally to domestic and
foreign providers (Hoekman, Kostecki 2009).
5.6.2 Trade Promotion
Since the national trade promotion initiatives in Viet Nam have been primarily oriented to
merchandize exports, the Vietnamese service exporters have enjoyed little government
assistance over the past years. It is time that things change and that service exporters be
included in government-led initiatives. In particular, the Viet Nam Trade Promotion Agency
(VIETRADE) should assist service exporters, not simply merchandize traders. The more so,
that the vast majority of Vietnamese service suppliers are small and medium-sized enterprises
(SMEs). Given small size it is frequently more cost effective to export from a base in Viet
Nam than it is to travel or establish abroad. Therefore, a good portion of the national services
export strategy should focus on how to promote Vietnamese services to foreign business in
Viet Nam. Overall, the Vietnamese trade support institutions should provide assistance to
evaluate: (1) overall marketability of particular exportable services; (2) market trends and
size; (3) customary distribution and promotion practices in targeted foreign markets; (4)
market entry requirements; (5) regulation, service standards and registration of service
providers; (6) key competitors; and (7) potential agents, distributors or strategic partners.
Further improvements are urgently needed to support service exports (section 6.4).
5.6.3 State-Trading & Government Procurement
Many services in developing countries remain under state ownership and direct state control.
One of the priorities, in such cases, has been to ensure universal access to key social services
such as sanitation, health, energy, education and water. Also in Viet Nam state is the big
buyer and supplier of services. First of all, many services are imported into Viet Nam or
exported by state-owned and state-controlled firms (e.g. air transport lines, shipping firms,
large tourist establishments, large construction companies). That form of foreign trade
transactions, where a state-owned firm purchases or sells services to its client (home-based or
foreign) under government supervision or special state-granted privilege is referred to as state
trading (Kostecki, 1982). Governments also buy a wide range of services (e.g. military,
environmental services, security) for their own consumption rather than not for resale to
clients. The later form of government buying is referred to as government procurement. The
way in which governments buy such services is regulated by the WTO Agreement on
Government Procurement but Viet Nam is not as yet party to that agreement.
State trading in services may provide a useful instrument of government trade strategy in the
sense that certain exports of services may be developed more easily due to government
guidelines issued to state trading service firms. For example, state owned airplane repair
workshops or ship maintenance firms may be developed to offer their services to foreign air
carriers or shipping companies (section 6.7). Transport firms such as Falcon Shipping Co - a
subsidiary of the state-owned Viet Nam National Shipping Lines (Vinalines) - may be
encouraged by the state to increase their tanker capacity to transport larger volumes of crude
oil worldwide, etc. State owned warehousing capacity provided to foreigners may be extended
following state investments. For example, Sotrans – a state-owned warehousing business
maintaining its operations in HoChiMinh City, Haiphong, Hanoi, Danang, Cantho, Binh
Duong and Dong Nai may be requested to enlarge its services offered to foreign firms. Stateowned banks, such as The Viet Nam Bank for Industry and Trade or The Viet Nam Bank for
124
Agricultural may respond to government guidelines concerning certain international
transactions and trade facilitation activities. It should be noted, that many private service
enterprises in Viet Nam were encouraged to export in order to survive since the Vietnamese
market remained dominated by state-owned enterprises enjoying a monopoly or quasimonopoly position at home. To-day, increasing service exports may require partly curbing the
privileged position of state-owned service firms. In the late 1980s and throughout the 1990s
many countries privatized state-owned or controlled service firms active in such backbone
services as transport and telecom. These reforms increased both merchandize and service
trade flows and led to substantial growth in service FDI s (UNCTAD, 2005).
To activate its service exports Viet Nam needs more competition in its domestic market. The
problem is that keeping inefficient state-owned service firms on life-support holds back
healthier options and harms the Vietnamese economy overall.
Of course, government
subsidies to inefficient firms protect jobs. But, all this does enormous harm; it locks up
resources, both human and financial, that could be used more productively by better firms. It
also fossilizes service sector’s structures and hinders the development of a more flexible
market and a business environment less stifled and more supportive of service export firms –
an area where Viet Nam is also sadly deficient. No efficient market economy in Viet Nam can
be developed without a degree of destruction of the old style enterprises. Instead of continuing
to prop up struggling state-owned companies such as poor quality shipping lines, warehousing
and other trade facilitation firms, Viet Nam needs to expose them to more competition at
home and to let them go under if they are not successful , so that new, better ones may be
created. The same is true of banking since ineffective banking or financial reporting means
paralyses of all national economy (proposition 3.5 (i) above). By letting in more foreign banks
(i.e. increasing the service imports) Viet Nam my improve the quality and diversity of
banking services and improve its state-owned banks which are forced to compete and
modernize under competitive pressure (Box 9). Such a mixed arrangement creates unique
opportunities for the young generation of the Vietnamese bank employees and entrepreneurs
who learn how to play in the world banking community.
5.6.4 Government Investment in Infrastructure
Viet Nam’s overall position, measured by the discussed WEF competitiveness ranking is also
eroded by weaknesses in the quality of other areas of infrastructure. Viet Nam’s physical
infrastructure gets a poor rating overall (93rd out of 134), in particular with respect to port
facilities and road infrastructure. Telecom is another weak but essential infrastructure for
services (USAID, 2005). Investment in education and management skills is equally important
for services and is briefly discussed below.
Education. Viet Nam has low rating in higher education and training. Given the growing
importance of innovation for the Viet Nam’s competitiveness, the country’s low university
enrolment (rated 106th) and the poor quality assessment of Viet Nam’s educational system
(ranked 120th out of 134) require urgent reforms (WEF, 2009). Intensive English courses (as
well as Mandarin courses) should be introduced in the first years of primary education when
children can easily learn. Better professional training – e.g. based on a traditional German
model (schooling combined with internship in a chosen trade) - might be offered to teenagers.
The quality of university teachers should be up-graded and their selection based on scientific
performance rather than political opportunism or personal relations. Private universities which
progressively enter Viet Nam force desirable competition in higher education.
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Management skills. Viet Nam should put emphasis on modifying its managerial culture if it
wants to succeed in global service markets. Human capital is the main determinant of success
in services since services are essentially “people’s business”. The first issue concerns the
managerial culture of state-owned enterprises in Viet Nam. Empirical studies have revealed
that the bureaucratic, familial, conservative and authoritarian styles of management were
predominant in the state service sector, where the heritage of a centrally planned system is
still visible (Quang, T. & Vuong, N. T. 2002). There is too much emphasis is on hierarchical
relationships, formal communication and strict control. Even private firms in Viet Nam, with
their “familial” style and parental concern for their employees are not well-suited for service
trade. Such management style is clearly inappropriate for the today’s competitive
environment, particularly in services where the provider-client relationship and the provider’s
empowerment are the key to success (Quang, T. & Vuong, N. T. 2002). Service companies,
whether state owned, private or joint ventures, should come up with a more people-centered
management and increasingly use human resource development and management techniques.
Service exporters need to change the key components of their organizations such their
structure, people and business process to become modern service provider. They also need
quality improvement programs based on conceptual tools such as blueprinting, benchmarking,
or service design (for more on these management echniques see, for example, Lovelock &
Wirtz, 2004).
5.6.5 Developing Services Offered to Foreign Firms in Viet Nam
Many private service providers being SMEs tend to opt for least expensive method of
exporting which is selling services to foreigners already in Viet Nam (service category 1 and
2 in Table 5). Vietnamese service firms are exporting a wide range of services, especially via
Mode 2 to foreign-owned firms in Viet Nam ( Phan Chi Lan, Riddle, 2005). Such services
include obviously tourism but they also comprise services provided to foreign business in
Viet Nam; mini-office options (e.g., World Trade Center), security services, catering services,
maintenance services, financial reporting, business consulting, and auditing services (MPI and
UNDP 2006). In that context, professional services are a category that poses particular
challenges. Their main barrier to market entry is recognition of professional credentials,
which is not only a matter for trade negotiations but also of appropriate education, experience
and domestic regulation. It may be recalled that in a number of the former Socialist countries
of Eastern Europe “old style” accountants, “experts” and certified professionals attempted to
block access of younger and better educated employees into profession by controlling
examination and certification system (Kostecki, 1996, Middlehurst, 1996). What strategy to
follow to encourage trade in such services? Four critical problem areas are considered below.
1. Professional skills. Up-grading professional skills for high-skill services such as
financial services or auditing is encouraged by allowing the leading business firms
(and business schools) to enter the Vietnamese market – which is already the case- an
assuring than young generation is able to benefit from that opportunity. Monitor
progress of the Vietnamese managers in foreign business organizations in Viet Nam.
Favor world-class certification of professional training in Viet Nam.
2. Support for entrepreneurship. Vietnamese entrepreneurship is a sine qua non
condition to ensure quality service in Viet Nam. The local providers have to capture
foreign customer’s perspective of service quality. Initiate - with government support
and the participation of service sector and local associations - training in service
quality improvement. Ensure that technical assistance is not limited mainly to
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regulatory issues. A car that is to run should not only be equipped with sophisticated
brakes (dealing with regulations) but it needs, first of all, an engine (business people
that make the service trade happen). Good regulation helps but it is not enough.
3. Re-regulation. Review national policies in a way that encourages service companies to
contribute to development objectives in service trade through transfer of know-how,
and integration of the Viet Nam’s service operators into the world class networks
(6.5). Put emphasis on changing the Viet Nam’s business regime (i.e. the “real life”
rules of doing business) rather than dealing with purely legal (legalistic) issues.
4. Infrastructure. Invest, or let the FDI partners invest, in infrastructure: transport and
telecom, computer networks, professional training and couching. Business support
services in Viet Nam will become of truly world-class quality only when the
Vietnamese managers of, say, an audit firm, come back home after having managed a
European or Japanese operation of his multinational firm.
5.6.6 Developing Services to Visitors in Viet Nam
This category comprises services provided to foreign tourists, students or patients. Examples
of possible strategic objectives are briefly considered for a range of selected niche markets.
Tourism. The natural, architectural sceneries and hospitable population in Viet Nam serve as
plentiful tourist attraction. However, given a growing competition from China and other
neighbour countries, Viet Nam should develop a diversified tourism offer, such as “green”
travel, submarine sports or cultural travel. Develop selected activities; cooking schools,
courses of traditional medicine, etc. Technological progress also calls for new approaches.
Competition in tourist service is increasingly focused on creating travel resources
corresponding to clients’ preferences instead of offering predetermined travel routes. Viet
Nam should continue to favor investments in infrastructure which is environment-friendly.
Don’t repeat the errors of the mass tourism developments elsewhere. It is difficult to reverse
the trend once the nature is destroyed. Encourage Vietnamese style hotel architecture, give,
whenever possible, local Vietnamese flavor and invest in quality renovation of the old
“colonial” hotels. Favour Viet Nam as a “green” traveller’s destination; encourage foreign
developers if they come up with sustainable projects. Such tourism appeals to a growing niche
of richer clients.
Medical services. A number of developing countries have exported quality medical treatment
with some success. Over the recent years Viet Nam was able to attract patients from abroad,
(notably Vietnamese living in USA, Canada or Australia), due to low medical fees and
traditional medicine. The strategy to establish high-tech specialized Vietnamese centres for
health is a promising and realistic strategic objective.
5.7 Ser vicing For eign Owner s of Equipment Tempor ar ily Tr ansfer r ed to Viet Nam
It is often suggested that Viet Nam should develop a business and logistics hub for the Greater
Mekong sub-region. Two examples of related service trade strategies for a niche market are
suggested below.
The ship maintenance services. There is a growing demand in the region for ship maintenance
services which might be best developed in Viet Nam in partnership with foreign firms. Recent
efforts to develop ship-building in Viet Nam speak in favour of this proposal.
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The air lines support services which range from catering and refuel to plain maintenance and
certification activities are another attractive area. Co-operation with foreign investors and
airlines (encouraged by the ASEAN Single Aviation Market (SAM)) seems to be an effective
mode of entry into that business line.
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5.8 Developing Tr ade-r elated Ser vices Offer ed to Expor ter s and Impor ter
Trade-related services are a strategic priority for Viet Nam (proposal 3.5 (ii) and (iv)). They
comprise transport, freight forwarding, trade finance and insurance, trading, customs
brokerage and packaging. Viet Nam already has substantial experience in merchandize
exports and trade-related services are traded much like goods (transport warehousing). Such
services are usually included in merchandize trade development and can be promoted
effectively via trade fairs. But, a realistic strategy requires that two issues should be
reconsidered.
State versus private ownership of service exporters. There are many examples of successful
state-owned firms since “former generals” may well handle logistics and commodity exports
(The Canadian Wheat Board, state trading in oil, in uranium, etc). However, it is more
difficult to ensure an efficient operation in trading (distribution) for consumer goods, small
industrial equipment or customs brokerage where state trading is rarely efficient.
Box 9
Banking in Viet Nam
In spite of some progress, Viet Nam’s banks continue to suffer from limited public
confidence, significant regulatory and managerial weaknesses, substantial amount of nonperforming loans, non-compliance with the Basel capital standards, and the absence of
reliable auditing. Over the last fifties years the banking system in Viet Nam has consisted
of a combination of state-owned, joint-stock, joint-venture, and foreign banks, but the
state-owned commercial banks continued to predominate. They suffer currently from
high levels of non-profitable loans, most of them to state-owned enterprises. In the mid
2010s Vietnamese government decided to “equitize” all five state-owned banks and
promised to boost the transparency of its financial system by establishing a credit rating
agency and performance standards for joint-stock banks. However, large foreign banks
continue to balance their strong interest in serving multinationals in Viet Nam and
frustration with constant restrictions on their other activities. Obviously, it is not to say
that no progress – even if slow - takes place. International banks increasingly participate
on more equal terms in the Viet Nam’s growth. Vietnamese Government agreed by the
end of 2006 to open its financial services sector to global competition under WTO rules.
Leading developed country banks—including HSBC, Standard Chartered, Deutsche Bank
and BNP Paribas—and major Asia-Pacific banks like ANZ Bank, Cathay Bank and
OCBC Bank - are strengthening their ties with Vietnamese institutions and opening
independent branches in Viet Nam. In 2010, foreign banks shall be permitted to accept
local-currency deposits from Vietnamese consumers on the same terms as the
Vietnamese banks. Nevertheless, the Vietnamese financial sector continues to be
underdeveloped. Compared with banks in Thailand, Indonesia, the Philippines and Asia’s
other emerging economies, even the biggest Vietnamese banks are small. Assets of the
joint-stock commercial banks typically total well below $500 million, less than one-tenth
the size of their counterparts in China or other emerging markets. An important challenge
in Viet Nam are basic banking services to small-business customers.
Source: Andrade, N. Lottner, J. and Roland, Ch. 2008, Wozniak, L. 2007, Bellocq, F.-X.
Silve, A. 2008 and press reports.
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Financial services. Trade finance is essential for export development. Many developing
countries recognized that a competitive financial services sector was a condition sine qua non
for economic success, and that opening markets to foreign financial institutions would
strengthen both the domestic financial systems and trade or FDI activities. The liberalization
and de-regulation of the financial sector in Viet Nam is difficult due to fears of the
implications of liberalization for weak domestic financial institutions. Another concern
revolves around the implications of de-regulated and liberalized financial sector for capital
flows, prudential regulation and supervision (Box 9). But, the liberalization of financial
services should coincide with financial supervision in order to avoid the fluctuation and
financial crises caused by hot money, and the illegal activities, such as arbitrage of exchange
or money laundering.
Import of banking services is a right strategy for Viet Nam (section 3.5 (iii) and (ii)). Foreign
banks in Viet Nam will capitalize on the increasing openness of the Viet Nam’s financial
sector. They will bring capital and technical expertise. They will introduce new business
models to operate effectively in the still unformed Vietnamese market. Finally, international
bankers who originally focused on building their presence in Ho Chi Minh City and Hanoi are
now likely to intensify their presence in the provincial towns and rural areas where the bulk of
the potential customers are located.
Over the last few years, the Viet Nam’s insurance sector has seen a noticeable growth.
Despite its short history, Vietnamese life insurance market has already overtaken Indonesia
and Philippines in terms of market penetration. Foreign companies can now operate in Viet
Nam and are forming joint ventures with local insurance. A range of foreign life insurers,
including large Asian-based insurers (principally from Singapore, Taiwan, China and South
Korea), have set up representative offices in Viet Nam and are working toward gaining
operating licenses. Investors from US and Europe are actively lobbying for market access.
Following Viet Nam’s accession to WTO, foreign insurers expect to be allowed to establish
an increased number of wholly owned units and to benefit from declining business
restrictions.
In spite of the growing FDI, the Viet Nam’s image concerning protection of foreign investors
continues to be negative (section 5.1). Viet Nam should, thus, further improve its regulatory
framework for foreign investors if their involvement in service sector is desirable.
Viet Nam is also lacking appropriate FDI promotion since the country’s Investment and Trade
Promotion Centers are not pro-active enough. The most attractive type of investors - the ones
that provide the host country with the most significant positive externalities in terms of
technology transfer, professional skill development, access to global service networks, trust
and long-term commitment - should be convinced to come to Viet Nam. The promotion of
Viet Nam as a country of FDI requires a planned, systematic and intensive effort by central
government agencies and local authorities. Part of such strategy is the maintenance of a
single-desk government service that provides the newcomers with a simple scheme for
arranging the necessary local permits or negotiates the terms of government support for
various forms of investment such as tax benefits, low-cost land use, commitments concerning
investment-related infrastructure in the form of schools, roads, etc. (Brossard, 1998). To
market a country as a place of investment also calls for a proactive team of experts offering
business information (well in excesses of what is provided by the GATS inquiry points),
making presentations abroad to the potential investors, undertaking other forms of promotions
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(publicity in international mass media, public relations activities such as meetings of the
potential foreign investors with the Vietnamese ambassadors or trade representatives
(Kostecki, Naray, 2008).
5.10 Developing For eign Client-base for Viet Nam’s On-line Ser vices
There is a large window of export opportunity in that type of services but, due to limited
space, only two cases are considered – e-commerce and computer-related services.
E -commerce. A particularly promising strategy for Viet Nam is to encourage Internet
entrepreneurship in export of services. But, empirical studies show Viet Nam is lacking policy
environment supportive of e-commerce technologies and transactions and that this deficiency
negatively influenced the integration of e-commerce into Vietnamese business. The future
government strategy should aim at several objectives. Ensure more reliable connections to the
Internet and to telecom networks. Enforce protection of intellectual property rights - a serious
problem for companies offering software developments for e-business in Viet Nam. Improve
legal regulations on electronic information exchange and reduce the expense of credit card
services (a high per cent charge) which continues to discourage e-commerce. Introduce
incentives to e-commerce which is continuously hampered by high taxation, telecom fees, and
Internet connectivity costs. Introduce a suitable government mechanism to study and better
understand the business needs in e-business development. Initiate government program which
encourage e-business applications in Vietnamese enterprises lacking capacity to manage
projects and to communicate in English (Tran Ngoc Ca, 2006, USAID, 2005).
Computer-related services are another area with a particularly good potential as high-valueadded exports. Competitiveness in computer-related service of Viet Nam should be further
improved even if the volume and risks of investment in such sector is important (Etemad Sajadi, 2009). Given the presence of multinational corporations from Singapore, which are
internationally competitive in computer services, Viet Nam may continue to guide its FDI to
such high-value-added sectors. It should also develop its software outsourcing which would
permit to build a solid basis for export of computer- related services in overseas market.
5.11 Impr oving the Skills of Labor Inputs Offer ed Tempor ar ily to For eign Clients
This form of service export is most frequent for developing countries which typically lack
capital but have an abundant supply of labour. The main Viet Nam’s problem is that the
temporary migration of workers concerns mainly low-skilled labour. Such workers tend to be
poorly paid and protected in many host countries. There were in 2008 more that 500.000
Vietnamese workers abroad (Migrant Workers, 2008). Out-migration of service workers for
periods of up to five years might be encouraged by Viet Nam (as suggested by the
MPI/UNDP, 2006) but an appropriate government strategy should accompany that move.
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Box 10
Viet Nam’s Benefits from the Temporary Labour Migration
A temporary transfer of labor, if properly managed, may have important benefits for the
workers concerned and for Viet Nam as a country. First of all, work abroad may be
combined with a program of professional up-grading and learning of a foreign language
(also for children) and may offer a valid professional experience. Secondly, the
Vietnamese workers employed abroad may learn the social skills of functioning in a
foreign organization and operating in foreign markets. (In other terms, the temporary
transfer of labour to a foreign country may considerably increase Viet Nam human and
social capital). Third, foreign labour usually opts for relocation if there is an economic
benefit related to such transfer. In many cases the workers are able to accumulate some
capital while working abroad which provides the “seed money” required to open a new
business once back home. Finally, form a macro-economic perspective the foreign
workers remittance funds provide an important source of foreign exchange and the labour
transfer reduces the rate of unemployment especially among the group of younger
population that is free to relocate, willing to learn and ready to experience working in an
unknown environment.
Sources: The ICTSD (Geneva) documentation - www.ictsd.org.
What are the critical strategic issues for Viet Nam to improve that form of service exports?
The central strategic problem is again that of education and professional training. Professional
and social know-how and linguistic skills are the main variables that may be influenced by the
Vietnamese government’s support for infrastructure such as education, professional training
and couching. Developing good practices to facilitate labour mobility from Viet Nam is
another major area of concern. The issues comprises such practical matters as (i) up-grading
professional skills to comply with the host country needs and requirements (e.g. for drivers,
electricians, construction workers, nurses, etc.), (ii) intensive language courses, (iii) search for
potential employees abroad, (iv) government support in contract negotiations, social security
problems, health insurance, schooling arrangements for the employees’ children, logistics,
visas and other travel arrangements. Viet Nam is already involved in the ASEAN/ AFAS
arrangements on temporary labour migration in the region. The situation of Vietnamese
workers abroad might be further improved if additional framework agreements on labour
transfer were negotiated by Viet Nam (Ghosh,1997). The experience of the Philippine
government that has a coherent set of regulations that facilitate the deployment of temporary
labour, protect migrant workers while abroad and encourage their return and reintegration
might provide a good model to follow by Viet Nam (ISTSD Net, Bridges, 09. 2007).
Detailed requests for Viet Nam government action in the area has been presented by the Task
Force on ASEAN Migrant Workers, Viet Nam National Consultation on the Protection and
Promotion of the Rights of Migrant Workers March 3-4, 2008, Hanoi, Viet Nam (Migrant
Workers, 2008).
5.12 Developing Ser vices Offer ed by Fir ms Tempor ar ily Based Abr oad
There is a wide range of companies that temporarily provide services to foreign organizations
or individuals abroad. The businesses involved include construction companies and
architectural services, entertainment providers (music, dance and theatre), restaurant services
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(e.g. festivals of Vietnamese cuisine abroad), art exhibitions and sport events, transportation,
etc. There is little doubt that numerous Vietnamese firms may introduce or expand such
export activities. Construction and engineering services are probably among the most
important realistic options. Transportation is another window of opportunity. Since only
selected set of sector strategy may be considered in this short paper what follows refers only
to transportation.
Maritime transportation. The major share of the Viet Nam’s trade is carried by marine
transportation. The volume of transportation trade from Viet Nam has increased substantially
within recent five years. The increasing transportation of cargo and passengers between Viet
Nam on one hand and China/ASEAN on the other provides a particularly solid basis for
improving the transportation exports. Viet Nam clearly needs to reinforce its logistic
infrastructure to be a serious player in the region. Improved port infrastructure could enable
Viet Nam to take full advantage of the large China-ASEAN Free Trade Area to develop the
scale economy and to find access to low-cost supply of goods and services.
A large number of countries maintain restrictions on the use of non-national flag vessels to
transport cargo within the national jurisdiction. Many developing countries also are
signatories to the 1974 UNCTAD Code of Conduct for Liner Conferences, which allows a
share of up to 40 per cent of international liner cargoes to be reserved for national carriers.
Such regulations create a favourable context for the development of shipping transportation
by Viet Nam since the country’s increasing exports create domestic demand for shipping
services.
Air transportation. The vision of a competitive and modern air travel industry fits into the
Viet Nam’s plan to develop tourism and business travel. The growing middle class in Viet
Nam will demand air travel and foreign investors, looking for growing markets, are likely to
support such business expansion. But, is it realistic for the Viet Nam to count on successful
modernization of Vietnamese air travel in a world where air transportation seems to be one of
the most reliable ways to lose money? Any strategy in that area, (which should be developed
within the framework of the ASEAN Single Aviation Market (SAM) (section 3.4)) , should
consider several important limitations.
First, deregulation of air travel worldwide and the rise of Internet ticket sales made it easier
for any Vietnamese (but also foreign) upstart to challenge established, large airlines. The
result is an increasingly unfettered competition in the world air travel market. Second, the
Viet Nam’s air travel is likely to suffer in its international operations from the country’s rather
weak airport infrastructure which brings traffic congestion and a logistic nightmare and
results in increased costs. Flights from Viet Nam to the United States or Europe require large
air planes able to carry considerable amount of fuel and such long-haul flights have to be
filled with traffic from numerous small planes arriving at a hub for connections. This creates a
major logistic activity requiring numerous runway slots, boarding gates, airplane parking
spots, etc. An airline that lacks all of them may not succeed.
Finally, the state-run carriers and government policies in Viet Nam stymied air transport in
the past. However, a sudden de-regulation may prove tumultuous for a number of reasons.
First, to learn the ins and outs of upscale air travel business takes years. Viet Nam might thus
prefer to opt for a joint venture approach with a leading airline in the region. It may be wise
that the Vietnamese carriers that intend to become international players first learn their trade
in the domestic market. In order to succeed it is essential to create a passage experience to
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rival the world’s best airlines. The Vietnamese human resources are well placed in that
respect (see Hofestede’s scores for Viet Nam at www.geert-hofstede.com). However, to
develop the skills of the airline staff would require hiring expats (i.e. breaking the present
mold in Viet Nam) and hiring managers from leading Asian and European carriers. US pilots
and aping the innovations of up-market trail blazing airlines such as Singapore Airlines or Tai
Airlines might be also needed. The availability of cheap labor and maintenance in Viet Nam
might open the option of low-cost airline. It should be noted, however, that labour cost
typically account for 15 - 20 per cent of air travel and, therefore, a competitive edge relying
exclusively on such cost is of limited significance.
5.13 Establishing and Expending the Subsidiar ies of Ser vice Fir ms Abr oad
Export of services through the establishment abroad is a limited option for a developing
country such as Viet Nam. The reason is that establishment in a foreign country requires a lot
of capital and the latter is a scare factor of production in low-income economies.
Nevertheless, several strategic opportunities of this mode of exports may be of interest to the
Vietnamese companies. The first one is a foreign-based distribution chain for Vietnamese
products or services which benefit from strong recognition in international markets or may
such recognition rapidly establish (certain agricultural products, such as fish and sea food,
bamboo products, furniture, quality silk). Such distribution chains (wholesalers or shops) can
be developed through a franchising arrangement or another form of partnership with a foreign
company that provides capital and managerial know-how.
Another feasible expansion strategy is to focus on construction services. The need to maintain
a subsidiary abroad may be stimulated by the host country requirement that public works are
attributed only to those firms which maintain a local establishment (e.g. Russia). It may be
also induced by the Vietnamese firm’s desire to remain close to a given foreign market,
especially when networking and other forms of public relations are useful tools for gaining
important foreign contracts. Vietnamese firms might also maintain subsidiaries abroad in such
areas as computer-related services, engineering consulting, restaurants, medical services or
training in martial arts – to mention several plausible examples. International franchising
arrangements offer a good expansion formula when shortage of capital is a major bottle neck
in business growth (Brown, Kostecki, 1996).
5.14 Optimizing Impor ts of Ser vices to Viet Nam
The priority objective of the Viet Nam development strategy for trade in services should be to
increase the competitiveness of national economy through import of quality “strategic
services” that are in short domestic supply and provide lower cost inputs into the export
industry and all domestic production. FDI is a significant mode of supplying non tradable
services to Viet Nam and it is in that area that there is the most important import challenge for
the country. The domestic opposition in Viet Nam to such investors on the part of domestic
firms and labour to the prospect of increased competition from foreign suppliers may not be
as strong in services as in goods. Indeed, the gross negative impact on labour employed in
services is likely to be lower (given that foreign entrants will often use FDI and employ
mostly nationals). The net impact on labour in Viet Nam is likely to be positive (as total
employment opportunities expand). Moreover, FDI based service imports are also likely to
gain support of Vietnamese businesses that would benefit from higher quality and lower
prices services.
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Supply of services associated with growth in Viet Nam’s industrial sector and implementation
of major infrastructure projects continue to result in substantial market opportunities for
foreign providers. The selection of priority service imports offered in this paper is based on a
desk study and a series of interviews with experts in Viet Nam. Our critical assessment of
import priorities for services was guided by three underlying objectives:
(i) the service imports should aim at strengthening Viet Nam’s infrastructure by focusing on:
banking, telecom and computer-related services, transport, education & training and energyrelated services, (ii) service trade strategy for Viet Nam should also modernize the country’s
consumer service base and (iii) should permit importing of intra-sector inputs which can be
obtained through more FDI in distribution, franchising in consumer services and imports of
environment-related services, medical services, and safety and security services.
Telecommunication & computer-related services. Viet Nam’s spending on telecom already
ranks among the top ten in the world and the country continues to articulate its commitment to
boosting the development of the information and communication technology (ICT) industry,
particularly in the software production sector, Internet infrastructure, IT education promotion,
and other forms of human capital development. Foreign IT companies find growing service
opportunities particularly in sectors associated with Internet development. The Viet Nam’s
market for computer-related services has evolved into a two-tier market, whereby foreign
computer firms serve foreign clients operating in Viet Nam and national computer companies
offer a rather limited package of computer-related services largely to Vietnamese clients.
Transportation. Air transportation and shipping are viewed as a prerequisite to rapid national
economic growth and further development of exports. But, transport development is
dependent on a parallel development of physical infrastructure such as port and air port
facilities (section 5.12). Import of services and equipment to develop such facilities is a must.
Medical services. Vietnamese hospitals are generally overcrowded; a bed utilization rate of 15
per 10,000 inhabitants is very low by international standards. Consumption abroad (mode 2)
provides an important window of opportunity also for imports of health services since an
increasing number of Vietnamese people have the ability to travel to other countries to obtain
medical treatment in other Asian countries (Comparison with section 5.6 shows a need for
intra-industry that comprises both exports and imports – a usual pattern for complex services).
Environment -related services. Due to rapid economic growth, population increase, and
urbanization, Viet Nam faces significant environmental challenges. Currently, Viet Nam's
pollution “hot spots” included solid waste, water and air pollution, with water pollution and
solid waste treatment being the biggest challenges to be solved. Training and consultancy
services in the area of environmental management and protection will have to grow.
Safety and security services. Security services are experiencing a growing demand in sectors
such as construction, commercial and residential buildings, banks, municipal fire prevention
and fire fighting, maritime facilities and at airport facilities. A significant portion of the
demand for safety and security services in Viet Nam is also tied to the development of
foreign-invested construction and manufacturing projects (section 5.5).
Education & training. There is a significant demand for educational and training development
in Viet Nam. Strong industrial growth and expanding foreign investment is generating the
need for a variety of workplace skills that are currently in a short supply. Foreign universities
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are expected to further expand their operations in Viet Nam. Foreign training ventures should
increase. Vietnamese students will go abroad to gain education and access to social networks.
Franchising of consumer services. Franchising in Viet Nam is a relatively new phenomenon,
but one that offers significant commercial opportunities for developed country firms and local
franchisees alike. Previously deterred by government restrictions on royalty payments for
technology transfer agreements, including franchise license agreements, new laws and
regulations are now being formulated that may relax restrictions on franchising activities.
Distribution. Modernization of distribution in Viet Nam is likely to accelerate over the
coming years (proposal 3.5.(vi)). However, there is certain controversy as small shops and
distribution networks provide living for a large share of country’s population with little
employment opportunities elsewhere and which is largely part of informal sector. Viet Nam
might follow the pattern of China concerning the government strategy towards its distribution
sector which is that of progressive opening.
Energy-related services. A large number of services ranging from exploration for gas and oil
to conservation, energy-saving audits and R&D activities are included in that sector. There is
increasing concern all over the world for access to energy supply, energy saving processes
and energy impact on the environment and Viet Nam won’t escape that trend.
5.15 Gover nment Action Plan for Viet Nam’s Tr ade in Ser vices: Sever al Suggestions
5.15.1 Awareness
Viet Nam’s service exporters suffer from an important awareness gap. For example, the
country’s service providers to foreign clients rarely perceive themselves as exporters since, in
they view, export involves the transport of products beyond Vietnamese borders. Neither is
there a sufficient recognition of the potential role of the service sector in overall economic
development of Viet Nam and in the creation of an infrastructure for trade growth (education
& training, transportation, telecommunication, etc). Viet Nam needs to raise the awareness of
the important role that services should play in its development strategy and correct the
misconception that it cannot perform well in exporting other services than tourism and
transportation. Identify a set leading government-funded institutions that shall organize
seminars and workshop for business and government officials, promote publications and mass
media information on service trade opportunities, launch an informative website with frequent
up-dates on achievements and options for export business (ITC, 2001), give publicity to
successful exporters of Vietnamese services abroad and periodically offer rewards for
exceptional achievements in that area.
Short term
• Set up a pilot model of what could become the common exchange platform for
ministries, industry associations, mass media, universities and major business firms
interested in service exports. Lead-time: three month; Actors: MPI/ business school
• Create a web page on service trade as a link for better internal and external
information on the experience of participants and service traders. Lead-time: three
months; Actor: MPI (follow-up committee)/business school.
Medium term
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•
Establish supporting programs (financing, human resources) and put in place
excellence training centers for service firm executives. Lead-time: one - two year;
Actors: consortium of training institutions and business schools.
5.15.2 Strengthening Associations of Service Exporters
The second task is to strengthen service exporters’ associations in Viet Nam and to integrate
them into various consultative or decision-making fora of policy-making, trade promotion and
infrastructure development.
Short term
• Initiate a workshop on how to integrate service exporters into the policy-making
process and what are the industry’s major concerns to be solved. Lead-time: five
month; Actor: MPI (follow-up committee)
Medium term
• Establish the Vietnamese Service Forum (VSF) (alone the lines of The Coalition of
Service Industries in the US) dedicated to the development of Viet Nam’s domestic
and international policies that enhance the global competitiveness of the Viet Nam’s
service sector. Lead-time: one year; Actor: founding committee created by the existing
service industry associations.
5.15.3 Increasing Export Readiness
In most cases the Vietnamese service providers are not export ready. Vietnamese service
producers tend to be weak at marketing of their offer and lack experience and qualified
management. Specific action plan should be developed in that area by a set of government
agencies, management training institutions and state trading enterprises. Technical assistance
(ITC, UNDP, bilateral projects) may play a role in that process by offering trainer’s training,
coaching of pilot projects and facilitating networking in global markets. The success of a
services export strategy depends on other strategies government regulation, trade promotion
and state trading which may be a complement to the strategy in terms of support priorities and
resource allocation.
Short term
• Organize a workshop (with the assistance of ITC or a donor agency) for designing
training and couching program on improving export readiness in service firms in Viet
Nam. Lead-time: five months; Actor: VCCI /training institution.
Medium term
• Put in place the Service Export Training Program (SETP) within an existing
management training centre. Prepare a training material available on-line. Establish
links with the leading foreign providers of extension training services to executives in
the service industry (e.g. The Centre for Excellence in Services at the University of
Maryland or The Center for Services Leadership at the Arizona State University).
Lead-time: one - two years; Actor: MIP/ VSF in cooperation with a TA agency.
5.15.4 Promoting Service Exports
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Most foreign customers only know about the Vietnamese services providers through ‘word of
mouth’ in the community of investors, not through their own direct marketing efforts.
Vietnamese officials should ensure that their country is known as a supplier of quality
services in certain areas and market the potentially competitive service providers in Viet Nam
to foreign investors. Indeed, a competitive service infrastructure, including business and
professional services, may help foreign investors to keep their costs down if they can use local
service inputs and increase Viet Nam’s attractiveness for FDI. An action plan to promote
Viet Nam’s service exports can be successfully implemented only with the joint efforts of all
the key stakeholders: the Government, trade promotion institutions, sector’s business
associations, educational and training institutions, and service enterprises (state-owned and
public alike).
Short term
• Put in place a steering committee on service export promotion involving all the major
stakeholders in Viet Nam and define priorities of service export promotion. Lead time:
three month; Actor: VIETRADE
Medium term
• Establish an on-line promotion tool for trade in services containing company profiles,
partner search objectives and the forthcoming promotional activities. Lead-time: one
year; Actor: VIETADE.
• Launch several pilot projects in service export promotion to be implemented by
VIETRADE, the Viet Nam representative overseas offices, Viet Nam’s commercial
attachés abroad and state-trading enterprises exporting services. Lead-time: one year;
Actor: VIETRADE/a donor agency.
• Initiate support for companies to improve quality in services and obtain recognized
certification as leading service providers. Lead-time: one - two year; Actor:
VIETRADE.
5.16 Render ing Regulations Mor e Suppor tive for Expor ts of Ser vices
A government team should examine the factors of policy environment and their influences on
the development of trade in service. More specifically, the team should: (i) conduct a
preliminary assessment of policy environment, including gaps between existing policy
environment and the required needs of service exporters, (ii) assess the readiness (capacity
and willingness) of Vietnamese business enterprises to develop export of services, (iii)
suggest recommendations on policy measure and framework for development of exports of
services by Viet Nam’s enterprises.
Short term
• Organise a workshop on regulatory and other concerns of service exporters. Leadtime: three months; Actor: VCCI.
Medium term
• Conduct a review of regulatory concern of service exporters in Viet Nam. Lead-time:
one year; Actor: VSF
• Put in place a business advocacy program to favour improved regulatory environment
for service traders in Viet Nam. Lead-time: one- three year; Actor: VSF
138
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142
CHAPTER 6: SERVICES SECTOR CAPACITY ASSESSMENT: CONSULTATION,
COORDINATION AND CAPACITY TO IMPLEMENT SERVICES SECTOR POLICIES,
PLANS AND INTERNATIONAL COMMITMENTS
6.1 Intr oduction and Backgr ound
In 2005-2006, two major reports were issued to provide guidance on Services sector issues, in
the lead-up to the Five-Year Plan 2006-2010 and in the context of the nearly completed WTO
accession negotiations:
1. Strengthening the Coordination between the State Management Agencies Responsible for
the Service Sector, Ministry of Planning and Investment, and Central Institute for
Economic Management, May 2006
2. General Framework for a National Strategy for the Services Sector in Viet Nam up to 2020,
Ministry of Planning and Investment and UNDP, June 2006.
In 2007, two comprehensive analyses focusing on implications and implementation of WTO
Services commitments were conducted under the Viet Nam-EU Multilateral Trade Assistance
Project (MUTRAP):
1. SERV-1: Implication Assessment of Viet Nam’s GATS Obligations and Commitments, June
2007
2. SERV-2: Assistance to Scrutinise National Legislation against GATS Obligations and
Commitments, January 2008.
Together, all these analyses offered a comprehensive overview of the services sector in Viet
Nam, and the challenges to be addressed in order to achieve its development potential and
meet international commitments.
The above and other more recent reports, such as the 2009 Midterm Review of the Five-Year
Plan, highlighted and reiterated a number of key success factors. These included the
Government’s capacity to:
•
develop good-quality, evidence-based policies, plans and regulations
•
coordinate effectively within and among agencies, and with local authorities, to
ensure policy, planning and regulatory coherence and consistency – on paper and in
practice
•
consult with stakeholders, including the private sector, to enhance transparency and
effectiveness of procedures, rules and regulations
•
manage implementation of policies, plans and international commitments
•
supervise, monitor and evaluate results, based on hard data.
This chapter looks at progress achieved in these particular areas since 2006 and presents
further recommendations and suggestions in the context of developing the CSSSD.
Definitions
In the Vietnamese national accounts statistical system, ‘Services’ include:
143
•
•
•
•
•
•
•
•
•
•
transport, storage, warehousing
communications, including information and communications technology
finance/banking, insurance
business and professional services, including real estate services
science and technology, including R&D
social services, including education and healthcare
tourism and leisure, including hotels and restaurants
commerce, including wholesale and retail trade (distribution)
community and personal services, including culture, sports, party activities, private
services
public administration
Construction, electricity, gas, water, mining services and manufacturing services are
under ‘Industry’.
Source: General Framework 2020 report
Scope and Methodology
Objectives and scope of this assessment
The objective was to assist the Government in its preparatory work for the 2011-2015 FiveYear Plan (and vision to 2020-30), by providing assessments and recommendations on
official consultation, coordination and capacity to implement international services
commitments and services sector strategies.
Methodology and approach
The approach involved checking previous assessments and recommendations against the
current situation to see how things had evolved since 2005; which recommendations had been
acted on, which had not and why; which assessments and recommendations were still valid;
and what else needed to be done to attain the objectives set out in the Five-Year Plan, the
sectoral strategies and trade and investment commitments.
This assessment required:
1. desk review of past studies and recommendations (especially those carried out with
MUTRAP and UNDP assistance in 2005-2006), the 2008-09 Midterm Review of the
current Five-Year Plan, Viet Nam Business Forum submissions, various service sector
outlooks, international organisation reports, etc (see list below)
2. interviews of public and private sector representatives to determine action on previous
recommendations, progress since 2006, and priorities and challenges for the next five years.
Entities consulted:
• Ministry of Planning and Investment: Services Sector Department
• Ministry of Industry and Trade: Trade Promotion Department
• Ministry of Planning and Investment: Central Institute for Economic Management
(CIEM)
• Ministry of Planning and Investment: General Statistics Office
144
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Ministry of Information and Communication: National Institute of Information and
Communication Strategy
Viet Nam Bankers Association
Ministry of Industry and Trade: ASEAN and WTO Departments
Viet Nam Association of Certified Public Accountant
Viet Nam Lawyers Association
Viet Nam Chamber of Commerce and Industry
Ministry of Natural Resources and Environment: Planning and Finance Department
(Services Task Force Member)
Ministry of Planning and Investment: Department of Industrial Zones Management
(Telecoms/Finance specialist)
State Bank: Banking Development and Strategy Department and Banking Institute
(Services Task Force Member)
Ministry of Industry and Trade: WTO Services Director, Mr Kanh
Ministry of Transport: Planning Department (Services Task Force Member)
Ministry of Transport: Legal Department
Australian Chamber of Commerce: Chairman
MUTRAP PTF services sector experts (transport, telecommunications, banking,
securities, insurance, public services, legal framework)
Reports reviewed:
• Strengthening the Coordination between the State Management Agencies Responsible for
the Service Sector, Ministry of Planning and Investment, and Central Institute for
Economic Management, Hanoi, May 2006
• General Framework for a National Strategy for the Services Sector in Viet Nam up to
2020, Ministry of Planning and Investment and UNDP, Hanoi, June 2006
• Viet Nam/EU MUTRAP Serv1: Implication Assessment of Viet Nam’s GATS
Obligations & Commitments, June 2007
• Viet Nam/EU MUTRAP Serv2: Assistance to Scrutinise National Legislation against
GATS Obligations & Commitments, January 2008
• Results-Based Midterm Review Report for Implementation of the Five-Year
Socioeconomic Development Plan 2006-2010, Ministry of Planning and Investment
(Project 00040722), Hanoi, May 2009
• MPI Services Action Plan 2009-2011, July 2009 (see Attachment 1)
• Viet Nam Business Forum submissions (December 2008 and previous years)
• MUTRAP PTF experts’ reports on key services sectors
• WTO Working Party Report and Viet Nam’s GATS Schedule of Specific Commitments
• UNCTAD Viet Nam Investment Policy Review, 2008
• WEF Competitiveness Report 2008-09
• WB Doing Business Report 2008-2009
• Transparency International Corruption Perceptions Index 2009
• Articles and reports covering progress on services development and implementation of
145
WTO commitments.
6.2 The Task Ahead: Ser vices-Related Objectives, Tr ends and Pr ior ities
Viet Nam increasingly recognises that its future international competitiveness will depend
heavily on the quality of its services sector, including infrastructure and human resource
development. To this end, the Government has developed services sector strategies and
incorporated services priorities in its medium- and long-term socioeconomic development
planning, monitoring and review. It is thus taking a more systematic approach to services
development.
While some entrenched obstacles and problems persist, progress is nevertheless occurring.
Recent statements and reviews indicate that the authorities are well aware of the problems that
need to be addressed in order to accelerate services development. Many of these relate to the
legal framework (quality, consistency, coherence, transparency), central-local government
coordination, and institutional/human resource capacity to develop and implement policies
and plans effectively.
6.2.1 Services Trends and Targets
In 2000, services accounted for 41% of GDP and 20% of employment. In 2006, the objectives
were for services to attain 39-40% of GDP and 26-27% of employment by 2008; 42% of GDP
and 37% of employment by 2010; and 48% of GDP and 52% of employment by 2020 39.
The Mid-Term Review of the 2006-2010 Five-Year Socioeconomic Development Plan 40 in
2008-09 documented high GDP and trade growth in 2006 and 2007 due to structural
adjustment, trade facilitation and expansion of value-added export activities. Services
expanded in line with GDP growth ,at about 8% p.a.
In 2008, services’ share of GDP was still around the 2005 level of 38%, though its share of
employment was on target at 26-27%. By comparison, agriculture, forestry and fisheries’
GDP share rose from 21% in 2005 to 22% (it was expected to fall to 18% by 2008), and
industry/construction’s share slipped from 41% to 39.7% (the 2008 target was 42.5-43%).
This state of affairs was attributed to the global economic slowdown, volatile commodity
prices, and internal infrastructural, institutional and human resource weaknesses.
The Midterm Review injected a reality check for services growth, lowering the 2010 targets to
a more achievable 40% of GDP and 27% of employment. MPI officials said in early July they
will set new targets for 2015 and 2020 in early 2010, based on new Five-Year sectoral plans
and updated statistical data. A Services Action Plan issued in mid-2009 assigned relevant
Ministries specific tasks in this regard and set out ambitious objectives and activities aimed at
addressing issues raised in the Review and other reports (see Viet Nam News article below and
the 2009-2011 Services Action Plan at Attachment 1).
Midterm Review of Services Sectoral Performance in 2006-2008
39
Results-Based Midterm Review Report for Implementation of the Five-Year Socioeconomic Development Plan
2006-2010, Ministry of Planning and Investment (Project 00040722), Hanoi, May 2009
40
ibid
146
1.1.2.2. Growth of Services
“Within the service sector, business-supporting services such as transport, storage,
communication, finance and banking (except for 2008) have been growing rapidly during the
three years in consideration. Nonetheless, the vibrancy of the activities in finance and banking
has had only a modest impact on the real economy…The share of the service sector in GDP in
Viet Nam has a different implication than the high share in industrial countries, where
services are dominated by business supporting services such as information technology,
communication, finance and banking, insurance, consultancy, research and development,
which enhance enterprise competitiveness. In Viet Nam services are dominated by petty trade
and low-skilled low-value-added activities to meet consumer needs. These services generate
employment for unskilled labourers who are not qualified for jobs in factories or high valueadded services.
“High value-added business-supporting services which are critical for businesses in enhancing
competitiveness of the whole economy remain underdeveloped and are not capable of
meeting the needs of the economy. Consequently, costs of intermediate inputs such as
transportation and business services remain high.”
Source: Results-Based Mid-Term Review of the Five-Year Socio-Economic Development Plan
2006-2010, pages 9-10
6.2.2 Evolving Priorities
The 2006 General Framework for a National Services Strategy 41 said it was critical to give
top priority to services sector development and to change political and economic perceptions
– ie, to enhance awareness that services are vital to increasing competitiveness and delivering
industrialisation. Consultations in mid-2009 indicated that this transformation was occurring.
One official noted: “Before MUTRAP II, people only thought of goods when they heard the
word ‘trade’. Now they also think of services. As a result of MUTRAP II, government people
now recognise the need for institutions to take into account services, relate them to trade, and
develop relevant statistics.”
Services sector priorities are evolving as the economy develops and as understanding grows
regarding the role of services in development. The 2006 General Framework (pg 76)
suggested prioritising the services sectors with significant multiplier and ‘breakthrough’
potential for overall economic development: telecommunications/ICT, education and training,
and business services. The Government’s priority list at the time comprised
telecommunications, finance, air and maritime transport, construction and tourism.
In early 2009, the Midterm Review of the 2006-10 Five-Year Socioeconomic Development
Plan suggested that priority should go to backbone and business support services (i.e.,
transport, storage, communications, power, financial services, logistics, professional services,
etc).
In mid-2009, a Ministry of Industry and Trade official said that the government’s services
priorities for the next Five-Year Plan should be the high-impact sectors that needed extra help
41
General Framework for a National Strategy for the Services Sector in Vietnam up to 2020, Ministry of
Planning and Investment and UNDP, Hanoi, June 2006
147
to achieve their development-impact potential. These were education and training, business
services, transport and logistics. He said most of the other leading services sectors –
telecommunications, banking and financial services, and tourism - seemed to be developing
well enough on their own. This view was shared by most of the government officials and
private sector representatives consulted.
In addition, the Ministry of Planning and Investment indicated that the Government’s role in
services sector development will increasingly focus on the enabling environment, including:
 developing an appropriate regulatory framework and enforcement mechanisms
 orienting education and training to meet the need for qualified, flexible and competent
professionals and technicians
 ensuring reliable, efficient, interconnected and reasonably priced backbone services such
as transport, power and communications.
Given these areas’ strong synergies and their powerful impact potential, effective interagency
coordination - horizontally and vertically – during the next development phase, will be crucial
for Viet Nam’s industrial, social and economic development.
Service Sector at Core of Economic Strategy (Viet Nam News, 6 July 2009)
The Government has issued an Action Plan for service sector development for 2009-11
focusing on legal tools, financial sources, human resources, the environment and natural
resources. The move calls for greater efforts to finalise the legal system and mobilise all
available sources, both at home and abroad, to develop the economy in general and the service
sector in particular. It also emphasises the improvement of the quality of the labour force and
guaranteeing that economic development will be in harmony with environmental concerns
and efforts to conserve natural resources.
The above requirements will be applied to a large range of services: finance and customs
procedures, banking, stock exchange, legal consultancy, trade arbitration, transport, science
and technology, information and communication, employment and human resource
development, distribution of goods, construction, urbanisation, real estate development, and
environmental protection, as well as cultural, social, sports and tourism services.
The Ministry of Finance has been asked to finalise an export credit insurance project,
diversify access to public services and upgrade the operations of public administration
agencies. The Ministry of Transport has been assigned to outline a master plan on transport
and associated support services, as well as a project on express coastal passenger transport
services, the Tan Son Nhat airport and the express road system. The State Bank has been
asked to design projects on launching cooperative banks and developing and improving the
quality of management of non-banking credit operations. The Ministry of Labour, War
Invalids and Social Affairs is to map out a 10-year strategy and five-year plan on
employment, vocational training and poverty reduction. It is also to finalise a project to help
poor districts develop labour exports in an effort to speed up poverty reduction and
sustainable development in 2009-2015. (See Attachment 1)
148
6.3 Pr ogr ess since 2006 and Suggestions for Action
6.3.1 Progress in Implementation of WTO GATS Commitments
A CIEM review of progress on implementation of WTO commitments two years after Viet
Nam’s January 2007 accession portrayed mixed results. 42 It noted that while the business
environment and legislative framework have shown definite signs of improvement, a number
of obstacles must be overcome if the country is to benefit fully from its WTO membership.
A key problem – according to CIEM and other officials - is confusion over the scope and
meaning of services commitments. This confusion has led to fragmented and frequently overrigorous interpretation of rules, especially regarding foreign investment. If one does not
understand the meaning, then the options are to (1) delay responding indefinitely, (2) simply
say no, or (3) apply the maximum restriction. This is particularly pronounced at the district
and local levels, but CIEM noted that even the Ministry of Planning and Investment and the
Ministry of Industry and Trade have been known to give different opinions regarding certain
commitments. This problem is largely due to lagging regulatory action (“lack of clear and
specific regulations”), professional and technical capacity limitations, and a lack of
understanding of WTO commitments and the potential development benefits of WTO
membership. “Some (state agencies in charge of licensing) consider the WTO a burden for the
country, not an opportunity to promote investment and national development.” CIEM also
pointed out that “complicated and cumbersome administrative procedures are still a problem
that Viet Nam needs to address to build a transparent, open and friendly investment
environment”. These findings echo those of the MUTRAP Serv-2 report of January 2008:
CIEM recommended establishment of a joint committee under the National Standing
Committee, comprising experts from MPI, MoIT and related state agencies, to deal with the
issues arising during the market opening process. This MUTRAP assessment agrees with this
recommendation, and proposes a sample model for the Government’s consideration (See
Trade Policy Consultative and Implementation Mechanism chart at Attachment 3.)
In related discussions, CIEM and other entities also recommended training officials at all
levels on the technicalities of WTO and other international agreements, so that they will be
more confident in implementing and applying the commitments. This MUTRAP assessment
supports these recommendations, and offers concrete suggestions under ‘Capacity Building’,
Section 4 of this report.
42
Building Blocks Laid for WTO Success, http://vietnamnet.vn/service/printversion.vnn?article_id=1148729,
Nguyen Dinh Cung, Director, Central Institute for Economic Management’s Department for Macroeconomic
Policy, VietNamNet Bridge, 9/01/2009
149
Multilateral Trade Assistance Project (MUTRAP II) Viet Nam – SERV-2
Assistance to Scrutinise National Legislation against GATS Obligations and Commitments
January 2008: Executive Summary (excerpts)
“The task of implementing GATS legal obligations and commitments into national law is
extremely vast and difficult.
“Viet Nam has already made significant progress with legal implementation (ie, lawmaking)
of its general GATS obligations, eg, on MFN treatment, transparency obligations relating to
publication of services legislation and regulation, payments and transfers, licensing
procedures, etc. Despite the legislative progress achieved on general GATS obligations
…doubts remain regarding the practical application…. uncertainties and lack of transparency
of administrative procedures, burdensome licensing and sub-licensing requirements being
introduced by new laws and regulations, slow and expensive procedures in the judiciary, and
other practical issues affecting the predictability and reliability of their business environment.
“Implementation gaps remaining in the legal and regulatory reform process:
•
•
•
•
•
•
•
•
•
Many gaps are not purely technical issues. Sometimes they stem from hesitation to
introduce a more liberal trade regime. Sometimes they result from unresolved policy
issues (eg, distribution).
Despite extensive publications and awareness-raising exercises on the GATS conducted
in different MUTRAP activities, there still seems to be a lack of understanding in many
quarters of the GATS and its implications. For instance, confusion seems to reign on
whether GATS commitments represent a floor or a ceiling for future liberalisation. It is
clear, however, that GATS commitments constitute the starting point and not a ceiling for
further liberalisation. (Note: The Trade Minister has publicly reiterated this many times.)
Many seem to believe that ‘applying GATS law’ (ie, commitments) precludes better
treatment of foreign service suppliers than the level committed to in the GATS. This kind
of trade-restrictive policies runs against the objectives of the GATS which clearly aim at
“progressively higher levels of liberalisation of trade in services” rather than more
restrictive practices.
There seems to be a tendency to apply the narrowest possible interpretation of GATS
commitments, which in some instances risks deliberalising the level of market access that
prevailed before WTO accession.
There appears to be a misconception that compliance with the GATS is achieved where
nothing in the existing legislation contradicts GATS obligations and commitments.
However, what is often required are positive changes to be made to the legislation.
While transparency requirements are met though publicaion of legal texts, the
proliferation of regulations on the same subject results in additional opaqueness.
In many instances the required amendments of existing laws for GATS implementation
are carried out through… decrees, circulars, letters, etc, “providing guidance” on
implementation. This results in legal uncertainties and lack of predictability regarding the
treatment of foreign services and service suppliers.
The modification of laws through ‘guidance’ also questions the value of legal clauses
included in various laws providing for the prevalence of WTO/GATS obligations and
commitments over incompatible legal provisions.
Improved intragovernment coordination and cooperation for implementation of GATS
obligations. Although the lack of such coordination has been recognised in many earlier
150
international and national analyses and discussions (eg, in a major study by the Ministry
of Planning and Investment), the problem seems to persist. Good intragovernment
coordination is particularly necessary in the services area…because the GATS
affects…almost all Government Ministries, and Viet Nam as a Member of the WTO
needs to be able to take a united position … on all GATS issues.”
6.3.2Progress in Coordination and Management of Services Sector Development
Section 3.2 examines progress on the recommendations that were made in the 2006 report on
improving coordination among Government agencies involved in services sector
development. This section looks at:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Government as facilitator
Planning
Policymaking
Participatory approaches and consultation
Interagency coordination
Quality control and role of professional associations
Implementation and enforcement,
Monitoring and evaluation
Statistics and indicators.
Each item introduces relevant recommendations from the 2006 Coordination study, examines
progress in light of the current situation, and proposes recommendations for action. In many
cases, the 2006 recommendations are still valid and are reinforced by the Midterm Review’s
‘Concrete Policy Solution’ proposals, which this report fully endorses.
The Midterm Review reaffirmed that enduring institutional, infrastructural and human
resource weaknesses were restricting the economy’s capacity to absorb capital, with important
flow-on effects. It called for intensified action to:
−
−
−
−
−
−
−
−
−
−
build backbone and business support services (transport, storage, communications,
power, financial services, logistics, professional services, etc)
streamline administrative procedures
strengthen skills through targeted vocational training and higher-quality education
inject new technology
raise product quality
diversify manufacturing and agribusiness activities
increase efficiency of investment through more horizontally and vertically integrated
policy planning, implementation and review
fortify supervision of state management agencies and SOEs
strengthen discipline and accountability in project management (eg, construction and
public investment)
improve fiscal performance and macro stability.
151
Midterm Review of the 2006-2010 Socioeconomic Development Plan
Relevant Policy Recommendations: Pages 120-125
5.3.2. Concrete Policy Solutions
5.3.2.1 Public Expenditure Policies
There (is a) need to strengthen supervision (and) M&E of public projects to improve
investment efficiency; to apply penalties of sufficient deterrence to cases of embezzlement,
waste and violation of laws and regulation. The owners of public investment projects as well
as the owners of state assets should be clearly defined with a view to strengthening their
accountability for investment and assets. Agencies implementing public projects should send
progress reports containing sufficient information for comprehensive evaluation of public
investment on a regular basis to MPI. An independent agency should be established to
supervise and monitor SOE activities.
In order to reduce current expenditure, implementation of lump-sum budget grant to qualified
administrative units and the transformation of public service delivery units to those operating
in accordance with Decree No 115/2005/ND-CP should be accelerated. In order to maintain
the work quality, it is necessary to conduct regular M&E of work results, attaching the
allocation of funding for the later period with the level of plan accomplishment of the
previous period. Targeting efficiency should be improved.
In the long term, it is necessary to implement far-reaching salary reforms within the state
sector to create sufficient motivation for public servants and officials to perform their duties
in a creative, efficient and responsible manner.
5.2.3.2 Mobilising Resources
Regarding FDI, there needs to promptly implement some more fundamental measures such as
change of thoughts and perception, and proposal of new viewpoints on attraction and
utilisation of foreign investment capital; research on strategies to mobilise and monitor the
use of FDI should be conducted; appropriate policies should be adopted to eliminate
undesirable projects as well as to encourage necessary projects, paying attention to quality of
investment (chosen sectors, investment partners, technological competency, usage intensity of
natural resources and scarce resources, forward and backward linkages with domestic
enterprises, spillover effects, environmental-friendliness, etc), raising awareness of investors
on corporate social responsibility, thus developing appropriate criteria to appraise FDI
projects as well as projects financed by other sources. The approval of all projects must be
based on these criteria.
5.3.2.3. Macroeconomic Policymaking
Coordination in proposing and implementing policies in a close and consistent manner
between ministries and branches (SBV, MOF, and MPI) should be strengthened.
5.2.3.4. Sectoral and Enterprise Policies
In order to have the best options with minimum costs, appropriate policies should be adopted
to guide FDI into areas that remove factors hindering development and help capital absorption
capacity of the economy through appropriate encouraging policies (such as partnership, BOT)
so as to reduce the burden for budget expenditure. In this connection, infrastructure
development is one area that allows taking advantage of a large investment source to remove
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bottlenecks, thereby Viet Nam will become more attractive to foreign investors. Similarly,
appropriate policies should be introduced to encourage FDI inflows to the low-value-added
areas to remove the second bottleneck of the economy.
Programmes improving competitiveness for all sectors of the economy, particularly those
with weak competitiveness, should be implemented. Policies should be in place to encourage
raising product value- added in all sectors through improving human resources, upgrading
technology, improving access to source technology, long-term collaboration with leading
partners in relevant fields, diversification and renovation of products. Policies boosting
development of sectors where Viet Nam has potential or comparative advantage should be
introduced. Linkages with foreign-owned enterprises should be utilised better, and deeper
participation in regional production network should be promoted. Business supporting
services such as finance, credit, science and technology should be strongly encouraged;
policies to attract investment into these sectors should be adopted.
5.3.2.5 Social Policies
Focus should be made on rapid development of human resources, especially long-term
vocational training and highly-skilled human resources to meet development needs in order to
attract investment projects that use a high level of technological competency and generate
products with high value added.
5.3.2.6 Institutional Policies
The quality of the participatory approach in the process of making laws and legal documents
should be improved. Public consultation must be made right from the period of policy concept
formulation to obtain consensus on basic ideas of the policy. If consensus cannot be secured
for a policy, the drafting of laws should not start. It will help prevent waste of resources for
drafting a law which cannot be issued because the consensus cannot be secured or for drafting
a law which cannot contribute to development.
Both quality and enforcement of legal documents should be improved. Accordingly, legal
documents must clearly specify implementer(s) and associated forms of incentive sufficient
for encouraging implementation and forms of punishment sufficient for deterrence purpose.
More attention should be paid to supervision and monitoring of implementation of policies.
Policies should be reviewed, assessed and revised regularly so that they can meet the need of
reality. The M&E system should be enhanced by giving clear functions and mandates on
monitoring and evaluating the performance of state agencies to a relevant state agency, and
the instruments should also be provided to them to enforce the decisions.
The information from state auditors and from M&E reports must be used for making policy
decisions and allocation of public resources. The auditing system should be strengthened so
that all state administrative agencies can be audited annually to show their performance. The
investment management decentralisation mechanism should be reviewed, evaluated and
improved to address problems suffered in public investment management. Capacity should be
built for the staff involved in project appraisals at local levels, linking the authority of project
investment approval to responsibility and remuneration and punishment system. Delegation of
state management authorities should be in balance with their capacity.
The master planning work should be reorganised and reconsolidated to make master plans
useful to local and sector development. Quality of master plans should be enhanced in every
aspect, and their effectiveness should also be strengthened. All master plans should have a
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long-term vision, be comprehensive, practical and feasible to provide fundamental inputs for
preparing plans. Master plans should be backed up by evaluating all economic, social and
environment issues and linking to forecasts of key inputs and factors for social economic
development (eg, capital, land, human resources, especially underutilised or scarce), as well
as outputs (domestic and foreign demand for relevant commodities and services, prices). All
this will help to make the best use of the country’s potential and diminish undesirable
impacts. The master plan of a sector or province should be made in connection and linkages
with other sectors and provinces as well as with the national master plan with a view to
identifying an optimal division of activities to explore local comparative advantage to the
most extent possible.
A relevant legal framework should be in place to enforce implementation of master plans, as
well as to supervise and monitor their implementation. Content of master plans should be
mainstreamed into five-year and annual plans of each ministry and province.
5.3.2.7 Other Policies
Information disclosure and transparency, especially information for policy analysing, backing
up business plans of enterprises and for the public to make the right judgment about
macroeconomic situation, should be ensured. An information-sharing culture should be
developed to improve coordination among state administrative agencies. All the key and
possible management decisions of state administrative agencies and their policies,
development plans and strategies should be disclosed on their websites. The policy analysis
and forecast capacity of public servants in ministries and agencies should be improved and
employed in policy advice.
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6.3.2.1Government as Facilitator and Chief Coordinator
2006 MPI/CIEM Report on Strengthening Interagency Coordination
Recommendation: In order to ensure good coordination in policymaking, the facilitating
role of the Government should be clarified... and should be stipulated clearly in the
Amended Law on Government Organization, based on the principles of good governance.
The mandate of the Government, ministries, and agencies should be defined, ensuring
transparency and accountability in their decision making, with power given alongside
responsibility.
The Ministry of Planning and Investment says there has been good progress in this area.
“Now each sector is managed
sectors. Since 2008, numerous
new functions. MPI’s role in
horizontally and vertically has
been restructured.
by one Ministry - though one Ministry can manage several
decrees have been issued to clarify mandates and formulate
coordinating and monitoring planning and implementation
been clarified. And the Ministry of Industry and Trade has
However, awareness of the mandates and functions within Ministries and the private sector
still needs work.”
Awareness Building
In preparing the next Five-Year Plan, a nationwide services awareness-building campaign
aimed at government agencies and the business community could highlight in an innovative
and attention-attracting fashion the development opportunities that Viet Nam’s international
services commitments offer and the challenges they present. With a better understanding of
the priorities, issues, interlinkages and roles, both sides can approach services issues with
more confidence.
Such a campaign should:
• highlight the crosscutting nature of all services sectors and the need for a coherent, joint
development effort
• identify clearly and concisely how government and business, individually and together, can
maximise the opportunities and deal with the challenges (particularly in the key priority
areas)
• share comparative experience and success stories to motivate people and inspire change.
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6.3.2.2Planning
2006 MPI/CIEM Report on Strengthening Interagency Coordination
Services sector plans need to be developed with vision, coordination, and clearly defined
and prioritised objectives linked to solutions and to existing strategic programmes and other
resource allocations.
Recommendation: The planning process should be changed to ensure greater participation,
transparency, empowerment and accountability in planning. In order to improve vertical
coordination between levels, especially between the central and provincial levels, resultbased planning should be introduced. Objectives in socioeconomic development plans
should be identified clearly, structured by priorities to prevent inefficient investment. Plans
should be monitored and evaluated closely so that any problems can be identified and
resolved on a timely basis and funds can be reallocated if necessary. Planning should be
linked to budgeting.
Given the fragmented, crosscutting nature of services sectors, no ‘one size fits all’ solution
exists. Any national services strategy would have to combine general and sector-specific
SWOT analyses, medium- and longer-term objectives, priorities, policy issues (eg, role of
private sector and FDI; education and training, trade) and action plans, with clear mandates,
milestones, monitoring and evaluation, and carrots and sticks.
The Programme of Action 2009-2011 issued in July 2009 sets out clear objectives and tasks
for each Ministry in developing strategies for the next Five-Year Plan (2011-2015).
In developing their plans, agencies should adopt good practices to ensure effective
interagency coordination, broad participation of the private sector and local authorities, and
transparency through publication and notification. They should also adopt results-based
planning approaches, with realistic, measurable milestones and indicators that can be ‘owned’
by the responsible implementers.
MPI, as the overall coordinator, will be responsible for driving and enforcing the planning
process. The proposed Services Policy Consultative and Implementation Mechanism (see
3.2.5) could play a useful role in this context.
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6.3.2.3 Policymaking
2006 MPI/CIEM Report on Strengthening Interagency Coordination
In Viet Nam legal documents are usually drafted by the agency whose functions and
mandates are regulated by that legal document, without a policy concept being agreed.
This often leads to problems of consistency and impartiality. (A ‘policy concept’ is more
comprehensive than a ‘law proposal’, and ideally promotes the longer-term national
interest. Its implementation may require several legal documents and initiatives.).
Recommendation: A two-step approach: (1) agree the policy concept (and objectives) and
(2) then start drafting legal documentation.
Recommendation: Draft implementing regulation (and enforcement mechanisms) while
preparing the legislation. Such an approach would assist planning and coordination and
lead to greater consistency and quality.
Regulatory policy is a key determinant of services sector development. Appropriate and
responsive policy and regulatory interventions can open markets, promote consumer
confidence and lead to greater competition and efficiency. Poorly designed or unnecessary
policies and regulations hinder innovation, increase costs, protect inefficient incumbents and
limit consumer choice.
WTO commitments prescribe good practices in creating and amending legal frameworks,
through proactive consultation, publication and notification. Viet Nam has subscribed to
these, as per Paragraph 518 of the WTO Working Party Report, October 2006.
While reiterating throughout the report that the uneven quality and enforcement of laws and
regulations was partly responsible for the problems, the Midterm Review lauded the gains in
public servants’ commitment to improve the quality and issuance of legal documents. It
expressed the hope that this commitment would focus increasingly on clarity, consistency and
enforcement, suggesting that more effective carrots and sticks would be required to deliver
the ‘rule of law’.
“The legal framework is not complete…not clear, not specific, not logical, not consistent, not
transparent, not predictable, not effective and not efficient. The enforcement of low-quality
regulations is very troublesome, costly, time-consuming and requires a lot of effort,
particularly with regard to investors and enterprises…and create opportunities for rentseeking by incumbents, investors and entrepreneurs who abuse regulations to serve their
interests and relations other than serving and protecting the interest of the whole society.”
(Midterm Review, page 54)
While consultation on drafting of legal documents is being progressively institutionalised
since it was made mandatory in the amended Law on the Enactment of Legal Documents in
2002 and 2005, a critical transparency gap still exists at the policy-formulation stage. This
results in less-than-optimum input during the legal drafting stage, due to lack of
understanding of the specific policy objectives and their link to the national interest. This is
not a new issue; it has been raised in several reports in 2004-2006, and it arose numerous
times during consultations in July.
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It is therefore recommended that the government take steps to substantiate policy decisions
and justify why a particular regulatory option was chosen, and communicate this information
to all the people involved in drafting and commenting on legal documents. Many countries
have institutionalised this form of policy justification, as a necessary prerequisite to law
drafting.
Implementation also remains a challenge. It often takes 2-5 years to put into effect the
implementing regulation, and enforcement mechanisms can take even longer. It is therefore
recommended (as it has been in the past) that officials draft the implementing regulation and
enforcement measures at the same time as the relevant law. In addition to speeding up the
process, this would result in more appropriate indicators for monitoring and evaluation of
regulatory effectiveness. It would also streamline coordination.
Policy and Regulatory Good Practice Checklist
To substantiate the need for new policy and regulatory action, the following seven points
should be covered in documents circulated to policymakers, drafters of legal documents and
the constituencies being consulted:
1. The problem or issues that gave rise to the need for action
2. The policy objectives - to address the problem/issue, and how these meet the National
Interest
3. The options (regulatory and/or non-regulatory) that could viably achieve the desired
objectives
4. The impact of each option (costs, benefits and risks) on consumers, business,
government, and the specific constituency (easy-to-use assessment tools available)
5. The consultation methodology and sum-up of feedback
6. The recommended option (justify why it was chosen)
7. The proposed strategy to implement and review the preferred option (action plan for
regulation, enforcement and indicators for monitoring and review of effectiveness).
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6.3.2.4Participatory
Transparency
Consultation,
Information
Sharing,
Knowledge
Management,
2006 MPI/CIEM Report on Strengthening Interagency Coordination
The legal framework for services is very complex, given the sector’s cross-sectoral nature.
Laws, decrees, circulars and decisions are issued, without much coordination or
consultation, by line ministries, agencies and provincial governments. The result is poor
transparency and consistency (some provisions actually contradict each other). Regulatory
oversight and implementation are weak.
Recommendations:
• The planning process should ensure greater participation, transparency, empowerment
and accountability.
• Regulation on information-sharing should be developed to facilitate a common
understanding of issues and common commitment to action.
• To enhance participation, and in consideration of new legislation (Resolution
05/2005/NQ-CP), it is time to renovate the organizational structure of ministries to
promote autonomy of public service delivery institutions and encourage the participation
of private sector and foreign investors in service delivery.
In preparing the annual socioeconomic plan, in which services features prominently, MPI
consults with other agencies, provincial agencies and SOEs to secure service sector plans,
indicators, etc. The consultation process is formal (written requests and written answers), but
to overcome obstacles posed by long delays in getting replies to written requests, in practice it
is more informal. Officers often contact other officers in line agencies, etc, to get input. A
working draft is then sent around for formal comment and corrections. MPI also convenes
roundtables with academics and business (eg, Viet Nam Business Forum) to discuss
development issues.
MPI does not consult the private sector ‘formally’ as part of the socioeconomic planning
process. It expects the line agencies to do so in developing their sectoral plans. However, with
some exceptions, line agencies rarely conduct formal consultations with the private sector
(much less foreign invested firms) in developing plans; rather, any consultation usually takes
place after a plan is designed. Business people lament the lack of transparency in planning,
especially at the local and provincial levels.
Many governments find it difficult to obtain useful comments. In fact, governments have to
seek comments proactively if they really want and need them. Publishing ‘invitations to
comment’ in national and local newspapers can be effective in some instances – if only to
encourage interested parties to look at the website.
Hosting public hearings at specific stages of policymaking can also be a useful way of
gathering comments. For instance, the Government could take a more proactive approach visà-vis the Viet Nam Business Forum, using it as an integral part of the consultative process. In
addition, commissioning analyses by academics, research institutions and business
associations is a good way to collect views.
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Seven Principles for Best Practice in Policy Consultation
1.
2.
3.
4.
5.
6.
7.
Continuity - Consultation should be a continuous exercise starting early in the policy
development process.
Targeting - Consultation should be widely based to capture the diverse stakeholders
affected by the proposed changes. This includes relevant Government departments and
agencies, subnational and local governments, and other stakeholders in the private and
nongovernment sectors.
Timeliness - Consultation should start when the policy objectives and options are
being identified. Throughout the consultation process, stakeholders should be given
sufficient time to provide considered responses.
Accessibility - Stakeholder groups should be alerted to the consultation and fully
informed on the proposals via the range of means appropriate to each group (eg,
announcements in press, website postings, email, normal mail, faxes, telephone calls,
etc).
Transparency - Policy agencies should explain clearly the objectives of the
consultation process, the objectives and means of the policy changes, etc. In the end,
they should provide feedback on how they have taken consultation responses into
consideration (see Policy and Regulatory Good Practice Checklist at 3.2.3).
Consistency and flexibility - Consistent consultation procedures can make it easier for
stakeholders to participate. However, this must be balanced with the need for
consultation arrangements to suit the circumstances of the particular proposal under
consideration.
Evaluation and review - Policy agencies should evaluate each consultation process
with a view to making future exercises more effective.
Source: http://www.finance.gov.au/obpr/consultation and other good practice guides.
6.3.2.5Interagency Coordination Mechanisms
2006 MPI/CIEM Report on Strengthening Interagency Coordination
Decree #144/2005/ND-CP, issued in 2005, regulates coordination among state management
agencies in formulating and overseeing the enforcement of policies, strategies and plans. All
central and provincial state management agencies, including agencies responsible for the
service sector, are regulated by this Decree. The Office of Government (OOG) plays an
important role in overseeing this coordination.
The main coordination practice...in drafting legal documents, strategies and plans and
executing other state management functions is through the establishment of a task force or
drafting team, getting written comments on issues and holding consultation meetings or
workshops. Task force members and drafting teams are often high-ranking managers who
are often too busy to participate in coordination works. Coordination via IT and information
networks and fora are rarely used.
Recommendation: The report suggested overcoming entrenched attitudes and practices by
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adopting new approaches to coordination. For example: IT networking has advantages such
as rapid communication and providing a forum to share views. However, it requires
adequate facilities, such as computers and websites and capacity. IT and other networks
could be established, for example, to link closely related service sectors where good
coordination is vital for sector development (eg, banking, finance and
telecommunications/ICT).
Consultations in mid-2009 indicated that little change has occurred since 2006. Everyone
agrees that coordination is necessary, but it is evident that efforts to date have not worked.
MPI officers agreed that IT networking should be adopted and indicated they would be
grateful for assistance to implement such networks for services consultation and coordination.
Several people consulted wondered if the various ministries dealing simultaneously with 11
procedures related to administrative reforms were coordinating effectively, suggesting that the
Office of Government, as Chief Coordinator, could use its power and upgrade technology to
that end.
Generally, coordination remains weak, even among units in a department. This is historical –
every unit, department, agency has its own targets, and even though there may be overlaps,
they do not share information or coordinate on data collection to ensure consistency. This
‘silo’ system is difficult to break down as the environment is not conducive to changing
entrenched, familiar ways. For example, many younger officers receive good training
overseas (eg, at top universities in the US, Europe, etc) and come back with good ideas and
good intentions. However, they are quickly absorbed by the traditional working culture and
soon fall back into line. Even when they do try to put into practice what they have learned
overseas, some bosses still want to do things the old way, so motivation quickly wears off.
In planning and preparing studies, “the common practice is to write a document and circulate
it for written comment. Sometimes this process is complemented by a workshop or seminar.
Getting comments is not easy. People don’t like to put things in writing, unless it is formal
and official. The higher officials don’t even use email regularly, so electronic ways of seeking
comments is not developed. The biggest problem is that people don’t ‘see’ each other when
seeking feedback; they don’t exchange views in person; they don’t talk to each other on a
regular basis.” Consultations on this issue revealed across the board that people got better
input when they asked for it in person on the spot – ie, by phone or face to face. Therefore,
mechanisms need to be developed that will encourage this sort of interaction as part of the
consultation process – without bogging people down in more useless meetings.
Working groups or task forces exist, but usually the level is too high and too many people are
involved to arrive at clear decisions. Even when it is the right level and number, they still
may not take decisions, because the practice is for decisions to be taken on high. Even when a
recommendation is sent up for decision, the resulting decision may not reflect the
recommendations at all, demotivating those who compiled the recommendations.
Proposed Consultative and Coordination Mechanism
In the past, for WTO accession, a Working Group on Services was led by MPI, with some 20
members from line ministries and SOEs. However, since accession in January 2007, no
effective working group has existed. In December 2008, an interagency Task Force on
Services was established to advise on the Services Sector Strategy and to oversee and drive its
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implementation. Headed by the Vice-Minister of MPI, it is comprised of Directors and
Deputy Directors of a wide variety of official bodies and SOEs. It has met once, just after its
establishment. Its members do not have a clear idea of its role and task. Perhaps this will be
clarified once the Services Action Plan 2009-2011 gets underway.
In the meantime, the preference appears to be for a tighter, more results-oriented Services
Consultative and Implementation Group to deal with the bottlenecks and other issues
affecting services sector development. It is therefore recommended that MPI establish a
permanent Services Policy Consultative Group (see sample chart at Attachment 2). It should
be directed by an official with decision-making authority, supported by a small group of highlevel executives who will delegate work on specific pressing issues to results-oriented
working groups comprised of relevant stakeholders. The Consultative Group’s Work Plan
should be time-bound and focus on finding innovative, yet realistic and sustainable, solutions
to key issues and bottlenecks.
One of the Group’s tasks should be to foster the development of local analytical capacity in
services sector policy issues by regularly commissioning think tanks in academia, ministries
and institutes to conduct research and provide advice on pressing issues.
Regarding a Work Plan, the Consultative Group could, for example, delegate Working
Groups to:
• conduct an audit of education and training needs for the 21st Century in consultation with
industry, the professions and educational institutions, and deliver recommendations for
change
• explore how professional and industry associations could play a stronger role in improving
and assuring quality standards and enforcing ‘codes of conduct’
• develop a more rigorous and transparent approach to services sector policymaking,
lawmaking and enforcement, to facilitate implementation of the next Five-Year Plan (find
ways to institutionalise in practice the use of internationally recognised ‘good practices’ in
policy and regulation development, consultation and interagency coordination)
• explore how a strategic FDI-attraction policy could accelerate the development of the
priority areas through well targeted injections of investment, technology and skills
• document and provide solutions for impediments to implementation of WTO services
commitments (see CIEM review above)
• find ways to resolve connectivity issues in a variety of key sectors (develop guidelines for
coordination in planning, implementation and maintenance, as well as in technology
matters; establish indicators of ‘good connectivity’).
6.3.2.6 Quality Control and Professional Associations’ Role
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2006 MPI/CIEM Report on Strengthening Interagency Coordination
The 2006 report said that services standards set by corresponding ministries/departments
were under-developed and not aligned with international standards, though efforts were
underway to rectify this. The report highlighted the potential for greater private sector
participation in standard-setting and enforcement.
Recommendation: Service quality control should be defined as a mandate of the relevant
government agencies. The capacity of professional service sector associations should be
built to take part in developing the standards of service quality and control. Clear standards
of service quality will help in coordination among government agencies responsible for the
service sector state management.
In many service sectors, the main drivers of regulatory policy are standards and disciplines
developed by international organisations (eg, WTO, ISO, ISAR, etc), trading partners and
professional bodies. Countries can develop a competitive advantage by taking a responsive
approach to these standards – harmonising domestic measures with them (eg, with
international accounting standards) and developing relevant quality-assurance, equivalency
and mutual recognition mechanisms.
In Viet Nam, Ministries set criteria for recognition of professional qualifications, equivalence,
quality and licensing, in consultation with relevant professional associations (eg, Lawyers
Association deals with Justice Ministry, Architects with Construction Ministry, Bankers
Association with State Bank, CPAs with Ministry of Finance, etc). According to MPI and
professional associations, while Ministries are regulated to coordinate and consult the private
sector and associations on these matters, the process could work better, as could
harmonisation with international standards.
Many professional associations believe that the present top-down, ad hoc consultation system
is not conducive to proper coordination and that only when the government needs consensus
does it contact an association – especially regarding new mechanisms or policies. Moreover,
some key planning and policymaking officials may not aware of associations’ existence or
role. Regarding consultation processes, business associations do not tend to study ministerial
websites very often. It might therefore be more effective for Ministries to put notices in
newspapers to alert people to the opportunity to comment on policy ideas and drafts.
A number of associations put draft legislation, etc, on their websites and also send letters to
members inviting them to comment. However, as in most countries, response rates are
disappointing (maybe 20%). Most associations have experts on staff or on call, so they are
able to provide well considered comments and advice. However, they said they needed more
training and expertise-building in order to reach international levels of competence.
Roles of Key Professional Associations
Viet Nam Lawyers Association
(36,000 voluntary members: lawyers and people working in legal professions)
1. Participates in drafting laws (eg, commercial, arbitration).
2. Comments on some 20 draft laws per year for Ministry of Justice (MoJ) and other
Ministries, gathering comments from relevant members and compiling them into a single
set of VLA comments. All draft laws go through MoJ for review, quality control and
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comments. Normally, MoJ passes them to VLA for comment. VLA usually circulates to
relevant members (eg, criminal justice laws to criminal lawyers), or it may organise
workshops, including in regions.
3. Provides legal aid for poor and disadvantaged, with one legal centre in Hanoi and one for
HIV sufferers, plus 40 legal aid centres at provincial level.
4. Participates in committees to select judges and prosecutors.
5. Provides training and awareness building to members and to the general public on each
new law. Trains members as multiplier agents in their regions.
The Bar Association has compulsory membership of all practising lawyers, and exercises
supervision and disciplinary functions. It is ‘negotiating’ to take over organisation of the bar
exam from the Ministry of Justice.
Viet Nam Bankers Association
(All banks/financial institutions except three are members; foreign banks have their own
Banking Group)
• Serves as coordination bridge between government and banking community.
• Participates in legal drafting committees at the invitation of the Government.
• Provides comments on other draft legal documents at the request of Government.
• Monitors implementing regulations (members report their comments on the regulations
to the Bankers Association, which writes an official letter and/or attends a meeting/
workshop to contribute comments).
• Conveys to Government authorities any difficulties experienced by credit institutions.
• Conveys to members any problems from Government.
• If necessary, in meetings between State Bank and PM, the State Bank will invite
Association to voice concerns. Recently, in the administrative process reform,
Association was invited to participate in the Government Office’s Council on
Administrative Reform meeting with PM. Before this meeting, they sought comments
from members and presented a report, plus they made suggestions and recommendations
at the actual meeting.
Viet Nam Association for Certified Practising Accountants/Auditors
(90% of CPAs are members)
•
•
•
•
•
•
Association develops auditing standards. MoF develops accounting standards: 90% are
harmonised with international standards.
Issues licences after practising auditors are certified by MoF. This licence allows them to
sign audited documents for one year.
Provides training: all members and aspiring CPAs must take a 40-hour/year training and
refresher course in order to renew their licence.
Conducts quality reviews, auditing all 200+ accounting/auditing firms once every three
years. MoF sets guidelines for these quality standards and reviews.
Association can discipline members who fail to live up to quality standards by revoking
their licence or delisting them from membership.
Provides advisory services: experts on staff provide advice as needed.
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•
Trains pre-CPAs for MoF exam and certification.
Viet Nam Chamber of Commerce and Industry (VCCI)
(200+ member organisations)
•
•
•
•
•
•
•
•
•
•
Acts as umbrella organisation for business community.
Serves as coordination ‘bridge’ between Government and business community (esp.
Associations).
Conducts advocacy and representation activities on behalf of business for policy and
regulatory matters.
Conducts awareness-building activities around the country on policy, regulatory and
other matters of interest to business.
Participates in legal drafting committees at the invitation of the Government,
representing membership.
Provides comments on draft legal documents at the request of Government.
Monitors implementing regulations.
Conducts trade promotion activities.
Represents employers in tripartite employment-related matters.
Organises training and awareness-building activities
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6.3.2.7 Implementation and Enforcement
Implementation and enforcement of policies, rules and plans is the most challenging of tasks
facing the Government. As in many countries, agencies lack the necessary structures, skills
and experience to do so effectively.
In Viet Nam, policy implementation is governed by a hierarchy of legal documents ranging
from laws, to decrees to circulars to decisions and letters, all issued by different levels of the
bureaucracy. This is a slow, cumbersome process, with rules becoming increasingly
fragmented and opaque the further down the line one goes. Responsibility for implementation
is decentralised. For example, MPI is responsible for national investment policy, while
(63+Hanoi) provincial and local MPI offices are responsible for its daily implementation and
enforcement. All sectoral agencies have a similar system. While some government officials
said that decentralisation was working better now, others were sceptical that it was delivering
the desired impact.
In Viet Nam as in many countries, major service sectors such as aviation, post and
communications, energy, distribution, education, health, audiovisual, maritime transport and
financial services are considered strategic and sensitive. As some of these sectors are
liberalised and opened up to private enterprise and FDI, regulatory functions are becoming
more important and the relevant agencies are becoming more powerful.
To ensure that both national and consumer interests are met, it is crucial to:
•properly fund and staff regulatory and implementing bodies with the best and brightest
•inculcate awareness and common understanding of the national interest
•institute recognised good practices
•monitor regularly their performance.
6.3.2.8 Monitoring and Evaluation
2006 MPI/CIEM Report on Strengthening Interagency Coordination
Coordination, planning, monitoring and evaluation all require adequate information and
data analysis capacity. Most central and local agencies do not perform monitoring and
evaluation well and as a result they often lack information to make useful comments. At the
same time, monitoring and evaluation is yet to be institutionalized. M&E indicators are not
yet specific, measurable, affordable, relevant and time-bound, and monitoring capacity
remains limited. Capacity for data collection, processing and analysing are inadequate, and
information sharing is not the culture of government agencies.
Recommendations: Monitoring and evaluation is a tool for implementing results-based
approaches to state management. This should be improved with the development of a good
set of M&E indicators, appropriate facilities and capacity-building.
Decree 144/2005/ND-CP, 2005, identified the OOG as the policy, strategies and plans
drafting and supervision coordinator at the central level and PPC Administration for the
provincial level. However, this regulation has not been applied to the monitoring and
evaluation of the implementation of policy, strategies and plans. The report recommended
extending the scope of this regulation to include responsibility for monitoring and evaluation
166
to improve the effectiveness and efficiency of interagency coordination.
Consultations in mid-2009 indicated that many of the problems mentioned in 2006 still need
to be addressed. Importantly, the Midterm Review of the 2006-2010 Five-Year Plan was in
itself an important step forward as a results-based approach to quantifying, monitoring and
reviewing five-year plans.
It is recommended that this results-oriented approach be institutionalised in all planning and
review activities. This must include a major strengthening of databases and other statistical
and information tools, and intensified training on how to use them for planning, monitoring
and review (preferably on-the-job training, to develop the forthcoming Five-Year Plan and
review progress regularly). Finalising the National Indicators System should have high
priority. The next section covers these issues in detail.
6.3.2.9 Statistics and Indicators
2006 MPI/CIEM Report on Strengthening Interagency Coordination
Recommendations: Monitoring and evaluation is a tool for implementing results-based
approaches to state management. (This) should be improved with the development of a good
set of M&E indicators and appropriate facilities. The M&E capacity of government staff
should also be strengthened. It is also necessary to issue regulations on data collection,
analysis, use and sharing between agencies/units/individuals to ensure that collected and
processed information is shared between relevant agencies/individuals and between levels.
The 1993 national industrial classification should be amended to reflect the requirements of
a transition to a market economy and global integration.
The 2006 recommendations on statistics and indicators have been acted on in part. For
example, the national industrial classification is being amended and applied and, as mentioned
in the previous section, results-based approaches are being adopted for monitoring and
evaluation. Regarding capacity issues, apart from statistics officers, professional officers in
agencies need to develop confidence and expertise in using statistics and other data in policy
formulation, strategic planning and ongoing project management and review. Progress is
occurring, but it needs to advance more quickly.
This section provides further suggestions for strengthening the country’s ability to plan, as
well as to assess and refine performance.
Around the world, measuring services output and productivity is a challenge. Yet it is crucial
to be able to assess performance, competitiveness and policy options. Central statistics
offices can be a valuable source of performance and competitiveness data, especially if these
focus on outputs as well as on inputs. MPI is hosting a Services Statistics project to develop
classifications and other information. This will help overcome problems related to defining
services sectors, collecting and analysing data, conducting analysis, and setting objectives and
M&E indicators.
Access to and Dissemination of Statistical Information
Researchers, statisticians, officials and professional associations would like access to
statistical information – especially disaggregated data – to be straightforward. At present,
167
access often requires personal relationships and payment. Clearly, normal dissemination
mechanisms and transparent payment schedules need to be developed. Currently, information
is available in hard copies (though disaggregated data in this form is very old and not aligned
with the new system of classification) and on ministry websites. For trade statistics, the
Ministry of Industry and Trade is the main repository.
Coordination of information collection and dissemination
“Coordination is weak; every unit, department, agency has its own targets, and even though
there may be overlaps, they do not share information or coordinate on data collection to
ensure consistency. The biggest problem is that people don’t talk to each other on a regular
basis. Statistics working groups and task forces exist, but the level is usually too high and too
many people are involved to arrive at clear decisions. Even when a decision is made and a
recommendation sent up for approval, the end-result may not deal with the original issue.”
In 2008, an evaluation of the UNDP-DFID-GSO project on socio-economic development
monitoring recommended establishment of a Statistics Coordination Council - a normal entity
in many countries. Such a Coordination Council would facilitate systematic user-producer
dialogues (where users define needs and producers respond) and systematic dissemination of
information. It would also help overcome a number of weaknesses in collection, compilation
and dissemination of data, since many ministries and agencies are using different (their own)
data systems.
That evaluation also recommended establishment of Experts Groups for various sectoral
statistics to provide technical support to such a Coordination Council.
6.3.2.9.1 Needs and Recommendations
Coordination on Statistics
• Institute mechanisms to ensure that people talk to each other systematically.
• The proposed Statistics Coordination Council and its user-producer dialogues could be
one way to encourage this.
• In coordination with the GSO, establish Experts Group/s on Services Sector Statistics to
provide technical guidance and support to improve the availability of services data.
• Utilise research institutes of ministries to promote good practices.
Dissemination of data and statistical information
•
•
•
Develop a standard policy for access to and payment for data.
Use the proposed Coordination Council, research and training institutes as ‘partners in
dissemination’ of statistics and indicators for use in analysis, planning and review.
Since data on the services sector are collected by various agencies, there is a need for
uniform application of standards and classifications. There is also a need for at least a
common metadata database which provides information on the data and indicators
available, the definitions and classifications utilised, methods and uses for producing the
indicators, and the agencies responsible for data collection and compilation of these
indicators.
168
Using statistical information in planning and management
•
•
Train the younger mid-level directors and deputy directors on evidence-based policy
formulation and planning, and results-based management - preferably ‘on the job’
training, tied to annual planning and review cycles. This should take place at both the
central and provincial levels.
Enlist potential ‘partner’ entities in capacity building, eg:
 Government Office Training Institute
 Research Institutes at ministries and universities: A number of government and
university research institutes (most ministries have such institutes) are beginning to
play an important role in promoting and advocating better use of evidence-based policy
formulation and planning. Mostly young researchers, these groups have the ear of the
Prime Minister and are getting action.
 Provincial Statistics Training Institutes: develop training curricula for results-based
management, train them to become dynamic ‘facilitators’. Provincial statistics training
institutes could play a larger role in facilitating results-based management, etc, among
provincial and local government agencies and SOEs. Donors have assisted to upgrade
these institutes, but further capacity-building is required. The institutes could get on
more sustainable footing, perhaps, if they could deliver practical training in accessing
and utilising statistical information, developing indicators and using them in
monitoring and evaluation.
•
Agencies that produce and use service sector statistics must participate in the ongoing
GSO-led reform of statistical indicators systems, on instructions from the Prime Minister.
•
Agencies that produce and use service sector statistics must participate in the design of
the 2011-2020 Viet Nam Statistical Development Strategy (VSDS) which will start
during the last quarter of 2009. This process, to be coordinated by GSO, presents an
opportunity to define strategies and formulate action plans for improving service sector
statistics production, dissemination, accessibility and capacity building. The VSDS will
include budget estimates and a financial plan for implementing the action plans.
•
Encourage long-term, well designed, well coordinated donor programmes (as opposed to
short-term or ad hoc projects), to facilitate institutionalisation of good practices in
statistics coordination, planning, implementation and review.
•
The lead agency should demonstrate leadership by using the new cycle of planning to
advocate implementation of the new 270+ statistics indicators.
169
6.4 Capacity-Building and Institutional Str engthening Suggestions 43
Coordination Mechanisms
•
•
•
•
•
The Services Task Force needs a clear objective and role, plus a time-bound Work Plan.
Establish at MPI a Services Policy Consultative and Implementation Mechanism, along
the lines of Attachment 2.
A Trade Policy Consultative Mechanism, along the lines of Attachment 3, could prove
useful for MoIT.
All agencies and associations need IT systems, software and skills that can support better
coordination, networking and information sharing.
Ministerial budgets should include allocations for newspaper announcements calling for
comments on policy ideas and draft legislation.
Public Servants require:
•
•
•
•
•
•
•
•
Training in policy formulation, strategic planning and project management, including in
using statistics and other data in policy formulation, planning and ongoing project
management and review
Assistance to implement good practices in consultation, coordination and results-based
management, including developing realistic indicators for measuring performance
Training and experience in risk management
Codes of conduct and adoption of good practices in service delivery, especially at the
district and local levels
IT software, systems and skills to deliver better coordination, networking and
information sharing centrally and locally
Awareness building on WTO commitments, rights and obligations, their implications and
their interpretation and application
A clear and coherent investment law, including a clear definition of FDI
Leadership and decision-making skills.
CIEM needs:
•
•
•
•
•
Training on IT, database development, statistics collection and utilisation
Equipment and software
Motivation, incentives
Better workflow management
Horizontal as well as vertical organisation of tasks.
General Statistics Office requires:
43
These suggestions emerged from consultations with relevant associations, ministries and agencies, as well as
from the PTF Experts’ sectoral reports.
170
•
•
•
•
•
•
Statistics officers who are confident and expert in using statistics and other data in policy
formulation, strategic planning and ongoing project management and review
On-the-job training to develop the forthcoming Five-Year Plan and review progress
regularly
Stronger databases and other statistical and information tools (
Assistance to develop statistics/data User-Producer dialogues as part of a Statistics
Coordination Council
Evidence-based, results-oriented policy formulation, planning and management: on-thejob training tied to annual planning and review cycles, at both central and provincial
levels
Institutionalisation of statistics coordination, good planning, implementation and review
practices
Lawyers Association and Bar Association should develop:
•
•
A code of conduct
Awareness building programmes for the public and private sectors on legal services,
contracts, dispute settlement, arbitration.
Law Profession Skills Needed Over the Next 10 Years
• International law
• Trade law
• Dispute settlement/arbitration
• WTO commitments
• Environment law
• Consumer protection (law to be discussed in
National Assembly in October, possibly passed by
May 2010)
• Competition policy
Accountancy and Auditing Association requires:
•
•
•
•
Assistance to develop good practice guidelines for the Association of Chartered
Accountants
Assistance to deliver training activities more efficiently and effectively
Training to equip staff to do reviews of auditors better (and they need extra staff to fulfill
the task)
Appropriate IT systems, software and skills to conduct accounting and auditing activities
and reviews.
Bankers Association requires:
•
Training in credit management, financial accounting, risk assessment
171
•
•
Scope (broader official role) to expand its training activities, issue certificates of skills
and undertake other professional functions to strengthen the banking profession; this
would include merging State Bank and Association training activities
Assistance to strengthen its advocacy function.
VCCI would see benefit in:
•
•
•
Awareness building among business community of need for and benefit of consultation
and commenting on draft laws
Consultation on policy development, not just on legal drafts
Developing an effective Chamber-based consultative mechanism.
Environment agency needs assistance to develop:
•
•
•
•
•
•
•
•
Broadbased awareness building, including of CDM, etc
Criteria for assessment and design of practical solutions for environmental aspects of
sectoral planning
Environmental monitoring systems and skills
Environmental management systems and skills, including risk assessment
Pollution reduction technology
Enforcement mechanisms
Reporting system: template for consistency, comparability
Strategic environmental impact assessment for each region (eg, for hydropower projects).
Transport sector needs assistance to achieve:
•
•
•
•
A common national vision that regions and local authorities can link into
Well conceived and well planned connectivity of road, rail, sea infrastructure
Development of logistics and multimodal solutions, supported by a coherent regulatory
environment (clear definition, legal and regulatory framework to replace current
fragmented approach)
Strategic approach to foreign role (not just foreign investors and contractors, but also
foreign experts) in developing infrastructure – ‘quality’ issue: international experts could
contribute to technical planning and implementation matters, to ensure practicality and
feasibility.
Banking sector requires the following improvements:
•
Legal framework
- clarify the status and role of the State Bank, as the foundation of a sound system
- develop consumer protection and competition policy for financial services
• Infrastructure and technology
- upgrade payment and clearing system to automate and connect all banks to the SB’s
main system
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•
•
•
•
Capacity – HR development: strengthen training centres and programmes such as:
long-term training at universities
Banking Institute
Bankers Association
State Bank Training Centres
Strengthen State Bank’s supervisory role and capacity:
authority and tools to take corrective action
training in risk assessment and management
Strengthen Banking Association’s role
Establish a Banking Sector Statistics Office in the Banking Institute.
Insurance sector requires:
•
•
•
•
Risk management systems and training for insurance providers and oversight agencies
(MoF, SB)
Training and licensing programmes to raise qualifications and numbers of insurance
agents
Assistance to assess and implement international capital base requirements
Code of conduct for insurance agents.
Securities sector requires:
•
•
•
•
•
Updated regulatory system and regulator: currently can’t keep pace with the market
(takes 2-3 years to issue regulations); many levels of approval are required before
National Assembly can act
Stronger supervision systems and skills for Securities Commission
Training programmes to deliver adequate numbers of qualified people for securities
industry (eg, perhaps invite Australia’s Securities Institute to set up a regional branch
here)
Appropriate infrastructure: upgraded systems and technology for Securities Commission,
Stock Exchange, securities companies
Automated, rigorous reporting and auditing.
Telecommunications sector requires assistance to:
•
•
•
•
•
•
Enhance the capacity of central and local agencies to directly manage
telecommunications, radio frequency, internet and information safety and security
Provide specialist Chief Information Officer and ICT training courses
Improve the capacity of administrative bodies to implement plans, including through
upgraded IT systems and skills and quality controls
Improve supervision and inspection skills and systems
Deploy standardised working processes (ISO)
Develop systems to improve coordination within and among agencies at all levels, to
ensure a coherent approach to telecommunications and ICT development.
173
Distribution
•
•
Training for officials on how to carry out investigations and ENT inspections, once the
regulations are in place
Assistance to understand and apply foreign enterprises’ import and distribution rights in
line with WTO commitments.
6.5 Summar y: Key Findings and Recommendations
While progress has been made on a number of fronts since the last set of Services-related
coordination and strategy recommendations was issued in mid-2006 44,45, an intensified effort
is required to consolidate advances made to date and overcome enduring weaknesses.
Coordination and consultation practices, as well as implementation, monitoring and review
capabilities are improving, but stronger, more concerted action will be required to meet the
services sector objectives being set for the next five years.
As in other countries, coordination and consultation present a major challenge for
Government and the private sector alike. Both recognise the value of these good practices, but
putting them into action requires enormous patience, persistence and perseverance. The price
in terms of time can be high, but the rewards in terms of impact can be great. In the services
sector, in particular, implementation will not deliver the desired results without appropriate
coordination and consultation. Experience shows that the best way to achieve this is to
institutionalise the good coordination/consultation practices, so that these become the
‘normal’ way of working. This takes time and considerable attention to awareness- and skillsbuilding and instilling a disciplined approach. (Good practice guidelines for policymaking and
consultation are presented at sections 3.2.3. and 3.2.4.)
Priority Services: Backbones of Development
Fairly broad consensus was observed regarding the priority services areas for intensified
government attention over the next five years (ie, education and training, backbone
infrastructure/services, business services, logistics).
The Ministry of Planning and Investment has indicated that the Government’s role in services
sector development will increasingly focus on the enabling environment, including:
•
•
•
developing an appropriate regulatory framework and enforcement mechanisms
orienting education and training to meet the need for qualified, flexible and competent
professionals and technicians
ensuring reliable, efficient, interconnected and reasonably priced backbone services such
as transport, power and communications.
44
Strengthening the Coordination between the State Management Agencies Responsible for the Service Sector,
Ministry of Planning and Investment, and Central Institute for Economic Management (Project 5101), Hanoi,
May 2006
45
General Framework for a National Strategy for the Services Sector in Vietnam up to 2020, Ministry of
Planning and Investment and UNDP, Hanoi, June 2006
174
Given these areas’ strong synergies and their powerful impact potential, effective interagency
coordination - horizontally and vertically – during the next development phase, will be crucial
for Viet Nam’s industrial, social and economic development.
Progress on Services Strategies
The Midterm Review of the 2006-2010 Five-Year Socioeconomic Development Plan injected
a reality check for services growth, readjusting the 2010 targets of 42% of GDP and 37% of
employment to a more achievable 40% of GDP and 27% of employment. It noted that “high
value-added business-supporting services which are critical for enhancing the competitiveness
of the whole economy remain underdeveloped and are not capable of meeting the needs of the
economy”. The Review called for greater attention and support for these services and for
more creative approaches to other key areas such as infrastructure services.
MPI officials said in early July they will set new targets for 2015 and 2020 in early 2010,
based on new Five-Year sectoral plans and updated statistical data. A Services Action Plan
issued in mid-2009 assigned relevant Ministries specific tasks in this regard (Attachment 1). It
also set out ambitious objectives and activities aimed at addressing many of the issues raised
in the Review and other reports, including coordination issues.
Progress on Implementing WTO Commitments
A CIEM review of progress on implementation of WTO commitments two years after Viet
Nam’s January 2007 accession also portrayed mixed results 46. While the business
environment and legislative framework have shown definite signs of improvement, a number
of obstacles must be overcome if the country is to benefit fully from its WTO membership.
A key problem, raised by CIEM as well as other entities consulted, is confusion over the
meaning of commitments. This leads to fragmented and often overly rigorous interpretation of
rules, especially regarding foreign investment. It is particularly pronounced at the district and
local levels, but CIEM noted that even the Ministry of Planning and Investment and the
Ministry of Industry and Trade have been known to give different opinions regarding certain
commitments. Causes include poor coordination, lagging regulatory action (“lack of clear and
specific regulations”), professional and technical capacity limitations, and a lack of
understanding of WTO commitments and the potential development benefits of WTO
membership. “Some (state agencies in charge of licensing) consider the WTO a burden for the
country, not an opportunity to promote investment and national development.”
Making and Implementing Policies and Laws
While consultation on drafting of legal documents is being progressively institutionalised
since it was made mandatory in the amended Law on the Enactment of Legal Documents in
2002 and 2005, a critical transparency gap still exists at the preceding policy-formulation
stage. This results in less-than-optimum input during the legal drafting stage, due to lack of
understanding of the specific policy objectives and their link to the national interest. This is
not a new issue; it has been raised in several reports in 2004-2006, and it arose numerous
times during consultations in July. It is therefore recommended that the government take steps
to substantiate policy decisions and justify why a particular regulatory option was chosen,
and communicate this information to all the people involved in drafting and commenting on
legal documents. Many countries have institutionalised this form of policy justification, as a
46
Building Blocks Laid for WTO Success, http://vietnamnet.vn/service/printversion.vnn?article_id=1148729,
Nguyen Dinh Cung, Director, Central Institute for Economic Management’s Department for Macroeconomic
Policy, VietNamNet Bridge, 9/01/2009
175
necessary prerequisite to law drafting. (See Policy and Regulatory Good Practice Checklist
under ‘Policymaking’ in Part 3.)
Implementation also remains a challenge. It often takes 2-5 years to put into effect the
implementing regulation, and enforcement mechanisms can take even longer. It is therefore
recommended (as it has been in the past) that officials draft the implementing regulation and
enforcement measures at the same time as the relevant law. In addition to speeding up the
process, this would result in more appropriate indicators for monitoring and evaluation of
regulatory effectiveness. It would also streamline coordination.
Monitoring, Evaluation and Statistics
The Midterm Review of the 2006-2011 Five-Year Plan in 2008 was in itself an important step
forward as a results-based approach to quantifying, monitoring and reviewing five-year plans.
It is recommended that this results-oriented approach be institutionalised in all planning and
review activities. This must include a major strengthening of databases and other statistical
and information tools, and intensified training on how to use them for planning, monitoring
and review (preferably on-the-job training, to develop the forthcoming Five-Year Plan and
review progress regularly). Finalising the National Indicators System should have high
priority. It is also recommended to establish a Statistics Coordination Council to facilitate
systematic user-producer dialogues and overcome weaknesses in collection, compilation and
dissemination of data. Experts Groups on Services Sector Statistics should be set up to
provide technical guidance to the Council and improve the availability of services data.
Coordination and Consultation to Consolidate Good Practices
To help drive the ‘best practice’ approaches mentioned above, it is recommended that MPI
establish a permanent Services Policy Consultative Group (see sample chart at Attachment 2).
It should be directed by an official with decision-making authority, supported by a small
group of high-level executives who will delegate work on specific pressing issues to resultsoriented working groups comprised of relevant stakeholders. The Consultative Group’s Work
Plan should be time-bound and focus on finding innovative, yet realistic and sustainable,
solutions to key issues and bottlenecks.
One of the Group’s tasks should be to foster the development of local analytical capacity in
services sector policy issues by regularly commissioning think tanks in academia, ministries
and institutes to conduct research and provide advice on pressing issues.
Regarding a Work Plan, the Consultative Group could, for example, delegate Working
Groups to:
• conduct an audit of education and training needs for the 21st Century in consultation with
industry, the professions and educational institutions, and deliver recommendations for
change
• explore how professional and industry associations could play a stronger role in
improving and assuring quality standards and enforcing ‘codes of conduct’
• develop a more rigorous and transparent approach to services sector policymaking,
lawmaking and enforcement, to facilitate implementation of the next Five-Year Plan
(find ways to institutionalise in practice the use of internationally recognised ‘good
practices’ in policy and regulation development, consultation and interagency
coordination)
176
•
•
•
explore how a strategic FDI-attraction policy could accelerate the development of the
priority areas through well targeted injections of investment, technology and skills
document and provide solutions for impediments to implementation of WTO services
commitments (see CIEM review above)
find ways to resolve connectivity issues in a variety of key sectors (develop guidelines
for coordination in planning, implementation and maintenance, as well as in technology
matters; establish indicators of ‘good connectivity’).
Awareness Building
In preparing the next Five-Year Plan, it is recommended that a nationwide services
awareness-building campaign be implemented - aimed at government agencies and the
business community. It could highlight, in an innovative and attention-attracting fashion, the
development opportunities that Viet Nam’s international services commitments offer and the
challenges they present. With a better understanding of the priorities, issues, interlinkages
and roles, both sides can approach services issues with more confidence.
Such a campaign should:
•
•
•
highlight the crosscutting nature of all services sectors and the need for a coherent, joint
development effort
identify clearly and concisely how government and business, individually and together,
can maximise the opportunities and deal with the challenges (particularly in the key
priority areas)
share comparative experience and success stories to motivate people and inspire change.
Capacity Building
Consultations with agencies and professional associations highlighted a number of areas
where institutional and human resource capacity building would help deliver a healthier, more
competitive services sector. Recommendations in this regard (Section 4 below) address the
issues and priorities mentioned above. They cover strategic planning and policymaking,
impact evaluation, technology, statistics, information management, awareness building,
quality assurance, codes of conduct, connectivity, risk management, supervision, monitoring
and evaluation, international standards, and a variety of technical and professional skills.
177
6.6 Sum-Up of Main Recommendations
1.
That the Government adopt and apply international recognised principles and good
practices in transparency, consultation and coordination in policymaking, regulatory and
planning processes.
2.
That the government take steps to substantiate policy decisions, justify why a particular
regulatory option was chosen, and communicate this information to everyone involved in
drafting and commenting on legal documents.
3.
That officials draft the implementing regulation and enforcement measures at the same
time as it prepares the relevant law.
4.
That MPI establish a permanent Services Policy Consultative Group, including private
sector organisations.
5.
That a nationwide Services awareness-building campaign be implemented as part of
developing the next Five-Year Plan.
6.
That a results-oriented monitoring and evaluation approach be institutionalised in all
planning and review activities.
7.
That databases and other statistical and information tools be strengthened considerably,
and intensified training be provided on how to use them for planning, monitoring and
review (preferably on-the-job training, to develop the forthcoming Five-Year Plan and
review progress regularly).
8.
That a Statistics Coordination Council be established.
9.
That Experts Groups on Services Sector Statistics be set up to provide technical guidance
to the Council and improve the availability of services data.
10. That the Government and donors take action on the capacity-building and institutional
strengthening suggestions in Part 4 above.
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CHAPTER 7: STRATEGIC RECOMMENDATIONS
This chapter contains, in a condensed and structured form, the recommendations put forward
in the previous sections that are of strategic importance for the success of a longer-term
services policy framework. The recommended actions and approaches should be core
ingredients of a comprehensive framework for Viet Nam’s future services sector
development. Their intended objectives can be achieved only if the other recommended
actions and approaches are also implemented.
It is important to bear in mind the strong interlinkages and overlaps among policies affecting
(or promoting) services. For example, FDI-related considerations can be simultaneously
present in trade policy (Mode 3 of the GATS), investment policy, innovation policy,
macroeconomic policy and a host of sectoral policies. It is therefore impossible to avoid
overlaps among the strategic recommendations.
7.1 Main pr inciples for an effective and compr ehensive policy fr amewor k for ser vices
A comprehensive strategy to develop the services sector requires a new policy approach that
puts services sector productivity growth at the centre of Viet Nam’s overall economic policy.
 It is recommended that the CSSSD - and the longer framework that would follow it not be a sectoral policy in the traditional sense, but rather a “productivity policy” that
maximizes the gains for the economy as a whole and allows individual sectors to
benefit from the strong interlinkages that exist between services productivity growth
and manufacturing.
The rationale for such a policy is that a well-functioning services sector is key to Viet Nam’s
overall economic development - in particular to achieve its poverty reduction and
industrialization objectives.
 As a starting point, the CSSSD should formally recognize services as a key to
increasing Viet Nam’s competitiveness.
We fully share the GFSS’s recommendation that a formal recognition is critical for
developing a competitive and effective services sector. It is also critical for Viet Nam’s
successful industrialization in the context of international integration. A formal and written
recognition is important because:
•
It would give the services sector its appropriate status in the national development
strategy, dissipating general misconceptions, including among policy makers, of the
allegedly residual role of services relative to agriculture and manufacturing.
•
It will help in setting policy priorities, clearing the way for the types of laws and
regulations needed to develop the services sector, diversify the ownership of service
enterprises, and strengthen coordination mechanisms for optimal development of the
services sector.
179
•
It will focus policy initiatives on priority services in order to support economic growth
and improve the basic infrastructure provided by telecommunications, education and
training, business services, finance, and transportation.
•
It will provide a framework for the allocation of research resources to enhance
understanding of the dynamics of Viet Nam’s services sector through comprehensive
studies and pilot projects supported by international organizations.
The CSSSD will provide an action plan for services sector development up to 2020. Given the
speed of change affecting services sectors around the world, a services strategy should be a
permanent ongoing, ‘living’ task that should adjust the policy objectives and monitor their
achievement on a continuous basis.
 Therefore, it is recommended that the CSSSD kick-start a policy framework to deal
with services development issues whose life would span beyond the CSSSD.
On the important question of whether the CSSSD should mainly focus on individual services
or address mainly horizontal policy issues:
 It is recommended that the CSSSD put more emphasis on cross-cutting issues
(horizontal policies) rather than seeking individual solutions for specific sub-sectors.
This approach is mirrored by the indication that the Government’s role in services
sector development will increasingly focus on the enabling environment, including:
•
•
•
developing an appropriate regulatory framework and enforcement mechanisms
orienting education and training to meet the need for qualified, flexible and
competent professionals and technicians, and
ensuring reliable, efficient, interconnected and reasonably priced backbone
services such as transport, power and communications.
7.2 Remove impediments that pr event competition and demand for ser vices
While domestic demand for services generally depends on the level of economic
development, in Viet Nam the dominant share of the State in the economy acts as a structural
impediment to the emergence and growth of strategic business services produced by private
firms. Important sectors lack genuine competition because incumbent SOEs enjoy a
monopoly or oligopoly situation. These SOEs, which are not exposed to competitive pressure,
prefer to produce business support services in-house or purchase them from government
agencies or other SOEs. This constrains the emergence of strategic business services. Since
SOEs are often the only potential clients for outsourced intermediate services, such services
will not be offered as long as SOEs are not economically motivated to purchase cheaper or
better quality services outside the normal circle. On the other side, in the absence of
independent service providers, the SOEs cannot consider them as alternative sources.
 It is therefore recommended to remove the structural impediments to business services
resulting from State-ownership. This may include:
180
•
Privatization cum restructuring of SOEs which do not operate in natural monopoly
markets or in strategic sectors like defence or genuine public service areas.
Restructuring before privatization is necessary to avoid State-owned monopolies or
oligopolies being simply replaced by private monopolies, duopolies or oligopolies.
•
Subjecting SOEs and other state-owned entities to government procurement rules for
services.
 In order to enhance competition in areas dominated by SOEs, their actual (positive and
negative) roles must be assessed thoroughly from the perspective of effective
competition (with corresponding market concentration indicators and price-setting
behaviours), long-term development, and the enforcement of ’hard-budget constraints‘
(bankruptcy legislation and banking practices).
 It is also recommended that the Government purchase business and other services
through open competitive bids, rather than relying on a preferential basis on SOEs and
its own agencies. This would not remove the distortion of services markets resulting
from structural constraints, but would at least provide more opportunities to private
services firms to expand business operations.
 It is recommended to allow all domestic service providers to sell services to
manufacturing and other enterprises operating in IPs, EPZs and EZs.
7.3 Remove r egulator y bar r ier s to ser vices
The services sector has traditionally been highly regulated worldwide. While some
regulations may have been justified by socioeconomic objectives and market failures, many
regulatory restrictions no longer have any economic justification beyond the protection of
incumbent firms and special interest groups. In fact, the important contribution of services to
the rest of the economy has spurred governments to ease restrictions.
In Viet Nam, the development of competitive services sectors are constrained by a rigid
regulatory and institutional framework and a host of regulations that are ill-adapted to the
requirements of a free enterprise-based modern market economy.
During the last 20-25 years, many countries – developing and developed alike – have
extensively liberalized their service markets and have reformed service sector regulations.
Many have done so on an autonomous unilateral basis (eg, telecommunications).
In general, services reforms have led to increased competition, better services provision,
lower prices and wider choice.
Empirical studies of efficiency gains from regulatory reforms in OECD countries show an
increase of up to 6 percentage points of GDP, depending on the initial state of regulation in
the different countries. Given Viet Nam’s higher restriction base, there is reason to believe
that the gains from regulatory reforms would contribute even higher gains.
 It is therefore recommended that the Government launch a comprehensive review of
Vietnamese services sector regulations and engage in service sector reforms.
181
7.4 Ser vices Related Policy Making and Implementation
7.4.1 Policy design and policy making
Policy design and making are still not systematically preceded by evidence-based analysis.
Policy decisions are sometimes taken on an intuitive basis, or after selective consultations
with business. This practice not only risks suboptimal decisions, but the resulting policy may
prove later difficult to correct.
 It is therefore recommended to introduce evidence-based policy making. In order to
service such policy making, the Government should create appropriate
research/analysis capacity in the relevant disciplines.
To shift to evidence-based policy making, the Government may wish in particular to consider
the following recommendations:
 Productivity levels are low in Viet Nam, indicating the need for the creation of a
Productivity Council that would identify problems and find solutions to raise
productivity in all sectors. As proposed under point 7.1 above, this could take the form
of a Government-sponsored institute, operating independently from the Government,
which could undertake high-quality research and analysis on a wide range of
economic, social and environmental issues affecting productivity and efficiency of the
economy, including on sectors and products that are vital for Viet Nam’s future as a
knowledge-based economy. A possible model for the establishment of such an
independent analytical and advisory body could be the Australian Productivity
Commission (www.pc.gov.au).
 Finalizing the National Indicators System on a high-priority basis.
 Establishing a Statistics Coordination Council to facilitate systematic user-producer
dialogues and overcome weaknesses in collection, compilation and dissemination of
data. Experts Groups on Services Sector Statistics should be set up to provide
technical guidance to the Council and improve the availability of services data.
 See also the recommendation under point 7.4.5.
7.4.2 Inter-agency Coordination
Although some advances have been made in strengthening coordination between the
various State agencies with service sector responsibilities, an intensified effort is
required to overcome enduring weaknesses.
 It is recommended to achieve this by institutionalizing good practices in coordination
and consultation, so that these become the ’normal‘way of working, and adopting the
’good practice guidelines for policymaking and consultation’ presented in Chapter 6:
sections 3.2.3. and 3.2.4.)
182
7.4.3 Legal drafting and implementation
While drafting of legal documents is being progressively institutionalized, a critical
transparency gap still exists at the preceding policy-formulation stage. This results in lessthan-optimum input during the legal drafting stage, due to lack of understanding of the
specific policy objectives and their link to the national interest.
 It is therefore recommended that the government take steps to substantiate policy
decisions and justify why a particular regulatory option was chosen, and communicate
this information to all the people involved in drafting and commenting on legal
documents.
Legal implementation still remains a challenge. It often takes 2-5 years to put into effect the
implementing regulation of a law, and enforcement can take even longer.
 It is therefore recommended (as it has been in the past) that officials draft the
implementing regulation and enforcement measures at the same time as the relevant
law. In addition to speeding up the process, this would result in more appropriate
indicators for monitoring and evaluation of regulatory effectiveness. It would also
streamline coordination.
The effective and fair enforcement of legislation is also important.
 This requires addressing corruption and bureaucratic practices.
7.4.4 Monitoring and Evaluation and Statistics
 It is recommended that the results-oriented approach to monitoring and evaluation
taken by the Midterm Review of the 2006-2011 Five-Year Plan in 2008 be
institutionalized in all planning and review activities.
This must include a major strengthening of databases and other statistical and information
tools, and intensified training on how to use them for planning, monitoring and review
7.4.5 Coordination and Consultation to Consolidate Good Practices
 To help drive the ‘best practice’ approaches, it is recommended that MPI establish a
permanent Services Policy Consultative Group (see sample set-up at Attachment xx).
It should be directed by an official with decision-making authority, supported by a
small group of high-level executives who will delegate work on specific pressing
issues to results-oriented working groups comprised of relevant stakeholders. The
Consultative Group’s Work Plan should be time-bound and focus on finding
innovative, yet realistic and sustainable, solutions to key issues and bottlenecks.
 One of the Group’s tasks should be to foster the development of local analytical
capacity in services sector policy issues by regularly commissioning think tanks in
academia, ministries and institutes to conduct research and provide advice on pressing
issues.
183
 Regarding a Work Plan, the Consultative Group could, for example, delegate Working
Groups to:
• conduct an audit of education and training needs for the 21st Century in
consultation with industry, the professions and educational institutions, and deliver
recommendations for change
• explore how professional and industry associations could play a stronger role in
improving and assuring quality standards and enforcing ‘codes of conduct’
• develop a more rigorous and transparent approach to services sector policymaking,
lawmaking and enforcement, to facilitate implementation of the next Five-Year
Plan (find ways to institutionalise in practice the use of internationally recognised
‘good practices’ in policy and regulation development, consultation and
interagency coordination)
• explore how a strategic FDI-attraction policy could accelerate the development of
the priority areas through well targeted injections of investment, technology and
skills
• document and provide solutions for impediments to implementation of WTO
services commitments (see CIEM review above)
• find ways to resolve connectivity issues in a variety of key sectors (develop
guidelines for coordination in planning, implementation and maintenance, as well
as in technology matters; establish indicators of ‘good connectivity’).
7.4.6 Awareness Building
 In preparing the next Five-Year Plan, it is recommended that a nationwide services
awareness-building campaign be implemented - aimed at government agencies and the
business community. It could highlight, in an innovative and attention-attracting
fashion, the development opportunities that Viet Nam’s international services
commitments offer and the challenges they present. With a better understanding of
the priorities, the issues, the interlinkages and the respective roles, both sides could
approach services issues with more confidence.
Such a campaign should:
• highlight the crosscutting nature of all services sectors and the need for a coherent,
joint development effort
• identify clearly and concisely how government and business, individually and
together, can maximise the opportunities and deal with the challenges (particularly
in the key priority areas)
• share comparative experience and success stories to motivate people and inspire
change.
7.4.7 Capacity Building
Institutional and human resource capacity building would help deliver a healthier, more
competitive services sector.
184
 Recommendations in this regard (see details in Section 4 of Chapter 6) cover strategic
planning and policymaking, impact evaluation, technology, statistics, information
management, awareness building, quality assurance, codes of conduct, connectivity,
risk management, supervision, monitoring and evaluation, international standards,
and a variety of technical and professional skills.
7.5 Inter national Tr ade and Investment in Ser vices
Since the growing globalization of services is driving the strong performance of service
sectors around the world, Viet Nam’s services trade policy should be an integral part of its
overall services strategy.
 If Viet Nam is to derive maximum gains from its participation in trade in services, it is
important to recognize that the benefits are equally significant on both the “export”
and “import” sides. Associating the benefits from trade in services only to export
surpluses would prevent Viet Nam from seizing the real opportunities that services
trade presents for economy-wide productivity gains.
 Policy makers should therefore consider unilateral liberalization measures to open
Viet Nam’s services markets to international competition, including by reducing
barriers to foreign direct investment.
Quantitative analyses have shown that in Viet Nam labour productivity is highest in foreignowned companies.
 It is therefore recommended to pay much more policy attention to the role of FDI in
fostering economic growth.
It is urgent to:
 increase the business community’s awareness of service export opportunities
 strengthen service industry associations’ role in shaping regulations and infrastructurerelated decisions
 ensure that state-controlled service providers, VIETRADE, and training institutions
intensify their efforts to improve Viet Nam’s performance in global service markets.
The proposed services export strategy comprises (i) preliminary awareness-building and
networking activities aimed at mobilizing the main stakeholders; and (ii) projects aimed at
improving export readiness, advocacy and more service-friendly regulation and infrastructure.
The Vietnamese Services Forum should become a focal point for service industries, scholars
and Government
7.6 Innovation Policy
185
R&D activities in Viet Nam have so far been largely linked to industrial needs. In order to
develop a well adapted innovation policy, the CSSSD should address how existing public
R&D projects can be associated with the needs of the services sector, and improve the links
between services sector firms and public research.
 It is therefore recommended to adopt a strategy which links innovation-related
activities in services to manufacturing industries, which use the most local R&D.
 As part of such a strategy, it is recommended to develop industry/service clusters, e.g.
in the ICT area.
7.7 Human Resour ces
 Reform of the public higher education system, especially of universities, should be
stepped up. However, spectacular improvements in the performance of the public
system can not be expected in the short run.
 Therefore, access to the education market by domestic and foreign private universities
should be further liberalized.
 It is essential to raise the level of qualification of management and workers. For that
purpose, an effective and permanent interface must be built between the education
system and the economic and business spheres. The Ministries of Labour and
Education should have regular consultations with business and industry associations to
identify ongoing needs for skilled and semiskilled labour.
7.8 Pr ior ity Ser vices Subsector s
 Notwithstanding the last recommendation in point 7.1, intensified government
attention is warranted for some specific services, namely education and training,
backbone infrastructure and services, business services and logistics.
 Given these areas’ strong synergies and their powerful impact potential, effective
interagency coordination - horizontally and vertically – during the next development
phase, will be crucial for Viet Nam’s industrial, social and economic development.
In addition, a specific policy focus is recommended for services exports and services imports.
 A national services export strategy for the next 15 years should focus on the following
key areas: e-commerce, computer-related services, engineering services, construction
services, transportation (in synergy with the ASEAN partners) and freight-forwarding
services, ’green‘ hospitality (eco-tourism), specialized medical services, business
support and promotion services, equipment maintenance (ships and airplanes), and
services targeting temporary labour migration. Any sector-based strategy should be
complemented by a niche-based approach.
 A services import strategy should aim to strengthen Viet Nam’s infrastructure by
focusing on: banking, telecommunications, computer-related services, transport,
186
education and training, and energy-related services. It should also aim to modernize
the country’s consumer service base and encourage imports of inputs required for
export development. To strengthen innovation and technology transfer, more FDI is
needed in distribution, franchising, environment-related services, medical services,
safety and security services, and R&D services.
187
CHAPTER 8: CONCLUSIONS
The present report has been prepared to assist the Ministry of Planning and Investment and
the Interagency Task Force in finalizing the draft of the “Comprehensive Strategy for Services
Sector Development” (CSSSD) for subsequent submission to the Government for approval.
The report addressed the themes identified in the Terms of Reference: it reviewed the current
level of development, the competitiveness and the major development issues of the services
sector. It also analyzed the prerequisites for stimulating the growth of the services sector and
discussed the institutional issues of services policy making and implementation in Viet Nam.
Since the launch of its Doi Moi reform policy, Viet Nam has made considerable progress in
economic development and poverty reduction, but this was mainly the result of the
contribution of development in agricultural and industrial production and exports, rather than
of services.
The services sector has developed spectacularly thanks to the Doi Moi reforms, but it does not
contribute yet to the country’s growth as it could if it was as developed as in Asian services
reforming developing countries.
A well-functioning and internationally competitive services sector would be key to the overall
economic performance of Viet Nam and to the welfare of its citizens. The Ten-Year SocioEconomic Development Strategy 2001-2010 and the Five-Year Socio- Economic
Development Plan 2006-2010 already called for the services sector to contribute directly to
the quality of economic development.
There are many factors that contribute to the very slow “taking-off” of the services sector in
Viet Nam that the Government should address in the framework of the CSSSD. The most
important obstacles to the development of an efficient services sector are competition-related:
They mainly stem from the dominant (monopoly, duopoly and oligopoly) position of the State
in many sectors and from high entry and exit barriers caused by restrictive laws and
regulations. All this result in a less than optimal level of competition in services markets.
Among the other important impediments to services are: underdeveloped physical
infrastructure; scarcity of skilled human resources, inappropriate business environment, low
level of entrepreneurship, distorted access to finance by small and medium-sized entreprises,
and last but not least the high business cost of corruption.
Turning the Vietnamese services sector into the major engine of economic growth requires
fundamental reforms of the policies impacting on services productivity. The policy measures
outlined in this report can contribute to such reforms and are mutually reinforcing.
In order to make the CSSSD a success by the year 2020 it is important that the reforms be
started as early as possible since policy makers face the challenge to act on multiple fronts in
a relatively short period of time.
188
In order to qualitatively change the development of the services sector in Viet Nam, it would
be important that the CSSSD, rather than being a sectoral policy in the traditional sense,
should adopt a new policy approach, which puts services sector productivity growth at the
centre of Viet Nam’s overall economic policy. By doing so, the CSSSD would maximize the
gains for the economy from the strong interlinkages that exist between services productivity
growth and manufacturing.
During the last 20-25 years, many countries – developing and developed alike – have
extensively liberalized their service markets and have reformed service sector regulations.
Many have done so on an autonomous - unilateral - basis. In general, services reforms have
led to increased competition, better services provision, lower prices and wider choice.
Empirical studies of efficiency gains from regulatory reforms in OECD countries show an
increase of up to 6 percentage points of GDP, depending on the initial state of regulation in
the different countries. Given Viet Nam’s higher restriction base, there is reason to believe
that the gains from regulatory reforms would contribute even higher gains.
189
Refer ences
Australian Services Roundtable: “Inquiry into the current and future directions of Australia’s
service industries”, November 2006
Jonathan Boymal, Bill Martin, Dieu Lam: “The political economy of Internet innovation
policy in Viet Nam”, Technology in Society 29 (2007) 407-421
Peter W. Daniels and James W. Harrington: “Services and Economic Development in the
Asia-Pacific”, Ashgate, Aldershot 2007
Felix Eschenbach and Bernard Hoekman: Services Policy Reform and Economic Growth in
Transition Economies, Review of World Economics, Volume 142, Number 4 / December,
2006
Gabriele, Alberto, Strategic Services Policies and International Trade Integration in Viet
Nam, Journal of Economic Integration 20(2), June 2005; 263-293
Gabriele, Alberto, Social services policies in a developing market economy oriented towards
socialism: The case of health system reforms in Viet Nam, Review of International Political
Economy 13:2 May 2006: 258–289
Katariina Hakkala and Ari Kokko: “The State and the Private Sector in Viet Nam”,
Stockholm School of Economics Working Paper 236, June 2007
Yasushi Hirosato and Yuto Kitamura (editors): “The Political Economy of Educational
Reforms in Southeast Asia - Cases of Cambodia, Laos and Viet Nam”, Springer Science +
Business Media B.V., 2009
Sven Illeris: “The nature of services”, in John R. Bryson and Peter W. Daniels, editors: “The
Handbook of Service Industries”, Edward Elgar, Cheltenham, UK and Northampton, MA,
USA, 2007
Ministry of Planning and Investment & United Nations Development Programme (2006):
“General Framework for a National Strategy for the Services Sector in Viet Nam up to 2020”,
Ha Noi
OECD (2005): “Growth in Services: Fostering Employment, Productivity and Innovation”,
Paris
Tran Quoc Trung et al: “Trade Liberalization and Development in ICT Sector and its impact
on household welfare in Viet Nam”, Asia-Pacific Research and Training Network on Trade
Working Paper Series, No. 33, February 2007 (rev. 4/07)
Nguyen, Thuy Thu and Mathijs A. van Dijk (2008): Corruption and Growth: Private vs. StateOwned Firms in Viet Nam. Working Paper, Rotterdam School of Management, Erasmus
University, Rotterdam, the Netherlands
190
ADFAT (Australian Department of Foreign Affairs and Trade). Economic Analytical Unit.
(2005). Unlocking China’s Service Sector. Canberra, Australia. Tr.19
BMI Viet Nam 2009, QIII, QI
GSO (2000). Socio-economic Statistics of Viet Nam 1975-2000. Hanoi: Statistical Publishing
House
GSO (2004). Viet Nam 20 Years of Reforms and Development (1986-2005). Hanoi: Statistical
Publishing House
GSO (2008). Statistical Yearbook 2007. Hanoi: Statistical Publishing House
GSO (2008 and 2009). Annual Report 2008, Quarterly Report I/2009, and Half Year Report I/
2009
UNDP and MPI. (2006). General Framework for Strategy for Service Sector in Viet Nam to
the year 2020. Hanoi
Sectoral papers, Serv-2A. (2009). Project “Formulation of the Draft Comprehensive Strategy
for Services Sector Development to the Year 2020 and a Vision to 2025”
WEF. (2009) Global competitiveness report, 2008-2009.
191
Attachment 1: Government’s Services Action Plan for 2009-2011
Decision No. 961/QD-TTg of 3 July 2009, promulgating the Government’s Programme of
Action for service sector development during 2009-2011:
THE PRIME MINISTER
Pursuant to the December 25, 2001 Law on Organization of the Government;
Pursuant to the Government’s Resolution No. 03/2008/NQ-CP of January 11, 2008,
promulgating the action program of the Government of the 2007-2011 tenure;
At the proposal of the Minister of Planning and Investment,
DECIDES:
Article 1. To promulgate together with this Decision the Government’s program of action for
service development during 2009-2011.
Article 2. This Decision takes effect on September 1, 2009.
Article 3. Ministers, heads of ministerial-level agencies, heads of government-attached
agencies, and chairmen of provincial-level People’s Committees shall implement this
Decision.
For the Prime Minister
Deputy Prime Minister
HOANG TRUNG HAI
THE GOVERNMENT’S PROGRAMME OF ACTION FOR SERVICE DEVELOPMENT
DURING 2009-2011
(Promulgated together with the Prime Minister’s Decision No. 961/QD-TTg of July 3, 2009)
I. OBJECTIVES
The Government’s programme of action for service development during 2009-2011 aims to:
•
specify actions - issued together with Resolution No. 03/2008/NQ-CP of January 11,
2008
•
develop and improve the competitiveness of the service sector
•
accelerate international economic integration
•
realize WTO accession commitments in the service sector
•
contribute to the successful implementation of the socioeconomic development plan
2006-2010
•
serve as a premise for development in subsequent periods.
II. MAJOR TASKS
1. Continue to formulate and perfect mechanisms and policies to accelerate the development
of the service sector:
- To formulate general policies on the development of the service sector in conformity
with commitments to the World Trade Organization (WTO);
- To perfect investment and business policies;
192
-
To scrutinize WTO commitments on services in order to amend, supplement or annul
legal documents which are no longer suitable;
To perfect the system of tax policies in order to create favorable conditions for service
enterprises to operate in an effective manner; increase export turnover and reduce
trade deficit in services.
2. Mobilize and promote domestic and overseas resources for the development of the
economy in general and the service sector in particular:
-
To mobilize and effectively use capital sources for quick and sustainable development
of the service sector, especially key services;
To develop modern financial and monetary markets; intensify the application of
scientific advances to developing the financial and monetary markets;
To renew financial and monetary instruments and policies and raise the capacity of
regulating financial and monetary policies; to ensure financial and monetary security;
To socialize high-quality public services.
3. Raise the quality of human resources in the service sector:
-
-
To formulate mechanisms and policies on development of the labor market and human
resources and adopt effective policies on vocational training, employment and poverty
alleviation;
To enhance vocational training for guest workers in order to gradually increase the
ratio of trained laborers and enter labor markets with strict requirements on skilled
labor.
4. Develop the economy in general and the service sector in particular in association with
protecting natural resources and the environment
-
To promote investment in environmental protection; to increase the management of
construction and urban administration activities;
To restore, preserve and develop historical and cultural relics, scenic places and
beauty spots for socio-economic development.
III. ORGANIZATION OF IMPLEMENTATION
1. Based on tasks assigned in the Appendix to this Decision, Ministers and heads of
departments shall directly urge and instruct the implementation of this programme of
action so as to ensure its quality and schedule; and coordinate with the Government Office
in incorporating related contents into the working agenda of the Government or the Prime
Minister.
2. Ministries and branches shall send annual reports on the performance of their assigned
tasks no later than December 15 every year to the Ministry of Planning and Investment for
sum-up and reporting to the Prime Minister.
3. The Ministry of Planning and Investment shall monitor, examine and sum up the
implementation of this program of action.
193
4. In the course of implementation, if seeing that this programme needs to be supplemented or
adjusted, ministries and branches shall proactively propose supplements and adjustments to
the Ministry of Planning and Investment for sum-up and reporting to the Prime Minister
for consideration and decision.
For the Prime Minister
Deputy Prime Minister
HOANG TRUNG HAI
194
Appendix: Action by Responsible Agency
No.
Contents
I
General Policies
1
Strategy for development of Viet
Nam’s service sector to 2020
Formulating
and
applying
safeguard measures in the service
sector/sub-sector in conformity
with WTO regulations
Reviewing
WTO
accession
commitments on the service sector
and legal documents incompliant
with WTO regulations
Policies and measures to improve
the
investment-business
environment
Finance - Customs - Banking Securities
Law on Independent Audit
2
3
4
II
1
2
3
4
5
Agency in charge
Type
of Deciding
document
authority
Directing document
Due Date
Ministry of Planning
and Investment
Ministries
and
branches performing
line management of
service sectors
Ministries
and
branches performing
line management of
service sectors
Ministry of Planning
and Investment
Strategy
Prime Minister
2010
Decision
Prime Minister
and ministers
2009
Decision
Prime Minister Resolution No. 16/2007/ND- 2009
and ministers
CP of February 27, 2007
Scheme
Prime Minister
and ministers
Ministry of Finance
Draft law for Government
submission to
the National
Assembly
Draft law
Government
2009,
2011
Draft law
Government
2011
Government
2011
Government
2009
Law
Amending
and Ministry of Finance
Supplementing the Law on
Insurance Business
Securities Law (amended)
Ministry of Finance
Decree guiding the implementation Ministry of Finance
Decree
of the Law on Independent Audit
Scheme on establishment of export Ministry of Finance in Scheme
credit insurance organizations
collaboration with the
Ministry of Industry
2009
2010
6
7
8
Scheme on socialization of some
public services and continued
renewal of operation mechanisms
of public non-business units
Scheme on establishment of the
People’s Credit Fund Audit
Organization
Law on Credit Institutions
and Trade
Ministry of Finance
Prime Minister
Official Letter No. 246/TB- 2009
VPCP of September 8, 2008
State Bank of Viet Scheme
Nam
2009
State Bank of Viet
Nam
2009
9
Scheme on development of the State Bank of Viet
monetary market
Nam
10
Scheme on renewing financial and
monetary instruments and policies
and improving the State Bank’s
capacity
of
administering
monetary policy
Law on Safety Supervision of
Banking Activities
State Bank of Viet
Nam
12
Law on Deposit Insurance
State Bank of Viet
Nam
13
Law on the State Bank of Viet State Bank of Viet
Nam
Nam
14
Scheme on developing the State State Bank of Viet
Bank into a modern central bank
Nam
11
Scheme
State Bank of Viet
Nam
Governor
of
the State Bank
of Viet Nam
Draft law for Government
Resolution
No.
submission to
27/2008/QH12 of November
the National
15, 2008
Assembly
Decision
Governor
of
the State Bank
of Viet Nam
Decision
Governor
of Resolution
No.
the State Bank 23/2008/QH12 of November
6, 2008, and Resolution No.
of Viet Nam
30/2008/NQ-CP
of
December 11, 2008
Draft law for Government
submission to
the National
Assembly
Draft law for Government
submission to
the National
Assembly
Draft law for Government
Resolution
No.
submission to
27/2008/QH12 of November
the National
15, 2008
Assembly
Report to the Prime
Party’s
Minister;
2009
2009
2009
2009
2009
2009
15
16
17
18
Political
Governor
of
Bureau or the the State Bank
Prime
of Viet Nam
Minister
Scheme on studying and applying State Bank of Viet Decision
Governor
of Decision No. 94/QD-NHNN 2010
a new management model in the Nam
the State Bank of January 16, 2009
State Bank (consisting of two
of Viet Nam
schemes: (i) scheme on a salary
mechanism suitable to the
operation of the State Bank; and
(ii) scheme on recruitment and use
of employees)
Scheme on survey and evaluation State Bank of Viet Decision
Governor
of
2010
and classification of and general Nam
the State Bank
planning on the network of the
of Viet Nam
State Bank’s branches
Decree replacing Decree No. State Bank of Viet Decree
Government
Official Letter No. 66/VPCP- 2009
91/1999/ND-CP of September 4, Nam
TH of January 20, 2009,
1999, on organization and
Official
Letter
No.
operation of the State Bank’s
865/VPCP-TCCV
of
Inspectorate
February
12,
2009,
Resolution No. 01/NQ-CP of
October 9, 2009,
Resolution No. 30/2008/NQCP of December 11, 2008,
Decision No. 167/2008/QDTTg of December 12, 2008
and Decision No. 342/QDNHNN of February 19, 2009
Decree
amending
and State Bank of Viet Decree
Government
Decision No. 1507/QD- 2009
supplementing
Decree
No. Nam
NHNN of June 25, 2007
202/2004/ND-CP of December 10,
2004,
on
sanctioning
of
administrative violations in the
19
20
21
22
23
24
monetary and banking domain
Scheme on renewing off-site
supervision
and
information
updating
Scheme on establishment of
cooperative banks
Scheme on developing and raising
the
effectiveness
in
the
management of operation of nonbank credit institutions
Scheme
on
propagating,
developing and improving smallscale financial activities in hunger
eradication and poverty alleviation
Decree replacing Decree No.
49/2000/ND-CP on organization
and operation of commercial banks
Decree
amending
and
supplementing
Decree
No.
22/2006/ND-CP on organization
and operation of foreign banks’
branches, joint-venture banks,
wholly foreign-owned banks and
representative offices of foreign
credit institutions in Viet Nam
State Bank of Viet Scheme
Nam
Governor
of
the State Bank
of Viet Nam
Governor
of
the State Bank
of Viet Nam
Official Letter No. 40/CV- 2009
VP of March 31, 2004
State Bank of Viet Scheme
Nam
Governor
of
the State Bank
of Viet Nam
2010
State Bank of Viet Scheme
Nam
Governor
of
the State Bank
of Viet Nam
2010
State Bank of Viet Decree
Nam
Decree
2009
State Bank of Viet Decree
Nam
Government
2009
State Bank of Viet Scheme
Nam
Resolution No. 01/NQ-CP of 2009,
January 9, 2009, Resolution
No.
30/2008/NQ-CP
of 2010
December
11,
2008,
Resolution
No.
30a/2008/NQ-CP
of
December 27, 2008, Decision
No. 167/2008/QD-TTg of
December 12, 2008, and
Decision
No.
342/QDNHNN of February 19, 2009
III
1
2
3
4
5
6
7
8
9
Legal
Services,
Arbitration,
Commercial Conciliation
Drafting a decree guiding the
Arbitration Law
Formulating
a
scheme
on
improving
capabilities
of
arbitrators and arbitration centers
Formulating
a
scheme
on
organizing commercial arbitration
models in Viet Nam
Scheme on public notarization
planning up to 2020
Drafting a decree on asset auction
to
replace
Decree
No.
05/2005/ND-CP
Scheme on planning judicial
survey staffs
Scheme
on
developing
a
contingent
of
lawyers
for
integration purposes
Strategy
for
developing
a
contingent of lawyers up to 2020
Amending the Law on Lawyers
Ministry of Justice
Decree
Government
Ministry of Justice
Scheme
Minister
Justice
of
2010
Ministry of Justice
Scheme
Prime Minister
2010
Ministry of Justice
Scheme
Prime Minister
2009
Ministry of Justice
Decree
Government
2009
Ministry of Justice
Scheme
Prime Minister
2010
Ministry of Justice
Scheme
Prime Minister
2009
Ministry of Justice
Strategy
Prime Minister
2010
Ministry of Justice
Draft law for Government
submission to
the National
Assembly
Draft law for Government
submission to
the National
Assembly
10
Elaborating the Law on Asset Ministry of Justice
Auction
IV
Transport
1
Perfecting
the
system
of Ministry of Transport
environmental standards in the
transport domain
Decision
Minister
Transport
2010
2011
2011
of
2009
2
3
4
5
6
7
8
V
1
2
3
4
Formulating a general strategy on
development of transport and
transport support services
Formulating and implementing a
plan on training cadres and public
employees to meet requirements in
the new period
Scheme on planning coastal
expressway
Scheme on developing a passenger
transport route along the coast
Planning on the development of
Tan Son Nhat airport
Planning on the development of a
highway network
Overall planning on development
of sea transport up to 2020
Science and Technology
Ministry of Transport
Decision
Prime Minister
2009
Ministry of Transport
Decision
Minister
Transport
of
2011,
2012
Ministry of Transport
Scheme
Prime Minister
2009
Ministry of Transport
Scheme
Prime Minister
2009
Ministry of Transport
Scheme
Prime Minister
2009
Ministry of Transport
Scheme
Prime Minister
2009
Ministry of Transport
Scheme
Prime Minister
2009
Scheme
on
the
National
Technology Renewal Fund
Program on the development of
scientific
and
technological
enterprises and support for the
shift of public scientific and
technological organizations to
operate under the mechanism of
autonomy and self-responsibility
Scheme on establishing a system
of public services on industrial
property
Scheme on formulating and
implementing the national program
on improving productivity and
quality of Vietnamese enterprises
Ministry of Science Scheme
and Technology
Ministry of Science Program
and Technology
Prime Minister
2009
Prime Minister
2009
Ministry of Science Scheme
and Technology
Minister
of
Science
and
Technology
Prime Minister
2011
Ministry of Science Scheme
and Technology
2009
5
VI
1
2
3
VII
1
2
3
4
5
up to 2020
Scheme on the national technology Ministry of Science Scheme
renewal fund and the national hi- and Technology
tech venture fund
Information and Communications
Prime Minister
2010
Scheme on raising competitiveness
and accelerating the export of Viet
Nam’s
electronic
and
telecommunications products
Elaborating a list of domestically
available information technology
products and services
Ministry
Information
Communications
of Scheme
and
Prime Minister
2009
Ministry
Information
Communications
of Decision
and
2009,
2010
Planning for the development of
information
technology
and
communications up to 2020
Labor-Employment - Human
Resource Development
Scheme on development of a labor
market in Viet Nam up to 2020
Ministry
Information
Communications
of Scheme
and
Minister
of
Information
and
Communicatio
ns
Prime Minister
Scheme
Prime Minister
Resolution No. 25/2006/NQ- 2009
CP of October 9, 2006
Strategy
Prime Minister
2009
Decision
Prime Minister
2009
Strategy
Prime Minister
2010
Strategy
Prime Minister
2010
Strategy on human resource
development up to 2020
Scheme
on
renewal
and
development of vocational training
during 2008-2010
Ten-year (2011-2020) strategy and
five-year (2011-2015) plan on
employment
Ten-year (2011-2020) strategy and
five-year (2011-2015) plan on
vocational training
Ministry of Labor, War
Invalids and Social
Affairs
Ministry of Planning
and Investment
Ministry of Labor, War
Invalids and Social
Affairs
Ministry of Labor, War
Invalids and Social
Affairs
Ministry of Labor, War
Invalids and Social
Affairs
2009
6
7
8
9
10
VIII
1
2
IX
Ten-year (2011-2020) strategy and
five-year (2011-2015) plan on
poverty alleviation
Strategy on labor export up to
2020
Ministry of Labor, War Strategy
Invalids and Social
Affairs
Ministry of Labor, War Scheme
Invalids and Social
Affairs
Scheme on supporting poor Ministry of Labor, War Scheme
districts to accelerate labor export, Invalids and Social
contributing to fast and sustainable Affairs
poverty alleviation during 20092015
Scheme on vocational training for Ministry of Labor, War Scheme
demobilized armymen
Invalids and Social
Affairs
Prime Minister
2010
Prime Minister
Resolution No. 25/2006/ND- 2009
CP of October 9, 2006
Prime Minister
Decision No. 12/2009/QD- 2009
TTg of January 19, 2009
Prime Minister
Scheme on vocational training for Ministry of Labor, War Scheme
rural laborers up to 2020
Invalids and Social
Affairs
Distribution
Prime Minister
Notice No. 58/TB-VPCP of 2009
February 23, 2009, and
Resolution No. 30/2008/NQCP of December 11, 2008
Notice No. 56/TB-VPCP of 2009
February 20, 2009
Scheme on supervision of the
distribution system to fight
counterfeit goods and protect
consumers
Planning on development of
essential
commodities
for
production and social life, paying
attention to oil and petrol,
construction steel, fertilizers, food,
cement and medicines through
combining the production system
with the distribution system
Construction - Urban Centers Real Estate - Environment
Ministry of Industry Scheme
and Trade
Prime Minister
Resolution No. 22/2008/ND- 2009
CP of September 23, 2008
Ministry of Industry Scheme
and
Trade
in
coordination
with
relevant ministries and
branches
Prime Minister
Notice No. 133/TB-VPCP of 2009
April 20, 2009
1
2
3
4
5
6
7
8
9
10
Mechanisms and policies to Ministry of Planning
encourage
investment
in and Investment
environmental protection
Overall planning on collection and Ministry
of
treatment of solid wastes
Construction
and
Ministry of Natural
Resources
and
Environment
Law on House and Land Tax
Ministry of Finance
Decree,
Decision
Prime Minister
2009
Planning
scheme
Prime Minister
2009
Scheme
Prime Minister
2009
Strategy on development of human
resources in the construction sector
up to 2020
Scheme on development of the real
estate market
Ministry
Construction
of Strategy
Prime Minister
2010
Ministry
Construction
of Scheme
2009
Scheme on development of publicduty houses
Overall report on housing policies
for social beneficiaries
Ministry
Construction
Ministry
Construction
of Scheme
Party’s
Political
Bureau
Prime Minister
2009
Planning scheme on consolidated
rural residential quarters in areas
affected by natural disasters
Scheme on development of urban
centers up to 2025, according to
adjusted overall orientations on the
development of Viet Nam’s urban
center system up to 2015, and a
vision toward 2050
Scheme on studying
on the
development of coastal urban
centers in response to climate
change
Ministry
Construction
of Scheme
Party’s
Political
Bureau
Prime Minister
Ministry
Construction
of Scheme
Party’s
Political
Bureau
2009
Ministry
Construction
of Scheme
Prime Minister
2009
of Report
2009
2009
11
12
13
14
15
16
17
18
19
20
Scheme
on
increasing
the
capability
of
appraising
construction work quality
Scheme on formulating a model
mechanism
and
encouraging
various economic sectors to invest
in urban technical infrastructure
projects
Scheme on replacing baked
materials with non-baked materials
Strategy on development of the
construction industry up to 2020
Decree
amending
and
supplementing a number of articles
of Decree No. 99/2007/ND-CP on
management
of
construction
investment costs
Decree
on
contracts
in
construction activities
National strategy on development
environmental technologies up to
2020
Scheme on assurance of the
mobilization of land- and real
estate-related rights under the
market mechanism as a capital
source for production and business
activities
Scheme on development of
environmental
services
in
conformity
with
WTO
commitments to serve attraction of
foreign investment capital
Scheme on socialization of water
Ministry
Construction
of Scheme
Prime Minister
2009
Ministry
Construction
of Scheme
Prime Minister
2009
Ministry
Construction
Ministry
Construction
Ministry
Construction
of Scheme
Prime Minister
2010
of Strategy
Prime Minister
2010
of Decree
Government
2009
Ministry
Construction
Ministry of
Resources
Environment
Ministry of
Resources
Environment
of Decree
Government
2009
Natural Strategy
and
Prime Minister
2011
Natural Scheme
and
Prime Minister
Resolution No. 22/2008/NQ- 2010
CP of September 24, 2008
Ministry of
Resources
Environment
Natural Scheme
and
Prime Minister
Directive No. 15/2007/CT- 2009
TTg of June 22, 2007
Ministry
Natural Scheme
Prime Minister
2011
of
21
22
X
1
2
3
services and development of a
multi-sectional water economy in
conformity with the socialismoriented market economy
Scheme on the
collection of
charges for environmental services
in the protection of the river basin
environment, which will be
applied on a trial basis to the
basins of Cau, Nhue, Day and
Dong Nai rivers
Scheme
on
increasing
meteorological and hydrological
activities along the line of
commercialization
Culture - Social Affairs - Sports Tourism
Draft decree on mobilization of
non-state sources for investment in
the development of socio-cultural
domains
(culture,
healthcare,
education and training, sports and
physical training)
Formulating mechanisms and
policies on further socializing the
restoration,
preservation
and
development of historical relics
and beauty spots for economic and
social development
Overall planning and policies to
support the development of
cultural,
recreation
and
entertainment establishments for
children
Resources
Environment
and
Ministry of
Resources
Environment
Natural Scheme
and
Minister
of
Natural
Resources and
Environment
2010
Ministry of
Resources
Environment
Natural Scheme
and
Minister
of
Natural
Resources and
Environment
2011,
2012
Ministry of Planning Decree
and Investment
Government
2009,
2010
Ministry of Culture, Scheme
Sports and Tourism
Prime Minister
2009,
2010
Ministry of Culture, Planning
Sports and Tourism
scheme
Prime Minister
2009,
2010
4
5
6
Scheme
on
restoration
of
historical-cultural,
historicalrevolutionary and war relics,
preservation, maintenance and
development
of
UNESCOrecognized natural and cultural
heritages up to 2010, and a vision
toward 2020
Formulating mechanisms and
policies
to
encourage
the
development of the system of
counseling and caring services for
elderly people
Formulating
a
plan
on
communication on family-related
issues
Ministry of Culture, Scheme
Sports and Tourism
Prime
Minister,
2009,
2010
Ministry of Health
Prime
Minister,
Minister
Health
2009
Decision
Ministry of Culture, Decision
Sports and Tourism
of
Prime
Minister,
Minister
of
Culture, Sports
and Tourism
2009,
2011
Attachment 2: Proposed Services Policy Consultative & Implementation Mechanism
Office of the Prime Minister or Office of Government
Role: Policy and Planning Direction, Coordination, Oversight
Ad Hoc Issue-Specific Work Ad Hoc IssueSpecific Working Groups
Role:
- To examine specific issues in depth as
requested by the Executive Group
--
- To commission expert research and analysis as
necessary, with clear ToRs
- To consult with relevant stakeholders
- To provide recommendations and action
plans to Executive Group and otherwise assist
it in evaluation and decision-making
Comprised of highly motivated working-level officers from
relevant agencies, business associations, NGOs, academia,
and experts
Executive Group
Role:
- To actively drive and monitor services policy
implementation, including international
obligations and sectoral strategies
- To discuss and evaluate specific services policy
issues, with the aim of providing well
considered policy advice to the Prime Minister
and Government
- To establish, as necessary, ad hoc Working
Groups to analyse specific issues and develop
policy options/recommendations and action
plans
- To prepare an annual Work Programme and
Action Plan, fitting into the 5-Year Plan
- To monitor results against milestones
- To take action as necessary to push things along
- To issue an annual report
- To brief Parliament and PM on progress at least
annually
- To enhance awareness of services policy issues,
including through the media
↓↑
Services/Trade Policy Think Tanks
Role:
- To provide rigorous analysis and
innovative thinking on specific services
sector and trade policy issues
- To further develop services and trade policy
analytical capacity
- To network with regional counterparts and
participate in regional and international
debate on services sector issues, including
services trade matters
Comprised of local analysts, researchers, academics
Comprised of Ministries involved in
priority services sector policy formulation
and implementation, led by MPI as lead
Services coordinating agency
Attachment 3: Draft Trade Policy Consultative & Implementation Mechanism
Minister of Industry and Trade
Role: Leadership, Policy Direction, Oversight,
Trade Policy Consultative Group
Role:
- To meet regularly to discuss and evaluate
specific trade policy issues, with the aim of
providing well considered policy advice to
Government
- To assist in monitoring and encouraging
implementation efforts
- To suggest analysis and work on specific
issues, setting up issue-specific Working
Groups to develop recommendations
- To enhance awareness of trade policy issues,
including through the media
- To increase participation in and ownership of
policymaking
Comprised of representatives of selected
Ministries, private sector associations,
NGOs, academia.
Core Implementation Group
Role:
- To actively oversee implementation of
WTO commitments and other trade policy
programmes
- To prepare annual Work Programme and
Action Plan
- To monitor results against milestones
- To take action if necessary to push things
along
- To meet monthly, with focused agendas
- To issue minutes and annual report
- To brief Parliament and PM
- To meet Consultative Group to discuss
specific priority issues
Comprised of Ministries involved in WTO
accession and trade policy implementation, led by
Trade Ministry.
___________________________________________
Trade Policy Think Tanks
Issue-Specific Working Groups
Role:
- To examine specific issues in depth as
requested by Trade Policy CG
- To commission expert research and
analysis as necessary, with clear ToRs
- To provide policy suggestions and options
to TP CG and otherwise assist evaluation
and decision-making
Comprised of interested mid-level officers
from Trade Policy Consultative Group
members.
Role:
- To provide rigorous
analysis and innovative
thinking on specific trade
policy issues
- To further develop domestic
trade policy analytical
capacity
- To network with regional
counterparts and participate
in regional and
international debate
208
PART II: SECTORAL REPORTS
CHAPTER 1: BUSINESS AND PROFESSIONAL SERVICES
1.1 Business and pr ofessional ser vices
1.1.1 General features
Business and professional services comprise of important supporting services for the
economy like legal services, accounting and auditing services, taxation services, engineering
services, computer services, research and development services, advertising services, market
research services, management consultant services, services incidental to mining,
manufacturing, agriculture, etc.
Although being quite new in Viet Nam, business and professional services are among the
fastest growing areas in Viet Nam. The reason lies in the fact that business and professional
services are areas where small and medium sized enterprises (SME) have advantages while
most of Viet Nam’s enterprises are SMEs. In recent years, Viet Nam’s SMEs are developing
and growing at high rate and become the most dynamic sector in the economy, many of
which involving in supplying of business and professional services.
From the overall economic perspective, business and professional services play the
supporting role for the whole Viet Nam’s economy, which has record remarkable growth
rates in the last 20 years (the annual growth rate in the last 20 years averaged at about 7%).
Although economic growth in terms of quantity is remarkable, the quality of growth has not
been analyzed intensively, however, many studies have shown that the efficiency and
competitiveness of the economy depend to a certain extent on the efficiency of business and
professional services.
With the fast development of business and professional services, more and more enterprises
and even people get used to using those services, however, the ratio of enterprises which
know about and use the services is still limited. Markets for business and professional
services mostly concentrate in major cities like Ho Chi Minh City and Ha Noi. A research
carried out by Viet Nam’s Chamber of Commerce (VCCI) and GTZ-SME Promotion Project
in 2006 showed that Ho Chi Minh city and Ha Noi accounted for 90% market shares of
business development services (mostly important business and professional services like
accounting and auditing services, legal services, management services, marketing and
advertising, technical consulting services, etc). However, many enterprises have not used
business and professional services. This fact also explains why the market scale for business
and professional services remains quite limited.
The legal environment for business and professional services in Viet Nam has been
improving, creating an improving framework for the establishment and operation of services
suppliers. However, many business and professional services are still subject to general legal
framework like Investment Law, Law on Enterprise, without any specific regulation, this fact
also contribute to the lack of adequate supervision, especially in terms of services quality. As
209
a result, the Government should pay attention to the actual development of many business
and professional services and consider the need to have specific regulations on these services.
-
The prominent features relating to operations, legal framework and environment
for the development of business and professional services in Viet Nam are:
-
The market structure is characterized by a lot of small and medium sized services
suppliers, competing with each other mostly through prices rather than quality;
Many services just recently appear and are just at an “infant” stage of development. There are
also services previously provided “in-house” by enterprises, especially services incidental to
agriculture ore manufacturing;
-
Although becoming more simplified, the licensing procedures are still
complicated and time consuming, which have been identified as an obstacle in the
business environment of enterprises.
-
There has been a lack of professional standards as well as proper supervision from
the government or professional associations on the services provided by
enterprises as well as on the quality of services.
-
Although Viet Nam has a young and intelligent labour force, the training system
to provide qualified professionals for those services is weak, hampering their
development. One of the reasons is the lack of attention from services suppliers on
the training for their staff as well as on cooperation with training institutions.
-
There is no detail statistics on development of business and professional services.
Even with important services like legal services, accounting and auditing services,
statistics is scattered. This fact may cause difficulties for policy makers in
considering appropriate policies and measures on those services.
As a result, the key conditions for the development of business and professional services is to
simplify licensing procedures, promoting strict professional standards, increasing the
supervision over implementation of these standards as well as improving the data collection
work. Together with the promotion of professional standards, the Government should
encourage the discussions and signing of mutual recognition agreements between Viet Nam
and other countries since small and medium services suppliers or their associations may not
have sufficient resources to promote such agreements.
Another important feature in the environment for the development of Viet Nam’s business
and professional services has been the opening of the market for trade in professional
services. The most comprehensive and profound commitments on trade in business and
professional services have been made when Viet Nam acceded to the WTO. Viet Nam’s
WTO commitments for business services cover 26 out of 46 sub-sectors (out of the total of
46). They include professional services (for instance legal, accounting, taxation, architecture,
engineering etc.), computer, research and development and other business support services
(e.g. advertising, market research, sevices incidental to agriculture, mining and
210
manufacturing). For all those services Viet Nam has generally permitted, with a few
exceptions, cross-border supply and consumption abroad. However, establishment of
commercial presence for foreign suppliers of business services is still subjec to certain
restrictions, including limitations on the scope of permitted activities, the forms of
establishment permitted, limitation to foreign capital participation, reservation of transition
periods for further market opening and other limitations.
From the imlementation perspective, Viet Nam has implemented its GATS and other
international commitments on business and professional services closely. However, it seems
that while paying attention to international obligations, there is a lack of attention to the real
needs of the economy, especially in areas when no commitments have been made. In many
cases, the participation of foreign sides should be considered from the needs of the economy,
rather than on just follow “mechanically” GATS commitments.
The characteristics and issues for business and professional services to Viet Nam economy
has been pointed out by a study by UNDP:
- The quality of business services is a critical factor in firms’ competitiveness;
- While the majority of firms choose to compete on service quality, the quality of
services that firms are either providing or consuming is far from sufficient quality for their
competitiveness, which implies several quality issues of services in Viet Nam in general and
of business services in particular.
- The price of business service inputs continues to affect firms’ competitiveness;
- There is a need for further removal of barriers to providing quality business services,
given the important role that they play in affecting the competitiveness of all economic
activity and also in job creation.
- Further work is required on the part of the Government in order to further improve
the regulatory framework for the strong development and growth of the business services
sector.
Box 1: Business development services in Viet Nam-a survey
The research carried out by VCCI and GTZ-SME Promotion Project focus on the
“business development services” in Viet Nam, most of them are business and
professional services like accounting and auditing services, legal services, business
management training services, business consultancy, advertisements, market research,
product design services, exhibition services, internet information services, vocational
training, IT services, etc. The research was carried out through interviews with more
than 1,200 enterprises in 6 major cities and provinces, i.e. Ha Noi, Hai Phong, Da Nang,
Ho Chi Minh city, Binh Duong and Dong Nai).
The research shows that, among others, Ho Chi Minh city and Ha Noi held more than
90% of the market share of business development services (Ho Chi Minh city accounts
211
for more than 60%. The market volume for those services in 2001 was just more than
VND 400 billions. Details of market volume are as follows:
Market volume for business development services: (in VND)
Accounting and auditing services:
Legal services:
Management training services:
Advertisements and promotion services:
Market research:
Product design:
Exhibition services
Quality and environmental services:
Information system services:
Computer services:
Internet information services:
Vocational and technical training services:
Technology consultancy services:
TOTAL:
45.799.674.021
14.283.011.464
2.720.368.513
84.305.746.486
4.002.973.065
20.783.112.707
8.999.796.178
6.655.306.372
3.292.531.054
8.341.977.266
7.799.876.651
10.423.743.747
19.408.528.763
412.819.539.662
Source: Business development services Survey by VCCI, GTZ and Swisscontact,
2003.
1.2 Pr ofessional ser vices
1.2.1 Legal services, arbitration and conciliation services for commercial disputes
between businesses
Legal services, arbitration and conciliation services (hereinafter referred to as “legal”
services) have been developing gradually in recent years, services have become more
diversified and services’ quality is improving. It can be said that legal services have been
playing the supporting role for many activities of businesses and people in Viet Nam, from
the establishment of enterprises to their everyday operations. The forms and activities of legal
services providers are also expanded.
With respect to the sector’s structure, it is characterized by a large number of services
providers, mostly law offices. However, the quality of services provided by those services
providers is still limited, especially in such fields of international trade, business, etc.
From the “demand” side, although legal services were a strange concept for most people and
enterprises in the last decade, nowadays, to a certain extent, enterprises have understood the
importance of legal services. However, not many people and enterprises get used to legal
consultancy and other services.
The training system for legal practitioners and lawyers is quite comprehensive as compared
with other business and professional services. There are universities specializing on training
212
law students, there are also many law faculties in Universities. However, it seems that the
training curriculum in those law Universities and faculties does not keep pace with practical a
development, that’s why students graduating from law schools and laws faculties usually do
not meet the requirements from practical work.
The legal framework for legal services in Viet Nam includes (i) the Law on Lawyers; (ii)
Ordinance on Commercial Arbitration; (iii) Decree 28/2007/ND-CP of 26/02/2007 guiding
the implementation of the Law on Lawyers; and (iv) and Decree 65/2003/ND-CP of
11/6/2003 on Organization and Operation of Legal Consultancy. These laws and regulations
have provided for rights, obligations of lawyers and lawyers organizations.
With respect to the participation of foreign lawyers and lawyer organizations, so far, there
have been many forms of presence of foreign lawyer organizations and foreign law firms in
Viet Nam like Baker & McKenzie, Vovan & Associés, Russin & Vecchi, Lucy Wayne &
Associates, Clifford Chance, etc. The scopes of operation for branches of foreign lawyer
organizations and foreign laws firms have been expanded, for example they can create
partnerships with Viet Nam’s lawyer organizations to provide consultancy services on
Vietnamese laws.
Although the conditions for operation of lawyers and lawyers’ organizations have been
improved, but the quality of legal services in Viet Nam is still limited, this limitation has been
most clearly demonstrated in the economic, trade and investment areas. There are few
lawyers who understand international rules and laws on those areas, which have put Viet
Nam’s enterprises and investors at a disadvantages position when doing business with foreign
partners. The impact of this limitation is becoming more adverse when Viet Nam is
integrating further into the world economy.
GATS commitments
With respect to international commitments to open its legal services, Viet Nam has
undertaken commitments on legal, advisory and representation services in different fields of
law (CPC 861), but excluding participation in legal proceedings in the capacity of defenders
or representatives of their clients before the courts of Viet Nam, and legal documentation and
certification services of the laws of Viet Nam. Foreign lawyer organisations are permitted to
establish commercial presence in Viet Nam in the form of branches or subsidiaries of foreign
lawyers’ organisations, foreign law firms or partnerships betwen foreign lawyers’
organisations and Vietnamese law partnerships. Commercial presence of foreign lawyers’
organisations are only permitted to provide consultastion on Vietnamese law if the consulting
lawyer has graduated from a Vietnamese law college and satisfies requirements applied to
like Vietnamese law practicioners. Viet Nam has granted national treatment for commercial
presence of foreign lawyers’ organisations in Viet Nam. Regarding temporary movement of
foreign lawyers into Viet Nam for the supply of legal services, only the categories of service
suppliers defined in the horizontal part of Viet Nam’s Schedule are permitted to enter the
country.
213
For arbitration and conciliation services, Viet Nam has made unlimited commitments relating
to cross-border supply and consumption abroad. Commercial presence is unbound for three
years after WTO accession. After that (from 11 January 2010), no restrictions will apply.
With the openning up of the market for legal services, competition pressure will increase,
bringing about both advantages and disadvantages for local services suppliers, espcially in
the area of international trade and economic laws.
In order to develop the legal services, the following issues should be considered by the
regulatory authority:
-
Simplify the licensing procedures for the services, paying attention to the
qualification requirements rather than the procedures themselves;
-
Upgrading training curriculum in law universities and faculties, making them keep
pace with latest practical developments;
-
Providing training opportunities and programs for lawyers, especially in areas
relating to language training, international trade, investment;
-
-Supporting information dissemination programs to increase the understanding and
perception of enterprises and people on the importance and usefulness of legal
services.
1.2.2 Accounting, Auditing, Bookkeeping and Taxation Services
Accounting, auditing and bookkeeping services play the pivotal role for the economy in
general and for the operation of enterprises in particular. Accounting services bring benefits
to not only enterprises but also investors, management agencies and the whole economy.
The current legal framework for accounting, auditing, bookkeeping and taxation services
consists of (i) Law on accounting; (ii) Tax Law; (iii) Decree No. 129/2004/ND-CP guiding
the implementation of the Tax Law; (iv) Decree No. 105/2004/ND-CP on independent
auditing; (v) Decree No. 133/2005/ND-CP and; (iv) guiding documents. The legal framework
has created favourable conditions for the development of accounting, auditing and
bookkeeping services.
The professional standards have also promulgated and improved, making important
contribution to guiding, improving quality of accounting, auditing and bookkeeping services.
There are also two important professional associtions, which are Viet Nam Accounting and
Auditing Association and Viet Nam Association of CPAs, creating professional fora to
exchange knowledge, experiences, new laws and regulations, thus improving the capability
for accountants and auditors.
From the starting point of just two accounting and auditing services, there are more than 160
enterprises providing financial and accounting, auditing consultancy services with a total
number of more than 5,000 staff, of which 1,500 people are CPAs and nearly 1,000 people
have registered for practicing services, belong to all economic sectors (state-owned, private,
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foreign invested) with hundreds of branches and offices nationwide. Among the enterprised
licenced by the Ministry of Finance in 2007, 2008 to provide accounting, auditing services
for enterprises, there are nearly 20 services providers granted the rights to privide auditing
services to securities companies and listed enterprises.
The market has been open for the participation of foreign services providers. There have been
four 100% foreign invested service prividers operating in Viet Nam, which are KPMG, PwC,
Grant Thornton, Ernst & Young and nearly 10 Viet Nam’s accounting and auditing
enterprises recognized by major international accounting and auditing companies as their
members like A&C, U&I, UHY, ACPA, ACA Group, AC&C, Vietauditor, DTL, etc. The
operation of those accounting and auditing enterprises in Viet Nam has promoted further
competition, forcing service providers to continuously improve services’ quality. This has
been making important contribution to the development of the accounting and auditing
service in Viet Nam.
In terms of revenues, after more than 15 years of development, the total revenue of the sector
has achieved remarkable growth. In 2006, the total revenue reached an encouraging number
of VND 888 billions, this demonstrated the efforts made by accounting, auditing and book
keeping services suppliers as well as the wider acceptance of the market for those services.
Although having achieved significant developments, the accounting, auditing and
bookkeeping sector in Viet Nam still has many limitations:
Firstly, the competitiveness of most accounting, auditing services suppliers remains low,
except for a few suppliers being members of international companies and 100% foreign
invested enterprises, most of the remaining companies have not been able to follow
international standards. As a result, Viet Nam’s accounting and auditing enterprises will face
difficulties, given the new competitive environment when Viet Nam has become a full
Member of the WTO.
Secondly, the number of accountants and auditors is still low and their capability remains
limited. Meanwhile, the training activities only receive attention in major companies.
Thirdly, accounting services have not been widely used. Among the services provided by
accounting and financial services suppliers, accounting services make up only 5-10%. More
generally, the profitability of accounting and auditing services remains limited.
Fourth, the system of accounting and auditing services have not been completed, there is not
enough necessary legal documents to control the quality of accounting and auditing services
provided.
GATS commitments
Viet Nam undertook commitments without limitations for accounting and auditing and
bookkeeping services (CPC 862). According to CPC, these services include financial auditing
(86211), accounting review (86212), compilation of financial statement services (86213),
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bookkeeping services except tax returns (86220) and other ather accounting services (86219)
such as such as attestations, valuations, preparation services of pro forma statements.
Viet Nam committed to these services in modes 1, 2 and 3. Accordingly, foreign accounting
firms can provide services with the only limitation stated in the horizontal section of the
GATS Schedule. In particular, foreign auditing and bookkeeping companies can provide
cross-border services without having a commercial presence in Viet Nam. Regarding mode 4,
accountants and auditors may be considered as “specialists”, therefore they shall benefit from
the specific horizontal commitments for this category of providers. National treatment shall
apply for all certification activities of foreign auditing and bookkeeping companies.
In addition to commitments made under WTO, Viet Nam has also committed to market
opening for accounting and auditing services under regional FTAs. Agreement within
ASEAN is deemed to be the most important, according to which complete liberalization (on
all four modes) has been targeted for achievement by 2015. Nevertheless, such commitments
are currently undergoing negotiation for specific and detailed roadmap.
For taxation services, Viet Nam committed business tax planning and consulting services
(CPC 86301), business tax preparation and review services (CPC 86302), individual tax
preparation and planning services (CPC 86303) and other tax related services (CPC 86309),
defined as “services consisting in assisting enterprises in tax planning and control other than
income tax and preparing all documentation required by law”.
Full commitment has been agreed for Modes 1 and 2. Accordingly, foreign companies can
provide all tax services to Vietnamese persons without having to establish a commercial
presence in the country.
Commercial presence is fully bound with two limitations:
+ For 1 year after the date of accession (until 11 January, 2008), licenses would be
granted on a case-by-case basis, with the number of service providers decided by the Ministry
of Finance 'based on the development of the market of Viet Nam' (economic need text). It is
specified that the main criteria for the economic need text include the number and the
operation of enterprises in the market and their impact on the stability of the market and the
economy
+ During the same period of time, foreign-invested enterprises providing taxation
services will be allowed to supply services to foreign-invested enterprises and foreign funded
projects in Viet Nam.
Together with Viet Nam’s integration process is the growing confidence of foreign investors
on Viet Nam’s market. Viet Nam will have chances to attract more foreign investment,
however, there will be more competition and accounting services will be an important
management tool which nearly all enterprises should pay attention to. The requirements for
transparent financial information and “clean” accounting data to gain trusts from investors
will open a vast market for accounting and auditing services providers. In order to develop
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the sector and market effectively, there should be positive guidance for economic operators in
the market:
- From the Government: the Government should establish and develop a complete
legal framework to ensure a level playing field for the development of enterprises
in general and accounting, auditing, bookkeeping services providers in particular.
More specifically:
+ The Ministry of Finance should review, update and improve the set of corporate
accounting standards, promulgating new standards, etc
+ The Ministry of Finance should issue the Regulation on management of accounting
practicing.
+ Improving and completing regulations on responsibility of accounting, auditing
services suppliers towards the quality of services provided.
+ Enhancing penalty mechanisms for violations of professional ethics;
+ The Government should simplify the licensing procedures and transfer the
management role of accounting, auditing and bookkeeping services from the Government to
professional associations.
- From professional organizations:
+ VAA and VACPA should increase their capability and social responsibility; reform
them, taking active approach on their operations to become independent, highly professional
organizations. Those organizations should also be able to carry out effectively training
programs and supervising responsibility.
+ Enhance the supervision of professional organizations on the activities of
accounting and auditing services providers.
+ Ministry of Finance, VAA and VACPA should carry out necessary procedures so
that Viet Nam’s CPAs are recognized regionally and internationally.
From the part of training institutions:
+ They should increase the training quality for students, participants, attention should
be paid to enhance ethnics requirements for accounting and auditing professions.
+ Training programs and curricula should be updated to follow latest development in
reality and best practices so that Viet Nam’s certificates can be recognized;
- From the part of services providers: they should establish and improve their
requirements and enhance the supervision over accounting activities, ensuring quality
through professional requirements and procedures for services suppliers and accountants,
auditors;
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- Viet Nam’s accounting services suppliers should follow strictly professional
standards and requirements established by professional organizations. They should also
associate and support each other to develop common strengths and advantages;
1.2.3 Architectural services; engineering services; integrated engineering services;
urban planning and urban landscape architectural services
Architectural, engineering and integrated engineering services have been developing very
significantly in Viet Nam recent years, mostly thanks to the fast growing economy and a
booming real estate services. Real estate is also the area which attracts most foreign
investment. In 2007 only, foreign direct investment in the real estate area reached USD 5
billions, accounting for 25% of the total registered FDI in Viet Nam, the corresponding
number in 2008 was 36.8%.
The legal framework for architectural, engineering and integrated engineering, urban
planning and urban landscape architectural services in Viet Nam includes:
-
Decree No 12/CP to amend the previous Decree of the Government
-
Decree No 88/1999/ND-CP on the issuance of tender regulations
-
Decree No 14/CP to amend the Decree 88/1999/ND-CP on the issuance of tender
regulations
-
Decree No. 16/2005/NP-CP of 7 February 2005
-
Decision No. 15/2005/QD-BXD
-
Decree No. 29/2007/ND-CP on urban planning management
The number of services providers is growing very fast, most of which are small and medium
sized enterprises. The market is characterized by a big number of private, small and medium
sized enterprises competing with a few foreign directed enterprises and state owned ones.
However, the quality of service receives insufficient attention. The standards on the quality of
services supplied are not up to date and there is a lack of supervision mechanism on the
implementation of those standards.
In reality, Viet Nam has allowed joint-ventures and 100 per cent foreign invested to provide
services in Viet Nam. In terms of number of services providers, statistics show that there
have been more than 600 architectural, engineering and integrated engineering services
providers in Viet Nam, of which class I and class II enterprises (or equivalent) account for
nearly 50%, the remaining of them are class III or class IV enterprises at local level. Out of
more than 600 services providers, State owned enterprises account for about 75%, foreign
invested enterprises account for 3% and private ones account for 22%. So far, the activities of
those services providers mostly focus on designing services (accounting to nearly 50-60% of
their revenues), surveillance (10-20%). According to experts in the sector, the activities of
joint-ventures have not been as efficient as expected because foreign partners have not
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brought their leading experts/engineers to Viet Nam, the technologies they bring to Viet Nam
is also not the most up-to-date ones.
Although the number of services providers is increasing at a high rate, the cooperation among
services providers is still limited. Associations of architectural, engineering and integrated
engineering services providers have not played active roles in promotion of such cooperation.
The urban planning and urban landscape architectural services have not developed in Viet
Nam since they have been provided by government departments, agencies. Viet Nam’s
enterprises therefore have little experiences in those areas. Just very recently, there are some
urban planning activities using services provided by services providers (private or foreign
enterprises).
With respect to the demand, although Vietnamese people have paid attention to the
importance of architectural, engineering and integrated engineering services, market is still
limited to big cities like Ho Chi Minh and Hanoi. People in rural still rarely use the services,
perhaps mostly due to habits and economic reasons.
With respect to professional standards, the standards in Viet Nam are set by the Government
rather than by professional associations. The professional associations also do not pay proper
attention to strengthening and supervising the implementation of those standards, leading to
the fact that quality of services provided may vary, putting consumers at a disadvantage
position.
GATS Commitments
Viet Nam’s commitments in these service sectors are quite liberal, although there are some
limitations which have not been applied in reality. Viet Nam undertook to fully open crossborder trade and allow unrestricted consumption abroad, investment trade (commercial
presence) is allowed to enterprises which are juridical persons in their home countries. For
the period of two years from the date of accession, 100 per cent foreign-invested enterprises
may only provide services to foreign-invested enterprises in Viet Nam. For urban planning
and urban landscape architectural services, 100% foreign-invested enterprises may be
established only 2 years after WTO accession. The supply by foreigners of services related to
topographical, geotechnical, hydro-geological and environmental surveys and technical
surveys for urban-rural development planning, sectoral development planning are subject to
the authorization of the Government of Viet Nam.
In order to create an enabling environment for architectural, engineering and integrated
engineering, urban planning and urban landscape architectural services, the Government
should simplify the licensing procedures and gradually transfer the management role to
professional associations. Professional standards are the deciding factor for the development
of the sector and should be given priorities by both government and professional
organizations. On their part, professional institutions should increase their capacity and
capability on promulgation of new standards and supervision on the implementation of those
standards.
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1.2.4 Veterinary services
These services are very new to Viet Nam. Although Viet Nam is an agricultural country,
agricultural services in general and veterinary services in particular have been usually done
“in house”. The market has just been developing in recent years, although very limited. There
are no study on existing situation of the market, however, with the fast development of the
agriculture sector and the diversification of services present in the market, it can be seen that
the sector has huge potential for development.
Veterinary services are also subject to general laws and regulations like Law on Enterprises,
Law on Investment and their guiding documents. There is no specific regulation for
veterinary services; however, there are several regulations on agricultural activities which
may relate to veterinary services.
GATS commitments
Upon its WTO accession, Viet Nam has opened up the following sectors: services for pets
and other veterinary services delivered to animals other than pets. In these sectors, no
limitations apply to cross-border provision and consumption abroad. As regards commercial
presence, no limitations apply for national treatment commitments, however as regards
market access commitments, access is granted to natural persons exclusively for the conduct
of private professional practice and under the authorization of veterinary authorities.
Moreover, Viet Nam also makes commitments to allow specialists in the area to temporarily
enter and stay in Viet Nam as intra-corporate transferees for a certain period of time.
Veterinary services are very pre-mature in Viet Nam and the most important policy for the
government to encourage the development of this sector is to create an enabling environment,
especially through simplifying the licensing procedures.
1.3 Computer and r elated ser vices
Computer and related services have been developing very fast in Viet Nam recently, thanks
to the revolutionary evolvements of the information technologies. Major features of the
services include high number of private, small and medium sized enterprises. The types of
services provided are also increasing, including consultancy services, software development
and implementation services, data processing services, database services, maintenance and
repair services.
The structure of the computer and related services is characterized by a few major enterprises
and numerous small and medium sized ones. The number of services providers increase day
by day, most of them is SMEs. The competition is fierce, mostly through prices. There is a
lack of adequate mechanisms to supervise the quality of services provided. The role of
professional associations is limited, especially in terms of setting quality standards and
supervision of the implementation of those standards.
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Although being considered as having competitive advantages with respects to computer and
related services, Viet Nam is facing with the challenges of training qualified engineers and
people in the area. It has been estimated that in order to serve the development needs of the
IT sector and the economy, Viet Nam should have 12,000-15,000 new engineers each year in
the 2008-2010 period.
Computer and related services are subject to general laws and regulations in Viet Nam like
Law on Enterprises, Law on Investment, etc. There has been no specific Law governing these
services. However, the government has been supportive of the development of the
Information Technology in general and computer and related services in particular.
GATS Commitments
When acceding to the WTO, Viet Nam committed all computer and related services, i.e.
consultancy services related to the installation of computer hardware, software
implementation services, data processing services, data base services, maintenance and repair
services of office machinery and equipment including computers, and other computer
services.
Mode 1: Viet Nam has made full commitments both in terms of Market Access and
National Treatment. There is no specific restriction in Vietnamese laws on cross border
supply of computer and related services. In particular, Article 75.2.b of the Commercial Law
provides the legal basis for this mode of service supply. Unless otherwise provided for by
law or treaties to which Viet Nam is a contracting party, merchants shall have the rights to
use services provided in the territory of Viet Nam by non-residents of Viet Nam.
Mode 2: Viet Nam has made full commitments both in terms of Market Access and
National Treatment. Vietnamese law sets forth no specific restriction on cross border supply
of computer and related services.
Mode 3: Viet Nam has committed that until 11 January 2009, 100% foreign-invested
enterprises may only provide services to foreign-invested enterprises in Viet Nam.
Branching is allowed as from 11 January 2010 and the chief of the branch has to be resident
in Viet Nam.
The Investment Law sets forth the general framework on forms of foreign investment. With
respect to branching, the Commercial Law sets forth legal rules for it. Article 3.7 of the Law
provides the definition of a Viet Nam-based branch of a foreign merchant. Article 16.2
provides that foreign merchants are entitled to set up branches in Viet Nam and such
branches have the rights and obligations specified by Vietnamese law. Foreign business
entities shall be held responsible under Vietnamese law for all activities of their Viet Nambased branches. Articles 19 and 20 of the Law set forth the rights and obligations of Viet
Nam-based branches of a foreign merchant. In addition, some other rights of such branch are
provided for in the Law, such as the right to conduct sales promotion (Article 91), the right to
commercial advertising (Article 103), the right to display and introduce goods and services
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(Article 118), and the right to organize or participate in trade fairs and exhibitions (Article
131).
Mode 4: Unbound, except as indicated in the horizontal section.
In order to develop computer and related services, the two most important aspects which
should receive attention from government are:
- Education and training: the government should implement policies and measures to
support education and training on computer and related services. As presented above,
although being considered as having potential in the area, Viet Nam still lack of good IT
engineers;
- Simplifying licensing and administrative procedures in order to promote the
dynamism of enterprises in the sector.
1.4 Resear ch and developments ser vices
Research and development services include services on natural sciences, which are research
and experimental development services on natural sciences and engineering. Those services
are research and experimental development services on physical sciences (Research and
experimental development services on physical sciences, including research and experimental
development services on heat, light, electromagnetism, astronomy, etc), research and
experimental development services on chemistry and biology (Research and experimental
development services on chemistry and biology, including research and experimental
development services on catalyses, fermentation, physiology and ecology of animals and
plants, microorganisms, etc), research and experimental development services on engineering
and technology (Research and experimental development services on engineering and
technology, including research and experimental development services on applied science
and technology for casting, metal, machinery, electricity, communications, vessels, aircraft,
civil engineering, construction, information, etc), research and experimental development
services on agricultural sciences (Research and experimental development services on
agricultural sciences, including research and experimental development services on
agricultural techniques, fruit culture, forestry, stockbreeding, fisheries), research and
experimental development services on medical sciences and pharmacy (Research and
experimental development services on medical sciences and pharmacy, including research
and experimental development services on treatment of diseases, preventive hygiene,
pharmacy, etc), research and experimental development services on other natural sciences.
The research and development services have not been very mature in Viet Nam, previously,
most research and development activities have only been carried out by state owned entities,
i.e. research institutes, universities, etc. Recently, there have been some research and
development services provided by the private sector. Until very recently, there was nearly no
research and development “services” per- se in Viet Nam. Just only the last few years,
several services providers begin to operate in Viet Nam, however, the research capabilities of
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Vietnamese enterprises remain very limited due to their small sizes. That’s why it would be
premature to say that a market for research and development services has developed in Viet
Nam.
Viet Nam is very supportive of the development of research and development activities,
that’s why these services are subject to general laws and regulations like Law on Enterprises,
Law on Investment and their guiding documents. There are no specific limitations for those
services.
GATS commitments
Viet Nam commitments in the sub-sector above are very liberal by fully opening mode 1, 2
and 3. This reflects the importance and priority Viet Nam attaches to the services.
However, in mode 4, Viet Nam’s commitments are only similar to those in horizontal
sections.
In order to develop the sector, besides current policies and measures, the government should
encourage the participation of all economic sectors, especially the private sector, in the
research and development activities.
1.5 Other business ser vices
1.5.1 Advertising services
Advertising is a sector playing important role in developing brand names, increasing
competitiveness of products and the economy. Although advertising is a new service in Viet
Nam, it has recorded remarkable development thanks to a fast growing economy. The
development of advertising services has made contributions to the growth of many trade
marks and Vietnamese economy in general.
So far, there have been more than 7,000 Vietnamese enterprises operating in the advertising
sector, with total revenue of USD 500 millions in 2008. It has been estimated that the sector’s
revenue would reach USD 1.5 billions in the next 10 years. According to estimates by Viet
Nam’s Advertising Association, the growth rate of Viet Nam’s advertising sector has been
quite high, at about 20-30% per year. The attractiveness of Viet Nam’s advertising market
has drawn attention from foreign advertising enterprises while the number of Viet Nam’s
advertising enterprises is also rising.
With a fast growing economy, Viet Nam’s advertising sector has a golden opportunity for its
development. However, it seems that Vietnamese advertising enterprises are also facing with
tremendous difficulties. They are still at the “infant” stage, demonstrated by the fact that the
market share of more than 7,000 Vietnamese enterprises is just 20%; the remaining 80% is
held by about 10 foreign invested advertising enterprises. Most Vietnamese advertising
enterprises just do the sub contracts and provide services for foreign invested advertising
enterprises. Among more than 7,000 advertising enterprises, only 50-100 of them are
operating as real advertising companies, and only a few of them can provide advertising
strategies for their customers.
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Vietnamese advertising enterprises are limited in terms of capital and capabilities. Moreover,
major foreign enterprises when making investment in Viet Nam usually bring with them an
advertising company who has long been dealing with them. This is the case for Coca Cola
and Mc Cain, Unilever and J.W. Thompson, Honda and Dentsu, Heineken and Bate. Besides
several Vietnamese enterprises operating as real advertising companies like Dat Viet,
Goldsun, Stormeye, VMC, most of the remaining enterprises just focus on public relation
activities, public events, leaflet advertising, etc. Since Viet Nam joins the WTO, there are
more and more foreign advertising enterprises entering Viet Nam’s market, the competition
pressure on Vietnamese enterprises thus is increasing.
Viet Nam also has not had any education major on advertising, let alone any training
institution for advertisement. Major universities like Hanoi National Economic University,
Ho Chi Minh Economic University, Foreign Trade University are just introduced basic
courses on marketing.
Viet Nam Advertising Association was established in 2001; however its activities are not as
expected because of limitations on capital, human resources as well as the participation from
advertising enterprises. That is why the role of the Association on ensuring the quality of
services supplied is limited. One reason for that fact is that the Association has not received
enough power to set standards as well as supervise the implementation of such standards.
The legal framework for advertising activities in Viet Nam includes:
1. Ordinance on Advertising dated the 16th November 2001;
2. Decree 24-2003-ND-CP of the Government dated the 13th March 2003
3. Circular 43-2003-TT-BVHTT of the Ministry of Culture and Information dated the
16th July 2003 (as amended by Circular 79-2006-TT-BVHTT of the Ministry of Culture and
Information dated the 8th December 2005)
4. Commercial law (2005)
5. Law on Newspapers (Article 25)
6. Law on Publication (article 29)
7. Resolution 12/2000/NQ-CP dated 14 August 2000 of Government on “National
policy on prevention of harmful effects from tobacco in the period 2000 - 2010.
8. Ordinance on plant protection and quarantine.
9. Ordinance on private healthcare services and pharmaceutical business.
10. Joint Circular 96/2004/TTLT/BVHTT-BNN&PTNN dated 3 November providing
guidelines for advertising of some goods in the agriculture and rural development sector.
11. Joint Circular 03/2005/TTLT/BVHTT-UBTDTT dated 27 January 2005 providing
guidelines for advertising in the sports sector.
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12. Joint Circular 01/2004/TTLT-BVHTT-BYT dated 12 January 2004 providing
guidelines for advertising in the healthcare sector.
13. Circular 19/2005/TT-BVHTT dated 12 May 2005 providing guidelines for
implementation of the Ordinance on Advertising and Resolution 12/2000/NQ-CP of the
Government on banning tobacco advertising.
This legislation mainly regulates procedures on registering and licensing advertising activities
in specific branches that have not been defined in the Ordinance on Advertising
(pharmaceutical products, health examination and treatment, healthcare, vaccines, cosmetics,
milk products, sports equipment, alcohol, plant-protection chemicals, animal feed, agriculture
and rural development….). Such legislation is aimed at clarifying regulations on advertising
activities in Viet Nam including market access by domestic and foreign individuals and
organizations. Such legislation also includes specific regulations on permitted forms of
alcohol advertising and prohibitions on tobacco advertising in Viet Nam.
GATS commitments
Upon its WTO accession, Viet Nam opened up three sub-sectors of advertising services
(excluding tobacco advertising services): Sale or leasing services of advertising space or
time; Planning, creating and placement advertising services and other advertising services
including outdoor and aerial advertising services and delivery services of samples and other
advertising material. In these sub-sectors, no limitations apply to cross-border provision and
consumption abroad. No limitations apply to commercial presence except as regards a market
access proviso that Foreign Service suppliers may have a commercial presence in Viet Nam
in the form of a joint venture or business cooperation contract with Vietnamese partners who
are legally authorised to provide advertising services. The contribution to the capital of a
joint venture by foreign entities shall be limited to 51% of the total capital of the joint venture
until the 1st January 2009, whereupon no foreign capital contribution limitation shall apply.
There is also a specification stating that “advertising for wines and spirits shall be subject to
State regulations which are applied on a non-discriminatory basis”.
In order to develop the advertising sector, the following issues should be paid attention to:
-
Establish an Institute to provide research and training activities on advertisement and
marketing. Activities of the Institute may be linked with activities of enterprises.
Besides, the Government should have a long term vision, supporting the training
activities.
-
Establish a complete legal framework for the operations of advertising enterprises,
relaxing the limitations on advertising space on newspapers, magazines, and websites
as well as on advertisement times on radio and television programs.
-
The Government, directly or indirectly, should ensure that advertising regulations are
followed, especially those regulating the content of advertisements.
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-
International commitments, including those made during Viet Nam’s WTO accession
process are implemented;
-
For enterprises, they should be active in absorbing new technologies and techniques,
upgrading themselves, including through establishing joint-ventures with foreign
partners.
1.5.2 Management and related services
Similar to many other services, management and related services are quite new, just recently
develops in Viet Nam. The services, however, have achieved remarkable development,
thanks to high growth rates of the economy in recent years.
Management and related services include management consultant services, services related to
management consulting. The major services are general management consulting services,
financial management consulting services, marketing management consulting services,
human resources management consulting services, production management consulting
services, public relation services, project management services other than for construction,
arbitration and conciliation services, other management services.
Previously, nearly all management and related services didn’t exist in Viet Nam, mostly due
to the fact that enterprises were state owned. However, since the reform process started, with
the fast growing of private enterprises, management and related services have been
developing at high growth rate, the number of enterprises is increasing nearly every day and
the services they provide also become more diversified.
The market can be characterized by small and medium sized enterprises providing services to
major companies operating in Viet Nam. There have been several foreign invested enterprises
operating in the areas. However, from the “demand” side, most Vietnamese enterprises have
not paid proper attention to management services; one reason may be they themselves lack
necessary resources. Another reason is may be the fact that enterprises have not had enough
understanding on the importance of management and related services.
Management and related services develop very fast in such areas as hotel and restaurant
sectors (management consulting services), public relation services. However, as mentioned
above, customers mostly major, foreign invested enterprises.
Due the diversification of management and related services, there is no single association for
service suppliers. This makes the management, supervision of services’ quality more
complicated.
Similar to several business services, Viet Nam does not have specific relevant legislation for
this sector. As a result, the service is subject to general legal framework, including the
Investment Law, Law on Enterprise. In the Investment Law, management consultant services
and services related to management consulting are not among areas or sectors in which
foreign investment is restricted or conditioned. As a result, there is no limitation in terms of
forms, capital, etc on foreign investors in this sector.
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GATS Commitments:
For management consultant services, Viet Nam’s commitments are very liberal. In mode 1,
mode 2 and mode 3, Viet Nam makes full commitments, moreover, three years after the date
of its accession to the WTO, Viet Nam allows foreign investors to establish branches in Viet
Nam to provide services, with a condition that the chief of the branch has to be a resident in
Viet Nam.
For services related to management consulting services (CPC 866 except CPC 86602), Viet
Nam makes full commitments for mode 1 and mode 2, in mode 3, within one year from the
date of WTO accession, foreign investments are only allowed in the form of joint-venture or
business cooperation contract, there after, none.
Management and related services play a very important role in ensuring good governance and
competitiveness of enterprises. That’s why the Government should create a favourable
environment for the development of those services, including through simplifying licensing
procedures, encouraging the participation of foreign-invested services suppliers, encouraging
training programs for management and related services.
1.5.3 Technical testing services
Technical testing services include conformity testing and certification, composition and
purity testing and analysis services, testing and analysis services of physical properties,
testing and analysis services of integrated mechanical and electrical systems, technical
inspection services.
The market for those services has different characteristics. Several services have been
provided by the government, for example conformity testing and certification of transport
vehicles. Other services have developed for quite a long time in Viet Nam, especially
composition and purity testing and analysis services, testing and analysis services of physical
properties. However, the number of services providers remains limited, composed of state
owned enterprises, foreign invested enterprises and recently, private enterprises. There have
been 100% foreign invested enterprises providing several technical testing services. The
major trend for technical services in recent years has been the participation of the private
sector to provide services previously only provided by the Government.
Technical testing services in Viet Nam are governed generally by Commercial Law,
Investment Law. However, in the specific area of “trade testing services” (or commercial
assessment), a Decree No. 20/2006/ND-CP details the provisions of Commercial Law on
“trade testing services”.
Decision 10/2007/ND-CP announcing the schedule for
implementation of trading and distribution activities also provides details on forms of
establishment to provide commercial services.
In the Investment Law, technical testing (except for conformity testing and certification of
transport vehicles) is not a restricted or conditional service. Decree No. 20/2006/ND-CP
mostly refers to technical and facility requirements for enterprises providing commercial
227
assessment services, there is no limitation on foreign participation in the provision of
services.
Decision No. 10/2007/ND-CP provides clearly that foreign investors are “allowed to conduct
investment to provide the services in the form of an economic institution with 100% foreign
owned capital, or in the form of a joint venture economic institution between a foreign
investor and a domestic investor”. As a result, foreign investors do not face limitations in
terms of forms of establishment, capital, etc.
Decision No. 10/2007/ND-CP also specifies that provision of commercial assessment
services shall not be permitted in some geographical areas for national security reasons as
certified by the competent body.
For other technical testing services (other than commercial assessment), there is no specific
guiding legal document. As a result, investment to provide those services will comply with
Investment Law and Law on Enterprises.
GATS Commitments
In its WTO accession, Viet Nam commits technical testing and analysis services (CPC 8676,
excluding conformity testing and certification of transport vehicle). The major services
committed are composition and purity testing and analysis services, testing and analysis
services of physical properties, testing and analysis services of integrated mechanical and
electrical systems, technical inspection services.
Viet Nam makes unbound commitment in mode 1, it may amount to non-recognition of
testing and analysis carried out by foreign services suppliers overseas. However, in mode 2,
Viet Nam makes full commitments. In mode 3, Viet Nam also makes full commitment,
except for those considered as “governmental services”. For these services, 3 years after Viet
Nam allows private suppliers access to provide services, Viet Nam will permit joint-ventures
without limitation on foreign ownership. Five year after such private competition is allowed
there will be no limitation for foreign investors.
Viet Nam also reserves the right to deny access to certain geographical areas on national
security reasons.
The technical testing and analysis services have been developed at different levels for
different sub-sectors and it has been shown that the participation of private enterprises has
made contribution to improving the quality of services provided. That’s why the government
should consider measures to continue the direction, i.e increasing private sector’s
participation in providing more services.
1.5.4Services incidental to mining
Services incidental to mining mostly refer to services supporting the oil and gas industry like
liquefaction and degasification of natural gas for transportation; derrick erection, repair and
dismantling services and related services incidental to oil and gas extraction; services
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necessary for oil or gas extraction such as well casing cementing, pumping, plugging and
abandoning of wells; and specialized fire extinguishing services.
Due to their specificities, previously, the services were mostly provided by State owned
enterprises, however, the number of services suppliers have been on the rise, even though still
very small. And because of the importance of oil and gas industry to Viet Nam’s economy,
the supply of many services are subject to the Master plan promulgated by competent State
authority.
The legal framework for services incidental to mining includes:
-
1996 Mineral Law (as amended 2005)
-
2005 Investment Law
-
2005 Trade Law
-
Decree 160/2005/ND-CP dated 27/12/2005 on guiding implementation of the 1996
Mineral Law (as amended 2005)
-
Decree 108/2006/ND-CP dated 22 September 2006 on guiding the implementation of
some contents of the 2005 Investment Law.
GATS commitments
The commitments listed in this sub-sector are categorized in the GATS classification as
liquefaction and degasification of natural gas for transportation; derrick erection, repair and
dismantling services and related services incidental to oil and gas extraction; services
necessary for oil or gas extraction such as well casing cementing, pumping, plugging and
abandoning of wells; and specialized fire extinguishing services. Viet Nam committed to
permits with few limitation the cross-border trade and investment trade in these services.
Permitted limitations are the following: the supply of mining services from abroad may be
subjected to registration if the company supplying the service has no establishment in Viet
Nam; foreign suppliers will be allowed to establish 100 per cent foreign owned companies
after five years from the date of WTO accession. However, Viet Nam continues to reserve the
right to regulate activities carried out within the sea territory and its continental shelf, as well
as the right to license exploration and prospecting enterprises. Certain services remain
reserved for Vietnamese companies.
For Mode 1 (Cross-border trade), Viet Nam may require foreign companies without a
commercial presence register themselves with the competent authority...
Even though the number of services suppliers, including private ones, in the sector is
increasing, most of the services are still being provided by a handful of enterprises, some of
which are subsidiaries of major oil companies. That’s why the government should consider
policies and measures to encourage more competition in the area.
1.5.5 Maintenance and repair of equipment
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The services have been developing quite fast in Viet Nam thanks to the industrialization and
modernization process. The types of services provided are also become diversified, ranging
from maintenance and repair of normal equipment, i.e. consumption equipments, to
maintenance and repair of industrial equipments and machinery.
The market has been characterized by a lot number of small and medium sized enterprises
competing with each other. However, there has no mechanism to ensure that the services
provided follow quality standards, if any.
Similar to several business services, Viet Nam does not have specific relevant legislation for
this sector. As a result, the service is subject to general legal framework, including the
Investment Law, Law on Enterprise. In the Investment Law, maintenance and repair of
services are not among areas or sectors in which foreign investment is restricted or
conditioned. As a result, there is no limitation in terms of forms, capital, etc on foreign
investors in this sector.
GATS commitments
Viet Nam makes commitments on maintenance and repair of equipment, but just limited to
CPC 633, i.e. maintenance and repair of household goods.
Viet Nam commits not to apply any limitation on market access and national treatment on
cross border supply (mode 1) and consumption abroad (mode 2). With respect to commercial
presence, upon accession, joint ventures with foreign capital contribution not exceeding 49%
shall be permitted. After 3 years from the date of accession, this limitation shall be 51%. Two
years thereon, 100% foreign-invested enterprises shall be permitted.
In order to create favourable conditions for the development of the sector, there should be
legal documents guiding the implementation of GATS commitments, especially when Viet
Nam has a real need to attract foreign investment in maintenance and repair of industrial
equipment.
1.5.6 Other business services
There are many other services, ranging from services incidental to energy distribution,
placement and supply services of personnel, investigation and security, building-cleaning
services, photographic services, packaging services, printing, publishing services, convention
services, etc. Except for printing and publishing services, the other services share a general
feature of being very new and at early stage of development in Viet Nam, although they have
seen remarkable development in recent years. Most services suppliers are private, small and
medium size enterprises (except for publishing services).
These services are also subject to general laws and regulations like Investment Law, Law on
Enterprise. Most of these services do not have specific governing laws and regulations,
except for printing and publishing services. Viet Nam also does not make any international
commitments to open these services. However, this fact sometimes leads to misinterpretation
that Viet Nam prohibits the participation of foreign services suppliers in Viet Nam. That’s
230
why the most important recommendation for the Government is to provide clear regulations
for these services as well as interpretation of its international commitments.
231
CHAPTER 2: INSURANCE AND SECURITY SERVICES
The general economic background
Viet Nam economy has enjoyed a significant economic growth of approximately 7.5% per
annum for a decade before affected by global financial turmoil in 2008. This growth is
attributable to the recently adopted strategic and long-term initiatives by the Vietnamese
government. These have streamlined and improved the economic infrastructure of the country
by offering more incentives for foreign investors and implementing a 10 year socio-economic
development plan etc. There has been a significant increase in inflows of foreign direct and
private investment to support for this growth.
The country has gradually migrated from a planned economy to a market based economy by
shifting its focus from agricultural production to industries and services. With all these
developments, Viet Nam has become one of the fastest-growing economies in the world,
averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and
6.5% from 1998-2003. From 2004 to 2007, GDP grew over 8% annually. The prolonged
economic growth turned the country around to become one of the most attractive destinations
for investors around the world.
In 2008, Viet Nam socio-economy was affected by the complicated and unpredictable
fluctuation of the world economy and the global financial crisis. The price of crude oil, food,
material rations and other goods sharply increased in the world market in the middle of the
year which resulted in rapid rise of price of various kinds of goods in Viet Nam. The
consumption price index increased 22,97%, a record level over the last 15 years. GDP growth
of 2008 was 6,18% lower than the objective level of 7%, FDI was over USD 64 billion, total
investment reached VND 673 thousand billion. Stock market and real estate market declined
seriously.
INSURANCE SECTOR
Executive Summary
Insurance sector in Viet Nam has experienced an impressive growth in the past decade.
Despite being a nascent market, the insurance sector has expanded very quickly and in terms
of market penetration. This is because insurance premium forms a larger percentage of the
country’s GDP. With opening up of its insurance market since 1996, more and more foreign
insurers are getting access to the highly lucrative insurance market in Viet Nam. Foreign
companies can now easily operate in the country and are forming joint ventures with local
companies in order to enter Viet Nam and diversify their clientele. Upon the country's
accession to the World Trade Organization, foreign insurers expect to be allowed to establish
more wholly owned units and to benefit from progressively declining limitations on their
scope of business.
Insurance market is expected to growth in the long run as a result of continuing economic
growth, rising incomes and increasing insurance awareness. The growth will drive the
232
already strong interest being shown in the market by local and foreign players and the
huge investments being made are expected to continue. The major new players that have
already existed are seen as a means to professionalise the market and more foreign
companies are expected to enter the market by way of acquisition or joint venture.
Results would be possible to be deteriorated in the immediate future due to temporarily
worsening macro economic conditions and no successful market expansion efforts. In
addition to continuing competition insurers will face more and more difficulty to find
qualified and experienced staff, which is likely to bring out the negative impact of
competition on results.
The Ministry of Finance has stated its intention of improving the legal framework of the
market, bringing it into line with international market practices, strengthening
transparency and improving corporate governance. A more convenient business
environment is expected to be available for insurance enterprises and insurance brokers to
grow. It is also likely to continue its campaign to eliminate questionable market behaviour
and to bring increasing pressure to bear on insurers to fix rates that will guarantee companies'
financial stability.
Existing enterprises shall continue undergoing a restructuring process with the aim to
increase financial capacity and international competitiveness and ultimately meet the basic
insurance needs of the economy and the population in the context of fully integration to the
global economy. Product diversification shall be made to link to other sector and tandem with
service standard improvement. This would benefit policyholder with such world class
insurance products.
2.1 Cur r ent status of insur ance sector in Viet Nam
2.1.1. The sector development
The Vietnamese insurance market is a market undergoing a process of change which began
about 15 years ago when the first tentative steps towards liberalisation were taken. Over the
past five years that pace has accelerated and the trend is likely to continue in the foreseeable
future. The country's bilateral trade agreement with the United States and its accession to the
World Trade Organization have both obliged it to abandon protective practices and open the
market to foreign competition. Although some barriers still exist for foreign insurers, these
are reducing and the remainder will gradually be removed and a level playing field created
for all the market.
The first insurance company in Viet Nam -Viet Nam Insurance Corporation (Bao Viet) was
established in 1965 and became the only one to supply import-export cargo insurance and
shipping insurance under the state-own monopoly power. The milestone Decree No. 100/CP
dated 18 December 1993 governing insurance businesses was brought about significant
changes in Viet Nam’s insurance market. Since then, no more than BaoViet in the insurance
market until 1999, the year of the foundation of the first 5 foreign insurers in Viet Nam.
233
During 1993-2004, the insurance market has grown rapidly with average growth in income
premiums of around 38% a year. The non-life sector recorded an average growth rate of 23%
a year. Life insurance started in 1996 and began to grow significantly from 1999 when large
foreign insurers joined the market. Over the period 1999-2004, the life sector recorded a
remarkable average growth of 81% a year, much higher than average growth in the South and
East Asia region during the same period, which was 11% for life and 8.2% for non-life (BMI
Viet Nam Insurance Report, QII2009). However, the growth of the life sector in Viet Nam
has slowed significantly, approaching regional levels, 16% in Viet Nam compared to 9% for
South and East Asia between 2003 and 2004.
In 2003 there have been great changes and arrangements for domestic insurers. Bao Viet was
restructured into a financial group with independent accounting members: Bao Viet Viet Nam
specialized in non-life insurance business and Bao Viet Life Insurance specializing in the life
insurance business. A number of state-owned insurance and reinsurance firms were
transformed into joint stock companies and some joint stock companies and brokers were
established.
By early 2005, there were 31 firms of diversified legal form and scale operating in life
insurance, non-life insurance, reinsurance and brokerage. There were also over 30
representative offices of foreign insurers present in the market. By the end of 2008, the
number of insurers increased to 49 and the increase mostly due to the participation of 12 new
non-life insurers over 3 years. As long as Viet Nam becomes a full member of WTO in 2007,
the insurance market has been more opened up to foreign players.
Table: Structure of the insurance sector, 1993 – 2008
1993
1996
1999
2002
2003
2004
2005
2006
2007
2008
3
4
4
5
8
8
9
11
6
10
13
14
14
15
21
22
27
1
1
1
1
1
1
1
1
1
Life insurers
Non-life
insurers
1
Reinsurance
firms
Brokers
1
1
1
2
5
6
7
8
8
10
Total
2
8
15
20
24
26
31
38
40
49
Source: Viet Nam Association of Insurers
As a result of the legislative changes, the number of insurers in the market (life and non-life)
rose from 15 to 32 between 2000 and 2007, and the number of brokers from one to eight. In
addition, there are now 13 wholly foreign-owned insurers, the state insurers Bao Viet, Bao
Minh, PetroViet Nam Insurance and Vinare have been partly equitised and listed in the stock
market and the compulsory cession to Vinare has been eliminated. The sale of part of the
234
state holdings in the national insurers has allowed several new major foreign players to enter
the market as strategic partners of the local insurers, with HSBC Insurance, AXA and Swiss
Re all taking significant shareholdings.
In 2007 the Vietnamese non-life market was in 66th position in world rankings with a market
share of 0.04%. It was the 11th-largest non-life market in Asia (Axco, 2009). But the largest
premium share was belong to the life insurance according to the below breakdown premiums
in the market in 2007-2008 despite of the effect of the global financial turmoil.
Life
Non-Life
Total Market
2007 Premium in VND
9,485.5
(billion)
8360.0
17,845.5
% Total Market
46.8
100.0
2008 Premium in VND
10,855
(billion)
10,399
21,194
% Total Market
48.79
100.0
53.2
51.21
Source: BMI, MoF and author’s calculation
2.1.2. A closer view to insurance sector in 2008
According to the Viet Nam Insurance Association, there are currently 27 non-life insurers, 11
life insurers, 8 insurance brokers and 1 reinsurer in the market. In 2008, the total direct
premium of insurance industry reached VND 27.000 billion equal 2,2% of GDP. Life
insurance gained VND 10.339 billion, increased 9,3% against 2007, non – life insurance
reached VND 10.879 billion, increased 30,13% against 2007, reinsurance (VinaRe) reached
VND 1.050 billion. Investment income reached VND 5.700 billion. Investment to the
economy was over VND 57.000 billion.
2.1.2.1. Non-life insurance
Domestic insurers are more dominant in the non-life insurance market and foreign insurers
hold only a 7 percent market share. Some of the top insurance companies in Viet Nam are
ACE Life Insurance Co., Ltd., AIG General Insurance (Viet Nam) Company Limited, Bao
Viet Holdings, Bao Minh, Groupama/GAN, Nipponkoa Insurance Co., Ltd., Prudential Viet
Nam Assurance, Petrolimex Joint Stock Insurance Company (PJICO), PetroViet Nam
Insurance Company (PVIC), and QBE Insurance (Viet Nam) Company Limited etc.
Non-life insurance market gained total direct premium of VND 10.879 billion, increased
30,13%, over fulfilled the strategic target for 2010 at 20,8% (the target for 2010 was VND
9.000 billion).
Table:
Top 5 Non-Life Insurers
235
Rank Insurer
Premium (VND bil)
1
Bao Viet Insurance
3,320
2
PVI
2,020
3
Bao Minh
1,884
4
PJICO
1,060
5
PTI
443
Source: Viet Nam Association of Insurers
Top 5 Non-Life Business
Rank
Business
1
Vehicle Insurance
2
Engineering Insurance
3
Health Insurance
4
Marine Hull and P&I
5
Cargo Insurance
Source: Viet Nam Association of Insurers
Premium (VND bil)
3,182
2,024
1,597
1,266
972
% Total Market
30,52%
18,57%
17,32%
9,74%
4,07%
% Total Market
29,25%
18,60%
14,68%
11,64%
8,93%
Compensation of the whole non-life market was VND4.511 billion with the average rate of
compensation 41,5% which was rather high in comparison with earned premium (50% net
premium). The insurance businesses which had highest rate of compensation were vehicle
insurance with VND 1.830 billion (58%), Health insurance with VND724 billion (45,3%),
Marine Hull and P&I insurance for ship with VND 583 billion (46%), Engineering insurance
with VND 695 billion (34,3%). Most insurance companies in 2008 suffered loss in insurance
business and the proclaimed interest and dividend came from the profit of financial
investments (mostly lending the banks) using owner capital and premium reserve.
In 2008, the income before tax of non-life insurers was VND 797.9 billion or VND 1.000
billion if including VinaRe. The most profit making insurers were VinaRe with VND 205
billion, PVI with VND 188 billion, Bao Viet VND186 billion, Bao Minh with VND 140
billion. The capital in 2008 of non-life insurers were VND11,207 billion (increased by 28%).
The biggest non-life insurera in term of capital are shown in the below table
Top 5 Non-Life Biggest Insurers
Rank
1
2
3
4
5
Insurer
PVI
Bao Minh
Bao Viet
AAA
BIC
Capital (VND bil)
2,305
2,137
1,015
578
524
% Total Market
29,25%
18,60%
14,68%
11,64%
8,93%
Source: Viet Nam Association of Insurers
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There were still 8 non-life insurers having charter capital lower than legal capital were Bao
Long, Bao Ngan, Bao Tin, Hung Vuong, UIC, SVI, QBE and Groupama. These companies
will have to add more capital to meet the minimum capital requirement in 2009.
2.1.2.2. Life insurance
In early 2008, price level escalated and price of food and foodstuff increased from 1.5 to 2
times worsening the country living standards. In the middle of 2008, bank saving interest
increased remarkably up to 18%. This situation created difficulties to life insurance. The
insured were about to stop their policies that made the increase in payment of cash value. The
cancelled policies attained 508,652 policies, up 26.17% against that of 2007 of which the
number of first year cancelled policies was 99,998 policies, up 8.83% against that of 2007.
The source of potential clients went down keeping the number of new policies difficult to
move up. Total of new policies during the period was 552,304 policies, decreased 13.71%.
Under such circumstances, life insurance companies had made huge effort to bring out many
new and attractive products meeting the demand of clients, reaching premium up to VND
10,339 billion, up 9.3% against that of 2007.
Prudential has earned VND 4,270 billion premium accounting for 41.3% of the total market
premium, followed by Bao Viet with VND 3,425 billion (33.1%) and Manulife VND with
1,081 billion (10,45%). First year premium attained VND 2,059 billion, increased 13.88% as
the result of products with big sum insured and long time of insurance. Total life insurance
policy benefits were VND 4,572 billion, increased 29.5% against that of 2007. Payment of
insurance benefits reached VND 2,539 billion, up 17.4% that of 2007. The number of
cancelled policies due to economic difficulties makes the payment of insurance benefits
higher.
In terms of financial capacity, total assets of life insurance companies reached VND 47,813
billion, increased 20.5% against that of 2007 in which three biggest includes Prudential with
VND 19,556 billion (accounted for 40.9% of life insurance total assets), Bao Viet 15,599
billion (32.6%), Manulife VND 4,770 billion (9.97%). Total investment of life insurance
companies attained VND 39,253 billion in 2008, increased by 23.23% that of 2007 in which
Prudential contributed VND 14,333 billion, Bao Viet VND 14,669 billion, and Manulife
VND 3,583 billion. The investment was distributed among bank savings (16.25%),
government securities (58.10%), stock (7.6%), interest-bearing loan (10.15%) and others
7.95%. Income from these investment was VND 4,010 billion, decreased 21.8% compared to
that of 2007 because insurers had to draw out money to make reserve fund for risk.
2.2 Existing law and r egulations gover ning insur ance sector in Viet Nam
2.2.1. Existing law and regulations
The Law on Insurance Business No 24/2000/QH10 of 9 December 2000, which is supported
by a number of guideline decrees, decisions and circulars. Under the current Law, the
regulations governing insurance business in Viet Nam are detailed below:
237
•
Decree No 45 of 27 March 2007 on market conduct, and its corresponding
circular providing detailed guidelines on the implementation of certain articles
of the Law on Insurance Business.
•
Decree No 46 of 27 March 2007 on certain financial issues including
capital, solvency margins and technical reserves and the corresponding circular
which regulates it.
•
Decree No 115/1997/ND-CP and Decision No 23/2007 in connection with
obligatory motor third party liability insurance.
•
Decision No 175/2003/QD-TT of 29 August 2003 approving the strategy
for the development of the insurance market 2003 to 2010.
•
Decision No 153/2003/QD-BTC of 22 September 2003 which established the
financial ratios to be used by the Insurance Department of the Ministry of
Finance for monitoring and supervisory purposes.
•
Decree No 118/2003/ND-CP of 13 October 2003 establishing sanctions for
violations.
•
Decree No 18/2005/ND-CP of February 2005 setting out a legal framework that
will enable companies in a common industry to establish a mutual insurance
operation.
•
Circulars No 155/2007/TT-BTC and No 156/2007/TT-BTC dated 20
December 2007 set out detailed guidelines for the implementation of Decree
45-2007-ND-CP and Decree 46-2007-ND-CP respectively.
•
Decision No 23/2007/QD-BTC of 9 April 2007 promulgated the Regime of
Compulsory Insurance for Motorized Vehicle Owners' Civil Liability,
establishing the limits, premiums and regulations for motor third party covers.
Under the current legal framework above, the minimum capital requirement for a non-life
company was raised to VND 300bn (equivalent to USD 17.8mn), enabling a company to
write all lines of business except aviation insurance, petroleum insurance and satellite
insurance. If it wishes to write one or all of these lines of business, an additional VND 100bn
(USD 5.9mn) must be paid up. The minimum capital for a broker is now VND 4bn (USD
237,389) and broking operations transacting both direct insurance and reinsurance must put
up an additional VND 4bn capital.
New obligatory insurances were introduced, including professional insurance covered for
fund management companies and securities companies. The Law on Securities in 2006
establishes the obligation for securities companies to hold insurance. Decision No 23/2007
was passed raising motor third party limits and tariff rates with effect from June 2007. In
addition, it established a motor guarantee fund to compensate victims of hit-and-run
and uninsured drivers. As a result, competition is increasing and rates falling in most non-life
238
classes. Several new companies were granted licences to operate in 2007: The Military
Insurance Company, Agriculture Bank Insurance Joint Stock Corp (ABIC) and Viet Nam
Airlines Insurance Company. Jardine Lloyd Thompson, which had had a representative
office in Viet Nam since 1994, received a licence to set up an insurance broker.
239
Box: List of Compulsory Insurances
The following insurances are compulsory:
• Motor third party liability.
• Aviation third party passenger liability insurance (and the usual
internationally insurances for scheduled airlines).
• Professional indemnity for lawyers, securities companies, fund
management brokers and contractors supervising the execution of
building works.
• Fire and explosion insurance on 16 different types of high-risk
industries.
• The transportation of passengers and inflammable substances by
inland waterway
• First and third party risks in connection with construction works
(pending).
• Insurance for contractors engaged in design works (pending).
• Insurance for contractors performing surveys for construction work
(pending).
• Insurance covering construction tenders presented.
2.2.2. State supervision and regulation
The Ministry of Finance is responsible for the supervision of all "banks, non-bank financial
institutions and financial services" including the non-life insurance industry, and considers all
new licence applications. This responsibility was delegated to it by the Government
Decree No 100/Cp in 1993 and a more detailed description of its duties is contained in
Chapter V of Decree No 45/2007/ND-CP. The regulator's duties include:
•
Formulating strategies for the development of the insurance market and
providing guidelines for the implementation of legislation
•
Issuing and withdrawing licences for insurers, reinsurers, brokers and
representative offices
•
Promulgating and ratifying the implementation of regulations, clauses,
commission and premium scales
•
Taking the necessary measures to ensure that insurers are financially
sound and that they fulfil their undertakings to policyholders
•
Inspecting and checking insurance business activities, resolving complaints and
dealing with breaches of the law on insurance business.
In 2008, the Insurance Department under the Ministry of Finance was transformed into the
Department for Insurance Supervision which has more independent in its functioning
activities, broader scope of mandates. The Department carries out the supervision of the
insurance market including insurance and reinsurance companies, agents and brokers. Loss
adjusters are not regulated. Until 2003 when Decree No 77/2003/ND-CP defined the
240
functions, tasks, powers and organisational structure of the Ministry of Finance, the
insurance department was a relatively unimportant part of the ministry; from that date,
however, it was upgraded, reflecting the greater importance being placed by the
government on the sector. There is no official separation for regulatory purposes of the life
market, non-life market, insurance companies, reinsurance companies and brokers but
unofficially supervision is split into three areas: life, non-life and others.
Provisions for the supervision of insurance business activities are covered in Articles
120 - 129 of the Insurance Law (No 24/2000/QH 10), and clarified in Decree No 45
of 2007. Inspections of insurers are carried out at least once a year. The Insurance
Department has generally been seen as exercising a firm but fair control over the market
players but many indicate that it is becoming exceptionally strict in its application of the law.
It has declared its intention to take action against the incorrect recruitment of agents,
infringement of commission scales and unfair competition practices. In this connection it will
increase its inspection activity and apply sanctions whenever necessary.
Reporting requirements
All insurance companies are required to submit returns quarterly, six-monthly and annually.
Monthly reports should be submitted within 15 days following the last day of the month,
quarterly within 30 days following the end of the quarter and annual financial reports with 90
days following the year-end. Annual financial reports must be the subject of an independent
audit and all other documents as required by the Ministry Of Finance to clarify these
documents. A series of financial ratios are also required which serve as an early-warning
system for potential problems and further reports may be demanded if any worries over
solvency exist.
Insolvency Regulation
Section 4 of the Law on Insurance Business deals with the "Recovery of Solvency,
Dissolution, Bankruptcy of Insurance Enterprise" setting out the procedures for dealing with
situations of potential insolvency. The regulatory authority is empowered to take the
following action should it suspect that an enterprise is in danger of insolvency:
•
Demand from the enterprise an immediate report on its financial condition
•
Insist that it prepare a recovery plan including the reorganisation of
management.
Should the recovery plan prove insufficient to bring about the desired recovery, a board of
solvency control may be established which may, among other measures:
•
Limit the area of business activity or suspend it completely
•
Transfer the portfolio of the insurer to another company
•
Demand the suspension of the management and executive personnel.
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If the insurer remains insolvent, the board of solvency may, subject to the approval of
the Ministry of Finance, withdraw the company's licence to operate and dissolve it.
Consumer Dispute Resolution
Insurance companies are required to supply policyholders with clear procedures to be
followed in the event of a dispute regarding the insurance. A dissatisfied policyholder will
first try to resolve the problem directly with the insurance company. If that fails, he may
refer the matter to the Insurance Department of the Ministry of Finance, which does not
happen very often. If the Insurance Department intervenes, its decision will usually be
accepted by the two parties to the dispute. The matter may also be referred to arbitration as
provided for in the policy conditions. As a last resort, the consumer may take legal action
though this is a solution that is generally avoided. For certain types of disputes, the matter
may be referred to the people's committee of towns and villages.
Investment Regulations
The investment of capital is governed by Chapter II, Section 3 of Decree No 46-2007-ND-CP
and Section IV of Circular No 156-2007-TT-BTC. The minimum legal capital must be
represented by investments that are safe and liquid in accordance with guidelines established
by the Ministry of Finance. Capital in excess of the minimum capital required or the
minimum solvency margin (whichever is greater) may be invested offshore. Insurance
reserves may be invested as follows:
• The sums necessary for regular payments of claims in a period, which may
constitute a minimum of 25% of total reserves, must be deposited with credit institutions
operating in Viet Nam
• The balance may only be invested in Viet Nam in: government bonds, guaranteed
bonds of enterprises and deposits in credit institutions, without any restriction; shares,
unsecured bonds of enterprises and capital contribution in other enterprises up to a maximum
of 35%; real estate and loans to a maximum of 20%.
2.3 The impact of WTO accession on insur ance sector
2.3.1. WTO commitments by Viet Nam
A long with Viet Nam accession to WTO by the end of 2006, the insurance sector has
gradually opened and integrated into the global insurance industry. The types of insurance
and insurance-related services covered in the WTO commitments include:
(i)Direct insurance:
(a)Life insurance, excl. health insurance services
(b)Non-life insurance services
(ii) Reinsurance and retrocession
(iii) Insurance intermediation (such as brokerage and agency)
242
(iv) Services auxiliary to insurance (such as consultancy, actuarial, risk assessment
and claim settlement)
In general, there is no particular limitation on national treatment and only limitations on
Market Access have been committed as follows:
For cross-border supply
(1)No limitation for:
- Insurance services provided to enterprises with foreigninvested capital, foreigners working in Viet Nam;
- Reinsurance services;
- Insurance services in international transportation, including
insurance of risks relating to:
*) international maritime transport and international
commercial aviation, with such insurance to cover any or all of
the following: the goods being transported, the vehicle
transporting the goods and any liability arising there-from; and
*) goods in international transit;
- Insurance broking and reinsurance broking services;
- Consultancy, actuarial, risk assessment and claim settlement
services.
Consumption abroad
No limitation
Commercial presence
No limitation, except:
2.2100% foreign-invested insurance enterprises shall not be
allowed to engage in statutory insurance business, including
motor vehicle third party liability, insurance in construction and
installation, insurance for oil and gas projects, and insurance for
projects and construction works of high danger to public security
and the environment. As of 1 January 2008, this limitation shall
be abolished.
2.3After 5 years from the date of accession, non-life branches of
foreign insurance enterprises shall be permitted, subject to
prudential regulations.
Presence
person
of
natural Unbound, except if committed in the general service sector.
2.3.2. The impacts of WTO accession
243
Under WTO commitments, Viet Nam has been gradually open up its insurance market for
foreign competitors from 2006 to 2011. The limitation “100% foreign-invested insurance
enterprises shall not be allowed to engage in statutory insurance business, including motor
vehicle third party liability, insurance in construction and installation, insurance for oil and
gas projects, and insurance for projects and construction works of high danger to public
security and the environment” was abolished in the 1st January 2008. After 5 years from the
date of accession (i.e. by end of 2011), non-life branches of foreign insurance enterprises
shall be permitted, subject to prudential regulations.
The fact that the insurance market has started from a low base, knowledge of and interest in
insurance has increased greatly in recent years. The WTO accession has had a positive effect
on business growth rates (see more in Figure below).
Market Growth
Life Insurance
Non-life Insurance
700
600
620,2
647,4
589,3
519,3
530,3
397,6
489,7
345,9
100
304,8
200
415,3
300
512,7
400
250,5
USD Mil.
500
0
2003
2004
2005
2006
2007
2008
The following table compares the annual growth rates of non-life premium income (including
personal accident and healthcare written in the non-life account) in local currency with the
nominal GDP growth and inflation rates over the last five years.
2003
26.9
Premium growth (%)
Nominal GDP growth
14.5
(%)
Inflation rate (%)
3.2
2004
23.6
2005
14.3
2006
15.9
2007
31.5
2008
25
16.6
17.3
16.1
17.4
29.2
7.8
8.3
7.4
8.9
22.97
Source: BMI and GSO
Honouring its commitment to the World Trade Organization, Viet Nam has abolished
restrictions on foreign insurers selling obligatory non-life insurance to local customers.
Swiss Re has purchased 25% of the shares of Viet Nam National Reinsurance
Corporation (Vinare), becoming the reinsurer's sole foreign partner. The obligatory
reinsurance cession to Vinare was eliminated with effect from 1 January 2008. Axa has
244
bought a 16.6% stake in Bao Minh. HSBC has purchased a 10% share in Bao Viet and it will
buy a further 8% by June 2009.
In accordance with Article 59 of the Law on Insurance Business the types of insurers allowed
include: state owned insurance enterprise, joint stock insurance companies, mutual insurance
organizations, joint venture insurance enterprises, and 100% foreign owned insurance
enterprises. The insurance law will be changed to permit the establishment of branches. This
must take place by 2012 but it is expected that it may be implemented before that date.
Recent legislative changes in the market, which have opened up all segments to all players,
have so far had little impact and local insurers still identify three distinct market segments:
government business, local commercial and industrial companies and foreign-invested
companies. However, government business remains almost exclusively in the hands of the
local insurers despite the fact that foreign companies may now write the business. It is likely
to take a long time for the foreign companies to break into the segment especially as it is
alleged that the local companies are engaging in illegal payments and other dubious
practices in order to retain the business. Local commercial and manufacturing concerns are
insured mainly by the local insurers. Many of the smaller businesses, especially the
family-owned companies, have no insurance but the first signs of change are being
seen in that connection as banks and other lenders are demanding evidence of
insurance cover from their clients. Some foreign insurers operate successfully in the SME
segment.
Foreign-invested businesses are required to be insured in accordance with the provisions of
the Law on Foreign Investment and insurance must be sought in Viet Nam in accordance
with the terms of the Law on Insurance Business. This has provided a flow of business to the
foreign-invested insurers but local insurers are increasingly directing their attention to this
segment.
2.4 Tr ade in insur ance ser vices
Insurance
An agreement is in operation involving Viet Nam, China, Myanmar, Cambodia, Laos and
Thailand by which a common system of third party cover has been set up to facilitate travel
from one to another. A limit of USD 50,000 applies to both private and commercial vehicles
and a proof of insurance is given. Foreign vehicles from other countries wishing to enter
Viet Nam may extend their local policies prior to departure or buy insurance at the
frontier where the major insurers have offices.
A protocol (Protocol 5 - ASEAN Scheme of Compulsory Motor Vehicle Insurance),
which was signed in May 2001 and provides for a common scheme of compulsory motor
vehicles third party liability insurance for ASEAN countries, has been discussed by
insurance regulators and transport officials. The scheme was one of the protocols adopted by
the ASEAN transport ministers under the ASEAN Framework Agreement on the Facilitation
of Goods in Transit between ASEAN Countries. The formalised documentation for the
245
operation of the scheme has been completed and each member country or signatory to
the protocol has nominated a National Bureau that will represent the country on the National
Bureaux that oversees the scheme.
Workers' compensation insurance covers accidents and illness arising out of and in
the course of employment, including journeys to and from work. The policy gives cover for
Viet Nam but may be extended for an additional premium to include other countries.
The workers' compensation policy may be extended to cover employees temporarily working
overseas.
Reinsurance
Since 1 January 2008 insurance companies were no longer obliged to place with Vinare 20%
of the surplus above their retention in certain classes but most have agreed to continue to
make the cessions on a voluntary basis for an indefinite period and several new domestic
insurers, registered after 1 January 2005, have decided to cede 100% of the excess above
their retention to the reinsurer. Some of the foreign insurers, with reinsurance support from
their head offices, make no committed cessions to Vinare. Reinsurance placed overseas is
monitored carefully, and every effort is made to minimise reinsurance cessions abroad;
for example, insurance companies are encouraged to offer reinsurance to other direct
companies and to Vinare before offering risks abroad. Vinare also offers retrocession to the
market. Extensive use is made of facultative reinsurance, mainly for engineering and
other property business. Facultative business tends to be offered on the local market prior to
placements being made overseas. Effective 1 January 2009 a withholding tax of 2% on gross
premiums applies on all overseas reinsurance remittances (Circular 134/2008/TT-BTC of 31
December 2008).
International Reinsurance (inwards)
Seven insurers, including Bao Viet, Bao Minh, Samsung Vina and PetroViet Nam
Insurance, accept reinsurance from abroad. The total amount accepted in 2006 was
VND 128.7bn (USD 8.0mn), coming exclusively from Asian markets including China,
Singapore, Thailand and South Korea. The amounts accepted tend to be small as local
direct insurers cannot offer large capacities.
2.5 Major Issues & Tr ends
Foreign investors targeting Vietnamese insurance market
Foreign ownership is permitted in insurance industry, but has been carefully controlled, and
often restrictions have been placed on operating licences to prevent the writing of selected
classes of business. Following Viet Nam's accession to the WTO, however, these
restrictions are being eliminated and with effect from 1 January 2008 the prohibition of
foreign insurers writing obligatory insurances was lifted. As committed, within five years of
its accession to the World Trade Organisation, Viet Nam would allow foreign insurers to
246
open direct branches offering non-life insurance. This openness is likely to happen much
earlier than the 2012 date originally indicated.
Before WTO accession, the US-Viet Nam Bilateral Trade Agreement has already facilitated
the entry of several US insurers and several other life and general insurers are awaiting
authorisation to operate or to establish a fully-owned company. In 2003, the Ministry of
Finance announced its intention to reduce its shareholdings in state owned companies
such as Bao Viet, Bao Minh, PetroViet Nam Insurance and the reinsurer Vinare and
the part-privatisation process was completed in 2006 and 2007. As a result the insurers all
now have a major foreign strategic partner, HSBC Insurance, AXA Insurance, Tenaska
Capital Limited of Hong Kong and Swiss Re respectively.
Following commitments assumed under bilateral trade agreements and with the WTO,
restrictions placed on foreign-invested insurers are being removed and it is widely
expected that within two or three years at the most all insurance companies regardless of
the country of origin will enjoy the same rights and responsibilities.
Insurance still in a nascent stage due to traditional approach
The legislative framework is undergoing a steady transformation as the Ministry of Finance
increases and improves its regulation of the market, bringing local insurance legislation more
into line with that found in the international market, a process which will also continue over
the next few years. Notwithstanding the changes to legislation and the opening up of the
market, foreign insurers complain of the impossibility to break into certain market segments
as local insurers allegedly engage in illegal market practices such as commission rebating in
order to keep them out (Axco, 2009).
Viet Nam's non-life insurance market has grown steadily over the past five years from a low
base by an average of more than 50% per year, reflecting the buoyancy of the economy.
Although it remains relatively small and undeveloped, both local and foreign insurers present
are confident that growth will continue at an accelerated rate, an opinion that appears to be
supported by the interest being shown in the market by other foreign players.
Capability Enhancement by Banking and Insurance Integration
There is no restriction on banks investing in insurance companies or vice versa to take
advantages of each others such as customer base and premium funding. In fact, there are a
number of examples where banks have invested in non-life insurers, including:
•
Incombank-Asia Insurance - 50/50 joint venture between Industrial and
Commercial Bank of Viet Nam and Asia Insurance Company.
•
Nha Rong Insurance Company - bank shareholdings include Viet Nam Bank
of Foreign Trade (Vietcombank) and Asia Commercial Bank.
•
Petrolimex (PJICO) Insurance Company - Vietcombank is a major shareholder.
247
•
Post-Telecommunications Insurance
International Commercial Bank.
Company
-
shareholding
includes
•
Vien Dong Insurance - major shareholders include the Saigon Commercial Bank
and the Hanoi Building Commercial Bank.
Holding company structures are permitted in Viet Nam which allows insurer to set up its own
bank or bank to set up its own insurance company. Bao Viet Holdings has been granted a
licence to set up a commercial bank. The Bao Viet Joint-Stock Commercial Bank will have a
capital of VND 1.5 trillion (approximately USD 88mn) of which the insurer will hold 52%.
Standard Chartered Bank has received permission to begin selling both life and non-life
insurance from its two branches in Hanoi and Ho Chi Minh City.
The impacts of continuously new comer to the market
There are several key issues facing the market as a result of the influx of new insurers and the
push for growth seen in the market in general. The level of competition is intense and rates in
some property segments are now 40% lower than three years ago. Underwriting criteria have
been relaxed and even abandoned in favour of simple commercial pragmatism. The scope of
cover is widened and risks added at no additional charge; deductibles have been reduced or in
some cases eliminated.
There is also a lack of skilled insurance personnel. As the market is young there is not a large
pool of people with experience and knowledge of the business, with the result that qualified
staffs who are at a premium in the market, are being enticed from one company to another.
This applies both to the company market and to intermediaries.
Some concern is now beginning to be expressed by reinsurers which, despite their own
competition for growth in the competitive market, are alarmed by the level of rates being
applied in some cases and by instances of treaty conditions not being respected. In spite of
the concerns expressed by all sectors in the market, it looks likely that the trends seen in
recent years are set to continue for at least another year or two (Axco, 2009).
Some other issues come from the fact of a transitional and developing economy such as the
lack of infrastructure and support for the sector to develop, the increasing demand for risk
hedging but no supply yet.
2.6 Key dr iver s of insurance sector gr owth and development
The Business Monitor International (BMI) has made its projection for insurance sector in
Viet Nam for the period 2008-2013. The detail insurance business environment rating for
Viet Nam by BMI is given below:
248
The total rating is 44.1/100 point for business environment of insurance sector in Viet Nam.
The most highlighted favourable conditions for insurance sector in Viet Nam includes: active
population, high long-term policy continuity, low long-term financial risk, onward completed
regulatory framework and development. Other supportive conditions are: measure of
openness, competitive landscape, tax policy, GDP growth. In the ranking list below, in AsiaPacific region, Viet Nam is above Pakistan, Sri Lanka and Bangladesh but below Indonesia,
Indonesia and the Philippines.
249
Table: Asia Insurance Business Environment Rankings
Limits of potential returns
Risks to realisation of returns
Non-life Life
Country Regulatory
segment segment structure framework
Country risk
Hong Kong 55
80
77.1
100
80.9
Australia
75
77.5
72.5
90
68.8
Singapore
62.5
72.5
72.6
95
83.8
South
75
77.5
70.6
60
73.9
Korea
Taiwan
55
80
65.1
70
74
Malaysia
55
62.5
63.6
75
69.9
China
60
72.5
54.4
55
70
Thailand
52.5
57.5
59.8
70
53.6
Philippines 40
55
50
75
58.6
India
55
65
42.6
45
60.2
Indonesia
45
65
52.3
55
49.9
Viet Nam
37.5
42
55
61.4
32.5
Pakistan
27.5
22.5
43.1
40
53.7
Sri Lanka
25
25
42.1
45
48.7
Bangladesh 22.5
20
46.9
20
44.2
Rating
76.5
75.5
75.2
Rank
1
2
3
72.3
4
68.3
64.1
62.3
57.9
53.5
53.4
53.3
44.1
37
36.4
32.4
5
6
7
8
9
10
11
12
13
14
15
Scores out of 100, with 100 the highest. Source: BMI, 2009
In terms of potential growth by business, BMI expected life insurance will growth at a higher
speed than non-life. (See more in the below table)
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The Axco report on Insurance also stressed the country insurance sector drivers including:
favourable economic condition, low-base and high-growth sector, foreign participation in the
market. The concluded SWOT analysis for Viet Nam insurance sector is detailed below:
Insurance Sector SWOT Analysis
- Both Viet Nam’s life and non-life segments are rapidly
Strengths
growing.
- Authorities are increasingly perceived of the benefits of
foreign competition.
- The economic conditions are likely to remain favourable
with a low prospect of risks to the realisation of potential
returns.
- The starting point or the base of the high growth
anticipated in both the life and non-life segments of the
Weaknesses
Vietnamese market is nonetheless very small. In the
foreseeable future, the consequences of the global
financial turmoil and the downturn of the world economy
will affect the Viet Nam economic development and the
insurance sector potentiality.
- There is still a small number of players in the market,
particularly in the life segment.
251
Opportunities
Threats
- GDP per capita is tiny, limiting the market for insurance
products.
- The ceding by large local firms of market share to rivals
in the non-life segment demonstrates the openness of the
market to new players
- Viet Nam is considered to be a very promising market for
insurers. There are still large numbers of people who are
underinsured (or uninsured).
- Increasing prospect of high ongoing inflation
represents a general economic threat. There are many
unsustainable development issues for an emerging
economy like Viet Nam.
- Underdevelopment and volatility in Vietnamese capital
and bond markets represents an ongoing threat and less
supportive for insurance sector to further develop.
Under the view of SWOT, the four main drivers for insurance business to move
forward in the long-run are:
High economic growth rate
The main engine to drive insurance industry to move forward has been and will be the
sustainable economic growth of the country. Although the country is currently facing many
economic difficulties due to global financial crises and economic recession, its economic
growth is expected to be in the world highest growth rate economy group. In its latest report
released in March 2009, the Business Monitor International predicted that Viet Nam will
enjoy an average growth rate of 8% to 2018; other macro economic conditions also very
favourable (see Table below).
Benefits from the integration into the world economy
After the US-Viet Nam bilateral trade agreement in 2001, Viet Nam became a full member of
the World Trade Organization (WTO) in 2006 and started opening up of insurance market for
foreign investments. The commitment of strategic partnership by foreign investors will help
local insurers to improve its competitiveness and get ready as the market is going to be fully
open to the world. Given the fact that Viet Nam insurance sector still in nascent stage of
252
development if compared to a long history of the global insurance development of hundred
years. The partnership with foreign counterpart will be the good choice for local insurer to
exploit the foreign partnership skills and experiences and pave the way to the world market.
Holding 18% stake in Bao Viet, HSBC will offer Bao Viet technical assistance and staff
training. AXA , a leading non-insurance company in Europe has bought a 16.6% stake in
Bao Minh, the second largest domestic insurer and will offer Bao Minh access to its
technical expertise, including the secondment of specialist employees. The agreement
between AXA-Bao Minh will help the local partner to diversify insurance products, improve
the quality of insurance services and promote business administrative reform and build Bao
Minh brand. Besides, Bao Minh has also reached an agreement with Chubb that will see
the US insurer offering specialty liability insurance in Viet Nam. Chubb will also offer
technical training and offer assistance in the area of reinsurance.
Increasing foreign direct investments
The attractions of Viet Nam to foreign, as well as domestic, investors are clear: a large, and
young population eager to work hard to improve their lot and open to foreign influences after
decades of ineffective ideological indoctrination. Viet Nam has enjoyed a growing inflow of
direct investment into its fledgling manufacturing sector in recent years as its accession to
WTO in 2007 and low labour costs have made it an attractive outsourcing destination for
apparel manufacturers and electronics producers.
As the economy is more developed, continued strong foreign investment into the
manufacturing sector will remain the prime driver of growth over the next 10 years, and Viet
Nam is expected to moving up the value-added chains as the advantages of sourcing
production in the country become apparent for a wider range of manufacturing firms.
Commitment to complete the state owned enterprises reform
Transformation from state-owned to private-owned companies means no more government
subsidies or soft-lending to cover losses. The need to use insurance as tool to protect
company’s assets and to hedge against any natural disasters and other type risks will be
popular. There will be a room for non-life insurance sector to develop in the future as long as
the Government committed to continue its structural reform in its state owned enterprises.
Emerging middle class & increasing literacy rate
Viet Nam is among a few developing countries who own a very high literacy rate (more than
90% population in and above school age) which can be compared to even that of a developed
country. This will help the Vietnamese people easier to understand and get access to
information regarding the obligatory insurance and the benefits of other voluntary insurance.
Since the starting of “Doi moi”(or Innovation), the high and stable economic growth in a long
period of time had enabled the emerging of increasing new middle class with a fairly higher
income than the average and become a potential customer base for life insurance.
253
2.7 Over all goals and policy r ecommendations for compr ehensive development of
insur ance ser vices in Viet Nam
The overall objectives for insurance sector development
-
To develop a competitive insurance market with diversified ownerships and fully
integrated into the world.
-
To build up comprehensively market component, improve the competiveness of
local insurers by financial and professional capacity building.
-
To diversify insurance products to meet market demand.
-
To ensure the fairness and transparency of insurance market by creating a level
playing field for all market participants.
-
To enhance and innovate the Government regulatory methods towards insurance
market.
2.8 Policy r ecommendations
State regulatory policies
-
Completing the policies, mechanism and legal framework regarding insurance
business operation to develop a sound and secured market in line with the
integration process; to maintain the insurer’s pro-activeness and selfresponsibility.
-
Making the Government policies to encourage residents to participate in life
insurance and giving priority to develop long-run life insurance products;
encouraging insurance companies to carry out research and development
insurance products in the fields of agriculture, forestry, fishery; expanding the
operation range to mountainous areas.
-
Expanding the professional insurance agent network, insurance brokerage
companies, and other product distribution channels; Diversifying to type of
business operation for insurance brokerage companies.
-
Approving and legalizing the diversifications of investment vehicles set up by
insurance companies such as investment fund, trust fund, fund management
companies, bond fund, etc,
-
Level playing field in insurance markets between foreign and local insurers;
encouraging foreign insurance companies to invest premium turnover in Viet
Nam by apply the same investment policies, mechanisms as the local
competitors.
-
Supporting local insurance companies to go globally or to expand the operation
to over sea by setting joint ventures with foreign leading insurance companies,
insurance brokerage companies, reinsurance companies abroad and/or to form a
subsidiaries over sea.
254
-
Enhancing the public perceptions on the needs for and the benefits insurance
through multimedia communications.
-
Promulgating a law on the bankruptcy of joint stock companies and
financial organisations, including insurance companies.
Insurance company operation arrangements
-
Improving the financial capability for insurance sectors by requiring insurance
companies to increase its charter capital that match with the type of insurance
business registered and the business scale.
-
Modernizing the insurance sector by applying IT in business administration and
international standard management procedures.
-
Improving the insurance industry training and education activities in line with
global best practises and standards.
-
Restructuring the existing local insurance companies to improve the competitive
capability, develop new insurance products and policies and increase market
share and expand to other markets.
-
Using available funds and resources in the economy other than state budget to set
up insurance companies under the Insurance Law.
-
Developing the insurance distribution via non-traditional channels such as banc
assurance and telemarketing.
State management and supervision over insurance services
-
Renovating the methods of management and enhancing the state management
capability over the insurance business activities towards the international
insurance management standards and principles.
-
State’s supervising the insurance business activities based on a set of criteria
measuring the insurance company performance. The supervisory authority will
be streamlined and administrative practices reviewed to ensure effective and
efficient supervision, consumer protection and the financial security of the
insurance industry.
-
Examining, doing inspections and enforcement of regulations and penalizing the
regulation violation.
The Viet Nam Insurance Association
-
Consolidating the structure and operation of the Viet Nam Insurance Association
for being the bridge connecting the insurance companies and the regulators.
-
Building capacity of human resource: Holding training courses for practitioners
in the industry and to disseminate relevant information among members;
255
Improving training requirements which will involve only insurance agents at
first but are likely to be widened later to include other categories of insurance
personnel.
-
Suggesting policy recommendation to regulatory bodies handling the difficulties
for members.
Box: Three most important recommendations for insurance market
development
-Compeleting legal frameworks regarding insurance business operation in line with international
practices and towards a more level playing field and strengthening financial strength for
existing insurers in Vietnam.
-State’s supervising the insurance business activities based on a set of criteria measuring the
insurance company performance. The supervisory authority will be streamlined and
administrative practices reviewed to ensure effective and efficient supervision, consumer
protection and the financial security of the insurance industry.
-Buiding capacity of human resource for insurance industry by continuing training practitioners in
the industry and to disseminate relevant information among members; Improving training
SECURITIES SECTOR
Executive Summary
Since the launch of the first stock exchange in Viet Nam (the so-called securities trading
center) in mid 2000, the securities industry and securities market has expanded with an
incredible pace in terms of size and depth. Market capitalization increased from nearly to
zero percent of GDP to the highest level of more than 40% of GDP in 2007. The market
structure has been completing and improving in line with the development of the market.
Market intermediates have increased significantly with more diversification of securities
businesses. The number of trading accounts opened by investors has also jumped from nearly
3,000 to 530 thousands accounts from 2000 to 2008.
The booming of Viet Nam stock market during 2006-2007 has brought the market into the
highest growth markets in the world and attracted much attention from international
investors. However, the collapse of “bubble” in late 2007 and 2008 has exposed many issues
and vulnerability in the markets as a result of incomplete legal frameworks, an inappropriate
market structure, and a weak supervisory and enforcement capacity of securities regulators.
The securities sector has been opened up gradually since 2000. Currently, the limit of 49% of
foreign ownership is applied to all public companies (whether or not listed, excluding
commercial banks), securities companies, investment fund managers. Under the WTO
commitments, all barriers of foreign participations in securities market is expected to be
abolished by 2011.
The existence of the two separate stock exchanges with similar trading mechanisms in Viet
Nam has created many misinterpretations and increased costs for intermediaries and therefore
256
transaction cost for investors. The efficient market structure for sustainable development still
unclear and the continuation of the two exchanges is accepted as a matter of fact.
The fist Law on securities which has been promulgated in 2006 and came into effect since the
beginning of 2007 has significant impacts on the development of the securities market in
recent years. But the high pace of market development made the Law incompatible and
impediment to the market to move forward. Many shortcomings in the Law and current
regulations are expected to correct by its revision.
The weak securities supervision and enforcement capability of market regulators and
operators made its difficult to ensure a transparent, fair and efficient market, to maintain
investors’ confidence and to get ready with the coming integration into the global financial
market.
2.1 The 10 year s development of Viet Nam secur ities mar ket and ser vices
Being established and fully regulated by the Government, the development of the nascent
securities market in Viet Nam is coherent with and strongly affected by the structural changes
and the determination of the regulatory bodies. The examination of market structure and
regulatory organization before the market operation will therefore give us a more
comprehensive view of the 10 year development of the securities market in Viet Nam.
State Securities Commission
The State Securities Commission of Viet Nam (SSC) which officially established in
November 1996 is responsible for the organisation, development and supervision of the
country’s securities market. Before February 2004, the SSC had operated as an organ
directly belonging to the Prime Minister. During this period, the SSC could not well regulate
the market due to some structural weaknesses. Consequently, the Prime Minister decided,
on February 19th 2004, to hand over the task of managing the SSC to the Ministry of
Finance under the Decree 66/2004/ND- CP. The Government hopes that the transfer would
help to improve the performance of the market, which has not been performing well since its
establishment in July 2000. Although some concerns were raised about the dependence of the
SSC operations may affect the market development the Securities Law 2006 has stipulated
the SSC being a part of the Ministry of Finance.
Under the new model of operation, the main functions of the SSC are as follows (according
to the Decision 63/2007/QĐ-TTg dated 10th May 2007 by the Prime Minister):
-
Formulating and implementing strategies, plans, policies and projects to develop
the securities market in Viet Nam;
-
Drafting and enforcing regulations and guidelines related to securities and
securities markets;
-
Working out regulations on organization and operations of organized securities
trading market in Viet Nam;
257
-
Licensing and enforcing regulations over the operations of securities companies,
securities advisers, securities investment funds, and securities depositaries &
custodians; and their practitioners;
-
Exercising surveillance, inspection and enforcement and examining the
compliance of securities regulations by securities issuers, listed organizations,
securities business, services providers and investors in the market.
-
Training and licensing authorised practitioners for the securities industry.
Regarding the organisational structure, the main functioning departments of the SSC
includes: Securities Market Development, Securities Issuance Management, Securities
Business Management, Fund Management Company and Investment Fund Management,
Legal Affairs, Supervision and Enforcement, Market Surveillance, and Centre for Securities
Research and Training.
As stipulated by Article 7 of the Securities Law, the Ministry of Finance will be responsible
on behalf of the government to exercise state administration of securities and the securities
market, and has the following duties and powers:
-
To submit to the government and to the Prime Minister of the government for
promulgation, strategies, a master plan, and policies for the development of the
securities market;
-
To submit to the competent body for promulgation or to promulgate in
accordance with its own authority, legal instruments on securities and the
securities market;
-
To direct the SSC in implementation of the strategies, master plan and policies
for development of the securities market and the policies and regime for
administration and supervision of securities and securities market activities.
The Securities Exchanges
The Ho Chi Minh City Securities Trading Centre and Hanoi Securities Trading Centre (STC)
have been established according to the Decision No 127/1998/QDTTg dated 11/7/1998. The
STC is an organisation under the control of the SSC. Its operating expenses are partly
covered by the government budget. The STC assumes responsibilities of organising,
executing and supervising securities trading activities on the Centre. Despite of its names
but at that point of time, the organizational model as well management council model was
designed similar to that of typical securities exchanges from other countries in the world.
STCs take charge to organize, operate and monitor the securities trading activities at the
centre. According to the Decree 144/2003/ND-CP dated 28/11/2003, the authorities and
responsibilities of the STCs as the following:
i.
Organizing, managing and monitoring the listed securities exchanges;
ii.
Managing securities exchange system;
258
iii.
Managing and monitoring the listed securities; activities of the members of the
STC and information disclosure by listed companies;
iv.Organizing market information dissemination.
The HCM STC official had operated since 28th of July 2000 and the Hanoi STC had
launched in 8th March 2005. Since 2007, as the Securities Law came into effect, the two STC
started to transform from an STC to a “modern” exchanges which has organization similar
partly to a single-member limited liability company owned by state and partly to state
General Corporation. The exchanges is said to become more independent in its operation to
the SSC under the Law. The Ho Chi Minh City STC has completed the transformation in July
2007 and became the Ho Chi Minh City Stock Exchange (or HoSE in short). Hanoi STC
began its transformation about a year later and has just finished the procedure in June 2009 to
become the second stock exchange in the country under the name Hanoi Stock Exchange (or
HNX in short). The main functions and obligations of exchanges is clearly stated in Article 37
and 38 of the Securities Law as follows:
i.
To promulgate rules on listing securities, on trading securities, on disclosure
of information and on trading members after obtaining approval from the State
Securities Commission.
ii.
To organize and to operate securities trading activities on the Stock Exchange
and to ensure that securities trading activities are conducted on the market
publicly, fairly, in an orderly manner and effectively;
iii.
In necessary cases in order to protect investors, to temporarily suspend,
suspend or to halt trading of securities in accordance with the rules on trading
securities of the Stock Exchange or Securities Trading Centre.
iv.
To approve or to delist securities listing and to supervise the maintenance of
conditions for securities listing on the Stock Exchange listing companies.
v.
To approve or to withdraw the membership of trading members; to supervise
securities trading activities by trading members on the Stock Exchange.
vi.
To supervise activities of disclosure of information by listing organizations
and by trading members on the Stock Exchange.
vii.
To supply market information and other information relating to listed
securities and to disclose information in accordance with regulation.
After unifying the government bond auction function and trading market onto Hanoi STC
(now known as HNX) in the mid of 2008, the current products and trading markets run and
directly managed by the two exchanges are still not so clearly defined and sometimes
misleading for outsiders, especially in the stock trading market. The guidelines given by the
Decree 14/2007/ND-CP dated 19th January 2009 (Decree 14 in short) becomes more
complicated since the transformation of Hanoi STC to a stock exchange completed. The
259
conditions for listing shares on stock exchange are stipulated in Article 8 of Decree 14 while
Article 9 stipulates the conditions for listing shares on a Securities Trading Centre. Item 1a of
Article 8 and 9 and raises the minimum capital requirement respectively as follows:
“The shareholding company must, at the time of registration for listing, have a minimum
amount of paid-up registered capital of ten (10) billion Vietnamese dong calculated at the
value recorded in the accounting books.”
“The shareholding company must, at the time of registration for listing, have a minimum
amount of paid-up registered capital of eighty (80) billion Vietnamese dong calculated at the
value recorded in the accounting books. Based on the developmental status of the market, the
Ministry of Finance may increase or decrease this amount within a maximum range of thirty
(30) per cent after seeking the opinion of the Prime Minister of the Government”
As long as there is no more STC, both stock exchanges should, in principle, apply the same
minimum capital requirement of VND80 billion which in its turns will raise a serious
question of the necessity of the existence of the two exchanges with very similar trading
mechanisms in Viet Nam. HoSE operates the listing market for stocks and corporate bonds
(of public companies with registered capital of VND 80 billion or more) and municipal
bonds. The HNX runs at the same times three separate markets which are: the secondary
market for listing of public companies’ stocks and bond with registered capital from VND 10
billion, the market for unlisted public companies (which known as UPCoM 47 in short) and
the government bond market. It means that even the name of HNX as an exchange, the real
status of HNX is still recognised as an STC. The current decision by regulator to move listed
companies with paid-in capital above-VND80 billion in HNX to HoSE and the below-VND
80 billion ones in HoSE to HNX is a proof for that matter.
The HoSE is now designed to list only large-sized public companies with registered capital of
VND 80 billion or more while the HNX is for smaller to medium sized public companies
from VND 5 billion to below VND80 billion. Under the division of listing stipulated in
Securities Law and its guidelines, the move of large listing companies in HNX to HoSE and
the shift of smaller listing companies in HoSE to HNX are expected to be done within this
year.
The Viet Nam Securities Depository
The Viet Nam Securities Depository (VSD) is established in 2004 by a “simple” combination
of the two securities depository divisions of Hanoi STC and Ho Chi Minh City STC. Before
that, each depository division acted as a supporting division for securities trading in each
centre in the field of securities registration, securities depository, clearing and settlement of
securities transaction. The main duties of VSD are stipulated in Article 45 of the Securities
Law as follows:
47
The UPCoM market has been put into operation on 24 June, 2009, which is known as an effort by the
MOF/SSC to narrow the unregulated markets. The products can be traded in the market including stock and
convertible bonds of unlisted public companies.
260
i.
To issue rules on securities registration, depository, clearance and payment
after obtaining approval from the State Securities Commission;
ii.
To approve or to withdraw the membership of depository members; to
supervise the VSD rule compliance by depository members.
iii.
To supply services of securities registration, depository, clearance and
payment and other services related to securities depository at the request of
clients.
iv.
To manage separately assets of clients.
The VSD is also transformed to become an independent (single member limited liability)
company owned by state in June 2009 as required by the Securities Law. The settlement
cycle applies for securities trading in the two exchanges generally are T+3 with some
exception of T+1 for large block trades and government bond trades.
Market intermediaries
• Securities companies
Before 2007, the securities companies’ financial capacity required by regulations was rather
small. The four main activities of the securities companies, according to Decree
144/2003/ND-CP, including dealing, portfolio management, and securities issuance
guarantee and securities investment consultancy had minimum capital requirements of.
Securities companies can be established in the form of joint stock companies or limited
companies with registered capital.
By regulation, securities companies can be established in either joint-stock or limited
liability ones. Moreover, the main businesses of the securities companies could consist of
brokerage, owned-trading, securities investment portfolio management, underwriting, and
financial and securities investment advisory. Securities companies, which are licensed by
the SSC as brokers or dealers, are eligible to register as members of the STC. Importantly,
only members of the STC have been permitted to trade securities through the trading
system of the STC. In order to receive a securities business license, one has to fulfil
some requirements:
-
having a business plan that is in line with the objectives of socio-economic
development and growth of the securities industry;
-
having adequate technical facilities for securities businesses;
-
having a minimum levels of legal capital as prescribed for each type of
securities businesses as follows:
1
2
Types of business
Brokerage
Securities dealing
Minimum capital required
VND 3 billion
VND 12 billion
261
3
4
5
Investment portfolio management
Underwriting
Securities investment consultancy
Total
VND 3 billion
VND 22 billion
VND 3 billion
VND 43 billion
If a securities company intended to apply for a license of various securities
businesses, the required legal capital level must be a cumulative amount of minimum
legal capital required for each type of a licensed business. For instance, if a company
expects to be licensed all types of securities business, it must have at least VND 43 billion.
The minimum capital requirements were said to be underestimated the necessary capital to
maintain the financial securities and provided service quality of the securities companies. It is
also said that some of the businesses were not only belong to Securities Company but also to
other financial institutions such as underwriting. The fact that it is very risky to let a
securities company with rather small capital (VND 22 billion) to underwrite for a hundreds
billion VND of bond/stock issuance. On the contrary, securities depository is a type of
business that Securities Company was currently doing did not require any additional capital.
As of December 31st 2005, 13 securities companies have been licensed with a total
registered capital of VND 605,750 million (USD 38.47 millions). Of these, nine
companies have capital of VND 43,000 million (USD 2.73 million) or more and have
conducted all kinds of securities business in the market. During and especially the end of
2006, there was a rush of applying for securities business license before the new Law came
into effect. There were 41 new securities companies have been licensed within 2006,
increased the number of securities companies from 14 to 55 companies. (See Figure below)
Trading account vs. Securities Companies
Securities Company
150
Trading Account
600
500
50
100
securities Co.
Thousands Account.
700
400
300
200
100
0
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
QII
2009
Since the effectiveness of Securities Law in 2007, some of the above issues have been solved.
According to the guideline regulation (i.e. the Decree 14/ND-CP dated 19/1/2007), the
segregation of functional activities carried by Securities Company and investment fund
262
Management Company have helped to strengthen the professionalism and specialization of
securities intermediaries. As stipulated, if a securities company want to have license of four
main securities business, the minimum legal capital must be 300 billion VND (see Table
below).
Types of business
Minimum capital required
1
Brokerage
VND 25 billion
2
Securities dealing
VND 100 billion
3
Underwriting
VND 165 billion
4
Securities investment consultancy
VND 10 billion
Total
VND 300 billion
The regulation also allows two year grace for existing securities companies to fulfill the Law.
By the end of 2007, there were 36/78 licensed securities companies registered all types of
businesses. The capital of securities companies has increased significantly to strengthen the
company’s financial status since the implementation of the Securities Law. The average
registered capital per securities company increased 2,3 times from 2006 to 2007 (see below
table) and continued to rose 34% more in 2008 reaching an average of VND 212 billion.
Table: Financial Capability Expansion by Securities Companies
Year
2004
No. of securities
Companies
13
Registered capital
Average capital
% Net Change
606.00
46,62
2005
2006
2007
2008
15
55
78
102
723.75
3,755.50 12,382.75 21,626.00
48,25
68,28
158,75
212,02
4%
42%
132%
34%
In parallel with the financial capacity enhancement, securities companies are required to
separate the client’s deposit accounts from the companies’ account and put them into the
banks in preventing the misuse by the securities companies. The measure was considered a
strong determination by regulator to improve the market transparency and thereby improve
the quality of service offered by the companies. The implementation was actually started
since March 2008 but has been postponed until the 1st of October, 2008. By the end of 2008,
there were 70 out of 100 securities companies completed the process.
•Securities investment funds and fund management companies
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The Securities Law recognises two types of securities investment fund: public funds
(including closed-ended funds and open-ended funds), which are defined as securities
investment funds that publicly offer securities, and member funds, which are limited to 30
members who are legal persons. The establishment of a public fund and the offering of its
certificates must be registered with the SSC, whereas the establishment of a member fund
requires only notification to the SSC. A fund management company can be established only
as either a limited liability company or a joint stock company under the new Enterprise Law.
It will be licensed to conduct securities investment fund management and portfolio
management. A fund management company is permitted to invest in securities and real
estate.
Shareholders of the fund company are not permitted to have day-to-day control over the
investment decisions of the fund. The Securities Law specifically permits a Vietnameselicensed fund management company to manage foreign funds where the objective is to make
investments in Viet Nam. Unfortunately, Decision 45 is unclear on whether Vietnamese fund
management companies can manage funds that are not listed on a foreign exchange. In
addition, a fund management company has to inform the SSC of the establishment of the
offshore fund at least 10 days before the submission of the application to the foreign authority
for the establishment of the fund. It al so has to notify the SSC within 10 days after
completion of establishment of the fund.
The minimum level of legal capital of a fund management company according to Decree
14/2007/ND-CP is VND 25 billion. Before 2007, the minimum required capital for this type
of company was VND18 billion. Under the Securities Law, portfolio investment management
should be done by a fund management companies. The increase in the number of fund
management companies had a positive relation with the level of professional level of the
market. There was a surge in the number of fund management companies during the time
(2006-2008) that Viet Nam stock market was on the toplist of high growth market in the
world.
264
• Securities investment companies
For the first time, the Securities Law provides for the establishment, organisation and
operation of securities investment companies, which, like fund management companies, must
be established as either limited liability companies or joint stock companies under the new
Enterprise Law. Decree 14 contemplates two types of securities Investment Company: (i)
public securities investment companies, which conduct public offerings of shares, and (ii)
securities investment companies, which conduct private placement of shares.
A securities investment company is permitted to manage its own investment capital or to
entrust a fund management company to do so. Any foreign investment company or foreign
securities investment fund that is a legal entity wishing to invest in Viet Nam must entrust a
domestic fund management company or establish a branch in Viet Nam to manage its
investment capital. The details of these requirements, which could significantly affect the
booming foreign fund business, are being debated.
• Custodian banks
Custodian banks are regulated by the Securities Law. A custodian bank must be a commercial
bank licensed by the SSC to provide custodian services. The main role of the custodian bank
is to retain custody of the assets of an investment fund and to supervise the investment of a
public fund’s capital by the management company.
2.2 The evolution of the Viet Nam secur ities mar ket (2000-2008)
As mentioned above in section 1.2, the Viet Nam official securities market operates with two
exchange centres namely HCM City securities exchange centre (STC) and Hanoi STC which
were formed by the end of 1998. The HCM STC official has operated since July 28, 2000 and
the Hanoi SEC just has launched in March 8, 2005. The HCMC STC has just celebrated its
10 years along the way with the securities market in Viet Nam. In this part, the examination
of stock market in Viet Nam will focus generally on the official or organized part of the
market, namely the HCM STC and Hanoi STC and make the combination of date where
appropriate.
The achievements of Viet Nam stock market in the last 10 years
In the first trading sections of the HCM STC, there were only two stock kinds of REE and
SACOM traded. The growth of the market in terms of amount of the listed companies in the
beginning period was very slowly. By the end of 2000, there were only 5 joint stock
companies listed; in 2001 there were more 5 companies and 2002 with 10 more listed
companies. Therefore, from 2001 to 2003, there were totally 21 joint stock companies listed
with total capitals of 1086 billion VND. If the government bonds included, the total of market
capital just reached the value of more than 8,700 billion VND.
The important point in the period that after the securities market was opened, all listed stock
prices go up day by day. Therefore, the VN-INDEX has grown strongly and continuously,
265
from the basic level of 100 to the record one of 571.04 in 25/6/2001 within a year. The main
reason to explain the strong increase of the stock prices was that there was big imbalance
between stock demand and supply and investors’ psychology put very high expectation on
the new investment form.
Table: Key indicators for Viet Nam stock market in 2000-2008
Indicators
No. of listing
companies
Trading
value
(bil.VND)
Average
daily trading
(bil.VND)
No.
of
trading
accounts
No. of fund
management
Comp.
Market
capitalization
(bil. VND)
Market
Cap./GDP
Year-end
VNIndex
% Change
VNIndex
2000
2001
2002
2003
2004
2005
2006
2007
2008
5
11
20
23
26
41
193
250
338
90.21
964.02 959.33 502.02 2,003.87 3,304.74 42,092.4 269,154
1.39
6.13
3.23
2.908
8.780
13.607 16.486 21.600
986
1.570
1.71
6.80
180,978
18.50
161.03
1,066.83 737.94
29.065
110.652
312.139
531.428
2
5
18
25
46
2.436
2.370
4.516
9.598
237.276
492.900
225.935
0,28% 0,34%
0,48%
0,39%
0,63%
1,21%
22,70%
40,00%
19,76%
207
235
183
167
239
308
752
927
318
13,5%
22,1%
-8,7%
65,7%
13,5%
22,1%
8,7%
-65,7%
Source: SSC, HoSE, HNX and author’s calculation
It seemed that the too rapid increase of the stock index in a short period of time has pushed
the stock price well above the real value. Therefore, to adjust the market, the SSC has
introduced a series of measures, such as increasing stock supply, reducing transaction
margins, setting up the maximum volume to buy stock in one trading day. These measures
affected market immediately and made the stock prices going down. However, the price
decline was unexpectedly strong and in the long period. In fact, the VN-Index has
continuously gone down from 571,04 to the bottom 130,9 in 24/10/2003. The securities
market has experienced a gloomy period in more than a year until the end of 2004. The cause
of this situation partly came from the incomplete legal framework for the securities market,
especially the procedures to offer securities to the public are still complicated, and the
266
conditions to issue are still tough. On the other hand, the market scale is too small with very
few products; the market liquidity is not high. These issues together with the information
disclosure requirements made the joint stock companies unable to see the advantages of the
securities market as a effective capital mobilization channel for them if listed. Besides, the
market stagnation also deteriorated the investors’ confidence in the securities market.
By the end 2003, there were 14,000 transaction accounts opened at 12 securities companies,
in which there were more than 90 organizational investors, taking account of 0.6% and 35
foreign investors. Total market capitalization reached only 0.5% GDP in 2003. The market
progress in 2004 had no special things. After reaching the bottom, VN-Index had recovered a
little bit and kept stable at the level of above 200 point from the January 2004. The number of
listed companies went up to 26 companies, however the market capitalization did not change
much (0.63% GDP). Total trading value in 2004 reached more than VND2,000 billion with
the average daily trading value at 6.8 billion. Therefore, with the tiny market scale in this
time, the Viet Nam securities market was not able to act as a capital mobilization channel for
the economy, especially through securities issuance.
The year 2005 witnessed the securities market’s recovery signal. As of 30/12/2005, VNIndex reached 307, 50 basic points. Particularly, in this year, the market scales had expanded
significantly partly by putting the Hanoi STC into operation in mid 2005. By the end of 2005,
there were 32 joint stock companies allowed to list at HCMC STC and 9 companies in Hanoi
STC, which are mainly restructured SOEs through equalization. The total of market
capitalization reached VND9, 689 billion by the end of 2005, taking account of 2% GDP. The
daily trading value in 2005 had jumped as triple as that in 2004 with VND18.50 billion in
value.
In the beginning of 2006, the securities market had a turning point with the listing of
Vinamilk Corporation that made total stock value traded in the HCMC STC increased twice,
about VND16,000 billion. More importantly, the securities market started to attract the
participation of blue-chip companies to the certain extent that they have realized the
securities market as an effective channel to mobilize capital. At the same time, the
Government implemented many promoting measures including the permission of foreign
investors to list in the securities market. The year 2006 was marked with the dramatic rise of
the listed companies. By the end of 2006, there were 193 companies listed in the securities
markets in HCM and HN STCs in which there are many companies with their capital reaches
billion thousands VND such as PhaLai Power Company. The turnover ratio 48 of all stocks in
the market in 2006 increased 8 times as compared to the whole previous period (SSC, 2006).
The securities market trend in the first half of 2006 had no special apart from the fact that the
VN Index increased strongly. By October 2006, this index reached 500 point which was the
level had been attained 5 years ago.
The total market capitalization by the end of 2006 reached 340,000 billion VND or 13.8
billion USD (equivalent to 22, 7% GDP), and up to April 2007 was equivalent to 24.4 billion
48
A market liquidity indicator that calculates the market traded value of the stock(s) over the par value of that stock(s) in a period of time.
267
USD, 20 times compared to the year 2005. The increasing speed of market capitalization has
exceeded far from the level 10-15% proposed by the government in the Development
Strategy for the securities market up to 2010.
The number of the listed companies went up about five times from 41 companies in 2005 to
193 in 2006. The number of the trading accounts of the investors 49 at the securities
companies was above 120,000 by 12/2006, 3 times compared to by the end of 2005 and 30
times compared to the beginning year. In the first quarter of 2007, there were 60,000 accounts
has opened, equivalent to the number of the whole beginning period (2000-05). The account
number of the individual foreign investors also rises strongly in that period with 1,700
accounts and they are holding about 30% of stock amount of the listed companies. As for the
organizational investors, so far there were 55 securities companies, 35 investment funds, in
which 23 foreign investment funds.
One thing is not least important is that the market’s liquidity has improved significantly; in
the first 3 months of the year 2006, the daily stock trading value at HCM STC floor reached
VND1,000 billion per day; and that of the Hanoi STC was VND300 billion per day.
Meanwhile, from 2005 backward, the stock trading value per day fluctuated only from
several millions to billion VND.
From the end of 2006 to the first quarter of 2007, the market became so excited with the
country economic development prospect and the welcoming WTO accession of Viet Nam
which marked the most spectacular development in the securities market history so far.
Beginning from the event that Viet Nam was the hosting country of the APEC Conference in
November 2007 and some special events such as Viet Nam becoming the WTO member
which promises a bright perspective for attracting foreign investment into Viet Nam in which
the securities market included. Along with impressive economic development in the last time
as well as the perspective development in the next years, these important events have affected
directly on the nascent securities market of Viet Nam. The securities investment has attracted
the investors so much that have never happened before. Just only in the short period, the VNIndex increases sharply from 511.54 points in the last day of October 2006 up to the top of
1,17067 points in 13 May 2007. The level of increase within 4 months (except the Tet
49
By regulation, each investor is allowed to open only one securities trading account in one securities company.
268
holiday) reached nearly 130%. In the Hanoi STC trading floor, HaSTC- Index also increased
from 241.92 in the first trading day in 2007 up to the highest level of 459.36 in 19 March
2007.
The strong leap of the market indices, however, was commented at that time as an “overheating” and “unsustainable” signal of the market. After a short period of hyper-growth, in
corresponding with expectations of many foreign and domestic experts, the Viet Nam
securities market has been entering into the period of self-adjustment. After reaching the top
with VN-Index 1,170 basic points by the middle of March, 2007, the market has gone down
continuously and after more than a month, the VN-Index has returned the level of 900 points
(as of 23 April 2007). The securities market has attracted the public attention when the VNIndex exceeds 1000 points again in May 8 2007. However, according to some experts, the
strong increase momentum in the two continuous trading sections can stretch the
sustainability of the circles.
The year 2008 has gone below the expectation of investors and the anticipation of researchers
as the market slumped to the lowest level since 2004 and closing by the year end with 315.62
points (equal to one third of last year end level). After two years on the top of the global list
of highest growth markets, the plunge of VNIndex in 2008 is recorded as the strongest
decline in the world and from the time the market had been put into operation in July, 2000.
Market capitalization reduces to about 20% of GDP, a half of that in 2007. Total trading
value decreased by 30% of that in last year.
There are a number of reasons that could explain for the speedy downturn of the market, it is
agreed that the most important reasons were the market “over-heating” growth in the last two
years, the consequences of global financial crisis in 2008 and a massive and uncontrollable
supply of stocks to the market. Statistically, the two stock exchanges in Hanoi va Ho Chi
Minh City have received 87 newly listing stocks of which many stocks of giant corporations,
namely Hoang Anh Gia Lai Group, Petro Viet Nam Finance Corporation, Vinaconex, etc…
Besides, hundreds of public companies have offered its shares to public to raise additional
capital of 30% to 200% of the original.
As planed based on the favourable market conditions in the last two years, the state-owned
enterprise (SOE) reform has been boosted by the Government by continuously making initial
public offering (IPO) of stock for many giant state owned corporations such as VietinBank,
Sabeco, Habeco,… etc. A huge supply of stocks has made the situation worsen as the trading
volume and trading value was significantly plummeting, especially in the year-end months.
The HoSE average daily trading value in 2008 was VND 462.7 billion, a decrease of 40%
that of 2007. The HaSTC average daily trading value in 2008 declined by two thirds of that in
2007 from VND 500 billion to VND 150 billion.
A number of stabilization measures taken by regulators did not help to recover the market.
The State Capital Investment Corporation (SCIC)- a representative and investment arm of
state ownership in enterprises has been assigned to buy in stocks which is under pressure of
selling out of pledged shares by commercial banks to collect money back. The SSC has
269
encouraged listed companies to buy treasury stocks, and adjusted the daily price trading
limits 50 to prevent the market from further plunge. Despite of all these measures, many of the
listed stocks, finally, dropped 80 to 90% of the value over one year. In every conner of the
streets, investors complained the regulators for being lost.
Continued the trend by the end of 2008, the VN Index has plunged to the lowest trough of
235.5 point (on 24th February, 2009) since 2005. The index then recovered and grew quickly
in May and June, 2009 reaching 512.46 point on 9th June 2009 showing an increase of 65%.
Market capitalization in the middle of 2009 expanded significantly to VND407, 000 billion,
almost doubled that of 2008. There are 30 newly listed stocks during this period including
very big companies, such as Vietcombank, Saigon Hanoi joint stock commercial bank, etc….
The unlisted public companies (Upcom in short) market has been put into operation by 24th of
June, 2009 with 12 stocks trading initially. This is an effort by the Government to narrow the
unregulated market trading unlisted public companies’ securities. Under the Securities Law,
any companies that fall into public company category 51 should register the status with State
Securities Commission. Under the Decision 108/2008/QD-BTC, the unlisted public
companies are able to register with HNX for trading their securities in Upcom Market
without any special conditions or additional cost. So far, the market did not attractive for
most unlisted public companies for several reasons. Some very liquid and active traded stocks
of public companies, for example Military Joint Stock Bank, Eximbank,etc… are not willing
to be traded in Upcom since these companies lose a significant benefit from collecting fees
for transfer of ownership. The shareholders are not ready too due to the much longer term of
payment (T+3 as compared to T+0 currently) and improper trading mechanism.
Bond Market Development
During the period 2000-2002, government bond is the major commodity listed at HCM STC,
however, transactions of government bond have been rarely undertaken. There was a trend
that bond holders implementing buy and hold strategy rather than trading in the market, bond
trading are therefore not significant. The trading value is very low during this period, only
accounting for 0.4% over the total value of listed bond (see table on turnover ratio).
50
On March 27, 2008, daily price limit was adjusted from +/-5% to +/-1% in HoSE and +/-10% to +/-2% in
HaSTC.
On April 07, 2008, daily price limit was raised to +/-2% in HoSE and to +/-3% in HaSTC
On June 19, 2008, daily price limit was extended to +/-3% in HoSE and to +/-4% in HaSTC
On August 18, 2008, daily price limit was increased to +/-5% in HoSE and to +/-7% in HaSTC
51
Article 25, Law on Securities on public companies:
1. A public company means a shareholding company which belongs to one of the following three
categories: (a) A company which has made a public offer of shares;
(b) A company which has shares listed on the Stock Exchange or a Securities Trading Centre;
(c) A company which has shares owned by at least one hundred (100) investors excluding
professional securities investors, and which has paid-up charter capital of ten (10) billion VND or more.
2. The shareholding companies defined in clause 1(c) of this article must lodge the public company file
stipulated in clause 1 of article 26 of this Law with the State Securities Commission within a time-limit of ninety
(90) days from the date such shareholding company becomes a public company.
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In 2003, due to a double amount of listed bond than the period of 2000-2002 with 100 listed
bonds and regulations to push bond trading in general and government bond trading in
particular as such: no amount limitation for bonds held by institutions, individuals; removing
trading bands; it caused a high increase of trading government bond, in both amount and
value. About the trading value, the value of order matching transactions in 2003 was nearly
double and the trading value of negotiation transaction reached 21 times bigger than that of in
2002.
Table: Turnover Ratio
Year Listing value
million)
(VND Trading value ( VND Trading
million)
value (%)
2000 1,100,000
39.21
0.004%
2001 2,731,633
58,148.32
2.13%
2002 4,113,633
113,985.70
2.77%
2003 11,496,633
2,464,186.04
21.43%
2004 21,528,333
17,546,854.31
81.51%
2005 34,610,333
21,014,853.47
60.72%
2006 47,245,700
42,044,492.50
88.90%
2007 129,451,033.1
116,768,175.3
84.69%
2008 159,169,700
187,950,866
118.08%
value/listing
During 2004-2006, the trading value of government bonds has been increased significantly
with the use of repo agreement (re-purchase agreement) from 21.43% listed bond to be traded
up to 81.51%, a four time increase. In the mean time, the amount of bonds traded via order
matching method has been more and more narrowed down in comparison with negotiation
transactions. As a result, all bonds have been traded under negotiation trading method since
2005.
From 2003, the trading value of government bonds has increased sharply in comparison with
the listing value; the turnover ratio of the year increased from 33% in 2003 to 174.9% in 2004
and up to 30/9/2006 has been 235% (see Table above). This shows an improvement in bond’s
liquidity and investors’ attention on dealing of government bonds.
The maturities of the listed government bonds are mainly 5 years, 10 years and 15 years. The
number of government bond types traded is limited to some most currently listed government
bonds. In fact, there have been 215 types of bonds traded over 317 types of bond (up to
30/9/2006) without reference price because of no trading since being listed. Interest rate of
government bond issuance is not really standardized as a reference for financial institutions.
271
It has been interferred by issuers (the Ministry of Finance and the Viet Nam Development
Bank) via the ceiling interest regime, not really determined by demand-supply. Another hand,
inactive trading in the secondary market and low liquidity of bonds have not created a
benchmark yield curve for other debt instruments. The operation of bond’s repo has been
appeared since 2003 and the mainly active participants were securities companies and
commercial banks. Since the trading system did not allow to separate the repo and out-right
transactions, it is said that the majority of bond trading is repo trading. Yet, 5 years later, the
legal document guiding on repo transactions has been promulgated in 2008.
Table: Listed bond breakdown by issuers in HNX as of 31st December, 2008
Listed bonds by issuer
No. of
Listing
bond
volume
type
Government bonds:
520
1,591,697,000 1,980,227,625 124.4%
by State Treasury
249
875,577,000
1,090,752,025 124.6%
by Viet Nam Development Bank
270
711,120,000
889,475,600 125.1%
Trading
volume
Turnover
Ratio
by Viet Nam Expressway Development
1
Company
5,000,000
Municipal bond:
4
15,050,000
2,000,000
13.3%
by People’s Committee of Hanoi
4
15,050,000
2,000,000
13.3%
Corporate bonds:
3
18,645,986
10,198,500 54.7%
0
0.0%
by PetroViet Nam Join stock Finance
1
Corporation (PVFC)
3,645,986
0
0.0%
by Viet Nam Electricity (EVN)
2
15,000,000
10.198,500
68.0%
Total
527
1,625,392,986 1,992,426,125 122.6%
Source: HNX, author’s calculation.
The year 2008 is the booming year for the bond market in general and for government bond
market in particular. As the market slumped down, the need for more safe and liquid
instruments became increasingly high. In 2008, the bond turnover ratio far exceeded the level
100% for the first time since the opening of the market, reaching 122.6%. The main
contribution still belongs to the government bonds which are considered the most secured
instruments during the chaotic time. The liquidity of municipal bonds was also slightly
improved.
Market participants
272
Main entities participating in government bond trading during the period of 2001-2002 were
commercial banks (accounting for 94% amount of bonds bought) and securities companies
(accounting for more than 90%amount of bonds sold), other entities such as insurance
companies, investment funds and financing companies mostly did not participate in or only
participated with very small percentage.
From 2003 up to now, investment funds, insurance companies, financing companies and
other entities have participated actively in trading government bond, however, commercial
banks and securities companies are still the most active entities (accounting for 50% over the
total trading value). Though the trading percentage of investment funds, insurance
companies, financing companies account for less than 10%; this is a positive signal proving
the consideration of institutional investors, besides banks and securities companies, in the
market of government bond.
After the unification of bond auctions into Hanoi STC in mid 2006, the number of
government bond auction members on HN STC increased significantly. The conditions to
be a bidding member and underwriter is increasingly easy, but there has no clear regulation
on responsibilities of members once participating in biddings or underwriting as a primary
dealer and being a market maker in trading market. It not only caused difficulty for issuance
but also an impact on the liquidity of the secondary trading market. By the end of 2008, there
were 68 auction members in Hanoi STC of which 29 were securities companies, 17 local
commercial bank, 8 foreign commercial banks and 14 other financial institutions.
For some members of bond auction, purchasing bond is just for the purpose of holding bond
in a long term, not for business. Some banks purchase government bonds as their reserves
requirement, so that the percentage of bond trading is very low after purchasing in the
primary market. Additionally, the number of members as tenders and underwriters for
government bond are very limited, either quantity (there are only 4 members participating in
each issue) or fund as well as experience; the value of each issue is quite small, tattered and a
low percentage of successful issuance.
2.3 Cur r ent r egulator y fr amewor k for secur ities ser vices in Viet Nam
While Viet Nam is some way off from structuring complex products on its exchanges, it is
overhauling its domestic capital markets with a new Securities Law, which came into effect
in early 2007. The Securities Law governs public offerings of securities, listings, dealing,
trading and investment in securities, securities services, and the establishment and regulation
of securities companies and investment funds. The Securities Law contemplates two types of
domestic securities trading market: the Securities Trading Centre and the Stock Exchange.
These are independent legal entities, although their operation and personnel are controlled
and supervised by the local regulator, the State Securities Commission (SSC). The SSC is a
state body overseen by the Ministry of Finance (MOF) and has no right to promulgate legal
documents but to draft and submit to/through MOF for approval.
On 17 January 2007, the Government issued Decree 14/2007/ND-CP implementing the
Securities Law with regard to public offerings, listings, and the regulation of securities
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companies, fund management companies and securities investment companies. The MOF has
also issued a number of other regulations to implement the Securities Law and Decree 14,
including the following:
-
Decision 35 dated 15 May 2007 on the organisation and management of fund
management companies;
-
Decision 45 dated 5 June 2007 on the establishment and management of securities
investment funds;
-
Decision 27 dated 24 April 2007 on securities companies;
-
Decision 13 dated 13 March 2007 on the model prospectus and registration files for
the listing securities on the stock exchanges and securities trading centres;
-
Decision 12 dated 13 March 2007 issuing regulations on corporate governance
applicable to listed companies on the stock exchanges and securities trading centres;
-
Circular 17 dated 13 March 2007 providing on application files for registration of
securities offerings; and
-
Circular 38 dated 18 April 2007 on information disclosure in the securities market.
Under the securities law, there are some other Decrees and guidelines to provide legal
framework regarding foreign participations and punishment of regulation violation in
securities and securities market in Viet Nam.
-
The Decree 36/2007/NĐ-CP by the Government dated March 8, 2007 to penalize the
administrative violation in securities and securities market.
-
The Prime Minister signed Decision No. 55/2009/QĐ-TTg dated April 15, 2009
regulating foreign investors' participation in Vietnamese stock markets, which is
effective from June 1, 2009 in place of Decision No. 238/2005/QĐ-TTg dated
September 29, 2005.
Public offerings of securities
Viet Nam has a broad informal over-the-counter market. The Securities Law is expected to
slowly cause this grey market to migrate onto the regulated market. Offers of securities via
the ‘mass media’ or to more than 100 investors (excluding offers to professional investors) or
to an unspecified number of investors constitute a public offering that must be registered. The
Securities Law is limited to public issues of securities and does not apply to the private
placement of unlisted securities. The par value of a public offered share is VND10, 000 (less
than US$0.60) and the minimum par value of a publicly offered bond is VND100, 000 (about
$6). In practice, the success of an offering is measured, slightly oddly, by the multiple to par
value that investors are willing to pay.
The application for public offerings takes the form of a registration statement, which includes
the prospectus, the audited financial statements for the preceding two fiscal years, and the
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issuer’s constitutional documents and relevant corporate resolutions. The main contents of a
prospectus are prescribed in Decision 13 of the Ministry of Finance dated 13 March 2007. It
is mandatory to follow the sample prospectus in this Decision. However, this does not
preclude the inclusion of additional information necessary to make the prospectus accurate,
true and objective. There are no set standards for financial statements. Foreign issuers may,
therefore, enter the Vietnamese securities market with financial information provided to a
high standard, which could result in inconsistencies in financial reporting and quality levels.
Ownership by foreigners
Ownership by foreigners of Vietnamese listed companies remains restricted. Under the new
Prime Minister’s Decision 55/2009/QD-TTg, foreign ownership in public companies is
limited to 49 per cent, and foreign ownership of a company operating in certain ‘sensitive’
sectors may be more restricted. For example, foreign ownership of listed banks is limited to
just 30 per cent. Foreigners’ ownership of bond issuances is not limited. To purchase
Vietnamese securities, foreigners need to comply with various requirements regarding
foreign exchange and registration with the authorities.
Overseas offerings and securities offerings by foreign institutions
The Securities Law regulates only the domestic market and domestic issuers. However, it
allows domestic issuers to make secondary offerings outside Viet Nam under certain
conditions, including (i) not being a business in which participation by foreign investors is
prohibited, (ii) not permitting foreign shareholding in an amount greater than that allowed by
laws, (iii) having a plan for utilisation of the proceeds that has been approved by the directors
or owners, and (iv) being able to meet the legal requirements of the overseas country in
which the secondary offering is registered.
Some domestic issuers, such as Vinamilk, are trying to take advantage of this reform.
Advisers and underwriters of such offshore issues must contend with greater legal ambiguity
in their position, as the laws and regulations are not yet complete. An issuer of publicly
offered securities will normally be a joint stock company established in Viet Nam.
International financial institutions in which Viet Nam is a member may also make offers of
VND-denominated bonds, subject to certain specified conditions.
Reporting and disclosure requirements
Issuers of securities, listed institutions, securities firms and fund management companies are
subject to certain reporting and information disclosure obligations. As well as complying
with basic disclosure of financial information, timely disclosure of extraordinary items, such
as significant financing arrangements or matters that may have a detrimental effect on the
value of securities, will be required. The Securities Law attempts to provide greater
transparency through higher disclosure requirements. However, the significant difference in
this obligation between listed and unlisted public companies has discouraged public
companies to list and to disclose information.
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Insider trading
The insider trading rules are very broadly drafted. ‘Inside information’ is defined as
information on a public company that has not been published and that, had it been published,
might have affected greatly the share price of such company. A person is prohibited from
‘using inside information’ to purchase or sell securities for itself or for a third party. A person
trading on the basis of inside information may be subject to a fine or criminal liability and the
proceeds of the trade may be confiscated. The following persons, among others, is considered
to have inside information: members of the board of directors and inspection board, the
general director, and the deputy general director; shareholders with 5 per cent or more of the
shares of a company; auditors; and others with access to inside information.
A large shareholder may be regarded as having inside information about an investee company
on the ground that it owned 5 per cent or more of the shares or on the ground that it had
access to inside information through due diligence performed before investment.
Accordingly, to sell shares after a public offering, that shareholder would need to be satisfied
either that the inside information has been disclosed or that the disclosure would not have a
‘major impact’ on the company’s share price. There is no jurisprudence on what might
constitute a major impact, which might make it difficult to get comfortable on this point.
2.4 Some diagnostic assessment on the Viet Nam secur ities mar ket
The SWOT analysis for securities sector in Viet Nam is given below:
Securities Sector SWOT Analysis
- The securities sector in Viet Nam are expanding very quickly
Strengths
-Investors and authorities are increasingly perceived of the
benefits of securities market as a channel for investment and
mobilization of capital.
- Strong invests by foreign investors and global financial
institutions.
- The economic conditions are likely to remain favourable with a
low prospect of risks to the realisation of potential returns.
- Inadequate infrastructure for market operation and regulator;
Weaknesses
- Unskilful retail investors, insufficient training and weak
investor protection.
- Weak supervision and compliance capability by market
operators and regulators to ensure a fair, efficient and transparent
securities market.
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- Underdeveloped market intermediaries (lack of human
resource, technology, experiences), corporate governance issues,
inadequate risk management procedures, etc
- Un standard information disclosure systems with low
computerization.
Opportunities
- Market openness allows to take advantage of funds, skills and
experiences, and technologies by increasing foreign participation
under WTO commitments
- Viet Nam is considered to be a very promising market for.
There are still large numbers of people who are underinsured (or
uninsured).
- Viet Nam securities market started from very low base There is
still a room to develop more sophisticated market which contains
sophisticated instruments and services (derivatives, asset-backed
securities, mortgaged backed securities) and intermediaries.
Threats
- Increasing prospect of high ongoing inflation represents a
general economic threat. There are many unsustainable
development issues for an emerging economy like Viet Nam.
- Weak coordination between agencies to manage and ensure the
financial system stability (capital flight issues, early warning
system for crisis, etc.,,)
- Underdevelopment and volatility in Vietnamese capital
markets represents an ongoing threat to sustainable development
of the market.
Inadequate supervision capability
There are several inherent factors that contribute to the weaknesses of the existing securities
market surveillance and compliance system:
Insufficient legal framework: The Securities Law has come into full effect since January
2007. The Law provides relatively comprehensive supervision criteria over securities
exchanges, public companies (including listed companies), securities firms, securities
investment fund management companies, securities investment funds and investment
companies, and self-regulated organizations that are subject to supervision. However, the
administrative sanctions provided by the Decree No.36/2007/NĐ-CP dated 08 March 2007
are not strict enough carrying maximum penalty of VND 70 million which does not ensure
sufficient detention and prevention of breaches and violations of the Securities Law. Criteria
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and procedures of market surveillance, especially those help identify and deal with insider
trading and market manipulation, are inadequate. Adding to that, the Criminal Code 1999
provides no detailed provisions over sanctions of securities violations and breaches. This
causes difficulties to enforcement activities in the securities market.
Weaknesses of the existing market surveillance and compliance system: At present, the
market surveillance and compliance activities are functioning under two-tier framework. The
first tier includes Ho Chi Minh City Stock Exchange (HOSE), Ha Noi Securities Trading
Center (HASTC), and Viet Nam Securities Depository Center. The second tier is functional
departments of the SSC. Market surveillance and compliance activities of the SSC basically
rely on periodical and irregular reports of the HOSE and HASTC and mostly deal with
simple violations like those related to unauthorized information disclosure. Detection of
sophisticated breaches and violations such as insider trading and market manipulation is
limited. Market surveillance and compliance activities taken by the SSC are fragmented over
various market activities and regulated entities without centralization and existence of a
specialized unit for market surveillance and compliance.
Inadequate human and technical resources: The application of IT in market surveillance and
compliance examination is limited. In addition, shortage of human resources with necessary
skills and experience makes market surveillance and compliance activities yet to be efficient.
With the shortage of skilful and experienced human resources, limitation of power to enforce
the market, limitation of information gathering capability and coordination with relevant
executive and juridical agencies, it is a challenge for the SSC to identify the market abuses
such as securities price manipulation, insider trading, and illegal business conducts due to
shortage of necessary skills and procedures that lead to incapability to investigate suspicious
transactions and carry out effective sanctions.
External factors are those arising out of indispensible development of the securities market
itself in the context of its internationalization:
Rapid development of the securities market requires the SSC of the setup of a new system of
market surveillance and compliance to take on the risks of wrongdoings and violations in the
securities market. After ten years of establishment and development, the securities market of
Viet Nam beginning with only 02 listed companies has had 368 companies listed on both
HOSE and HASTC. Market capitalization reached 39.4% of GDP at the end of 2007 with
over 300,000 trading accounts. That requires the SSC to build up adequate skilful human
resources and a system employing advanced IT applications to address the need for
surveillance of daily transactions and detection of and dealing with market abuses.
Internationalization of the economy and participation of foreign investors in the securities
market of Viet Nam. Viet Nam has become a new destination for foreign investors following
its success in WTO accession, organizing APEC events, and impressive economic growth for
years, etc. As of December 2007, there were already over 500 foreign institutional investors
investing in Viet Nam with investment portfolios amounting to approximately USD 7.6
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billion in the organized market (there could be USD 20 billion if unofficial market is
included). However, gathering foreign investment information and identifying foreign
participants in the securities market are yet a difficult task.
Besides, Viet Nam is actively integrating itself into international and regional securities
markets. International integration activities enable the market to be open to foreign investors
and service suppliers, as well as cross-border securities trading and offering. That requires the
securities regulator to enhance its supervisory capability, build up an adequate securities
market supervision system to ensure financial stability, and set up a mechanism for
information exchange and cooperation with foreign securities regulators in cross-border
securities market supervision and enforcement.
Inefficient market structure
The existing of 2 stock exchanges in one countries that trade very much the same types of
stocks with more or less similar trading mechanism has been found to be very costly for the
society. Currently, a securities company if they need and willing to be a member of two
exchanges should apply each separately and prepare completely different infrastructure,
technical and procedure requirement by each exchange. This can be considered a double
social cost for the companies which in it turns, by this way or another, will be a part of fees
charging investors or customers. In the long-run, if the cost cannot be reduced, the Viet Nam
securities market might be lost it competitiveness as all other markets in the world try to
merge to take advantages of reducing transaction cost.
The path ahead the two exchanges to develop is unclear since the organization of trading by
type of securities will not find the ending since the low base of stock market development and
the continuous emerging of new market instruments.
Insufficient Investor Protection
As stipulated by law and regulations, the SSC has a strong investor protection mission but
that it lacks the necessary tools and jurisdiction to carry out this important function. To
address this weakness, it is necessary to start with emend of law and regulations regarding the
securities, underwriting and investment fund.
There is a large unregulated securities market with potential wrongdoings and breaches.
Though the SSC has been empowered by the Securities Law to regulate all public companies
to protect investors, development without being regulated of the “de-facto” public companies
is challenging to the supervision of securities market.
“De-facto” public companies refer to companies which did not offer their shares to public to
become public companies but carry out private placement or equalization. They in fact
became ‘de-facto” public companies by the transfer of shares from one to another investor
making the number of outside investors exceed 100. As a result, they became public
companies but are not subject to requirements of information disclosure. Such companies’
shareholders do not have access to official information of the companies and are not
279
protected by the Securities Law. Transactions in grey market are not regulated by a relevant
legal framework. Without audit, information disclosure, and adequate regulation it is illregulated and threatening to the social and economic stability:
Unregulated private placements
The lack of jurisdiction over private placements should be resolved if the recommendations
above are adopted. Between now and the time that the amendments are enacted, the SSC
should follow two approaches. For public companies, private placements should be allowed
and disclosed immediately upon completion. For non-public companies, it appears
unfortunately that the Commission’s jurisdiction is limited. This reinforces the need to
enlarge the SSC’s jurisdiction to cover all offers and sales and to reform the possible
exemptions.
Revising the Commission’s Jurisdiction and Approach to Offers and Sales of Securities.
There are two interrelated regulatory policies relating to securities offerings that are retarding
the Commission’s jurisdiction over the capital formation process. First, the Commission’s
jurisdiction is limited to overseeing ‘public offerings’ only, with private placements covered
by the company law. Second, a company is not allowed to conduct a public offering unless it
meets certain financial size and profitability criteria. In combination, these two provisions
are damaging investors, issuers and the Commission itself.
These adverse consequences can be easily remedied by a series of revisions to Chapter II of
the Law. The registration requirements can be reversed to give the Commission jurisdiction
over all offers and sales of securities, with the base premise that all offers and sales must be
registered, unless there is an exemption. Then the exemptions can be restructured to include a
requirement for a notification – not a request for approval – and minimum intervals
established for using an exemption.
These changes would result in a shift in the burden of proof with an offering presumed to
need registration unless an exemption can be proved by the issuer. Also, the time limits
should eliminate the rolling private placement. Further, the Commission would be aware of
all of the company’s offering history. And last, there should be no significant increase in the
SSC workload, due to scope of revised exemptions. Removing the minimum financial
criteria to conduct a public offering will result in more disclosure earlier, either by size or the
fact that there has been a registered offering. Further, several new types of securities will
become possible.
WTO commitments for securities services and foreign participation
WTO commitments by Viet Nam for securities services
There will be some exceptions for foreign participation on the following securities and
securities-related operations:
280
-
Trading for own account or for account of customers, whether on an exchange, in an
over-the-counter market or otherwise, the following instruments: derivative products
incl. futures and options; transferable securities; other negotiable instruments and
financial assets, excluding bullion;
-
Participation in issues of all kinds of securities incl. under-writing and placement as
an agent (publicly or privately), provision of services related to such issues;
-
Asset management, such as portfolio management, all forms of collective investment
management, pension fund management, custodial depository and trust services;
-
Settlement and clearing services for securities, derivative products, and other
securities-related instruments;
-
Provision and transfer of financial information, and related software by suppliers of
securities services;
-
Advisory, intermediation and other auxiliary securities-related excluding trading for
own account and brokerage, including investment and portfolio research and advice,
advice on acquisitions and on corporate restructuring and strategy.
-
For the above operations, Viet Nam limits only the market access regarding the
foreign commercial presence as follows:
-
Upon accession, foreign securities service suppliers shall be permitted to establish
representative offices and joint ventures with Vietnamese partners in which foreign
capital contribution not exceeding 49%.
-
After 5 years from the date of accession, securities service suppliers with 100%
foreign-invested capital shall be permitted.
-
After 5 years from the date of accession branches of foreign securities services
suppliers shall be permitted for provision and transfer of financial information, and
related software; and advisory, intermediation, investment and portfolio research and
advice, advice on acquisitions and on corporate restructuring and strategy.
Foreign participation
Under the current foreign exchange regulations, indirect investment by Vietnamese is not yet
allowed. The foreign investors can participate in Viet Nam securities market under the
regulation on foreign participation in the securities market.
According to the WTO commitment, Viet Nam has been gradually easing the foreign
participation in securities and securities market. In principle, the foreign investors
(organizations or individuals) can buy or sell stocks listed in the STCs or stock exchanges
through the securities companies up to a certain levels which were defined by government
regulations in a period of time. Before September, 2005, the ownership (total of ownerships
of all foreign investors) in the listed companies just is limited up to 30% of company owner
capital, which is equivalent to the limit level stipulated to foreign participation in restructured
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or equalized state owned enterprises and not yet listed. Since September, 2005 to June, 2009,
the room for foreign investors has been expanded from 30% up to 49% of owner’ capital of
all listed companies (except the commercial banks) under the Government Decision
238/2005/QD-TTg.
The foreign investors want to participate into the securities market must register through a
custodian bank or agent which is allowed to keep securities on behalf of the foreign investors.
Moreover, the foreign securities business organizations are allowed to buy stocks of the Viet
Nam securities companies and/or investment fund management companies, or contribute
capital to establish securities joint venture companies with the Vietnamese counterparts. The
maximum capital contribution by foreign counterparts in a joint venture does not exceed 49%
of the company’s charter capital.
In mid April, 2009, the Government has issued the Decision 55/2009/QD-TTg to equalize the
level of listed and unlisted public companies to the same level and in an effort to get foreign
investors attacked to the UPCoM market in HNX. As stipulated, foreign investors can
purchase shares up to 49% of the total shares of a public joint stock company in Viet Nam’s
securities market (except banking sector), 49% of the total investment fund certificates of a
public securities investment fund, 49% of the charter capital of a public securities investment
company.
In securities companies and fund management companies in Viet Nam, only foreign
securities trading organizations shall be entitled to make capital contributions and purchase
shares for establishment of securities companies up to 49% of the charter capital. For fund
management companies, foreign securities trading organizations and foreign insurance
organizations are entitled to make capital contributions and purchase shares for establishment
up to 49% of the charter capital.
According to the WTO access commitments, Viet Nam will open under the roadmap for the
foreign financial organizations, securities companies to participate into the securities market.
The SSC is a body to help the government build the WTO integration roadmap in the
securities field and the roadmap will be 5 years since Viet Nam access the WTO, the foreign
securities service companies and fund management companies are allowed to establish
enterprises with 100% of foreign capitals to do business in Viet Nam.
The Minister of Finance (MOF) issued Decision 121/2008/QD-BTC (Decision 121) on 24
December 2008 setting forth new rules to govern activities of foreign investors in the
Vietnamese stock market. The new rules apply to (i) individuals with foreign nationalities
wherever residing; (ii) organizations established and operating under foreign law, and
branches of such organizations whether or not operating in Viet Nam; (iii) wholly foreignowned enterprises established and operating under Vietnamese law and branches of such
organizations; (iv) investment funds established and operating under foreign law or under
Vietnamese law but with one hundred percent foreign-owned capital; and (v) others as may
be specified by the Prime Minister.
282
With the new rules, foreign investors may directly conduct the investment in the Vietnamese
stock market by (i) purchasing and selling shares, bonds and other types of securities listed on
the HCMC or Ha Noi Stock Exchanges, or registered for trading at securities companies; (ii)
purchasing and selling shareholding and securities not listed on the bourse or not registered
for trading at securities companies; (iii) participating in auctions to purchase securities and in
auctions to purchase shareholding in enterprises undergoing equalization; (iv) contributing
capital to establish securities investment funds at the permitted capital contribution ratio of
foreign parties as per the current laws; or (v) contributing capital to Vietnamese enterprises at
the permitted capital contribution ratio of foreign parties as per the laws. In addition, foreign
investors may indirectly conduct the investment by delegating management of investment
capital to a fund management company as per an investment management contract entered
into by two parties.
Pursuant to the previous rules, only foreign investors investing in listed securities market
were required to obtain a securities trading code (ST Code) from the Viet Nam Securities
Depository (VSD). Under Decision 121, this requirement is expanded. Particularly, each
foreign investor except those whose investment is solely made through a fund management
company is required to obtain an ST Code.
Decision 121 also requires foreign investors to notify the VSD for changes in banks where
they have opened their indirect investment capital account; their head-office addresses,
locations of business registration, or contact addresses; their names or passport numbers; their
legal status or organizational structure due to division, separation, merger, acquisition or
other changes related to companies' reorganization; or any contents of the dossier submitted
to apply for the ST Code. Especially, in respect of changes by a foreign investor in the
depository member, trading representative or Securities Company where such foreign
investor opens its trading account, each of such changes is required to obtain a prior approval
from the VSD.
Under the new rules, each foreign investor shall be permitted to open only one indirect
investment capital account denominated in Vietnamese dong with a depository bank licensed
to conduct foreign exchange business. All transactions by the foreign investor must be made
through this account.
After obtaining a ST Code, the foreign investor shall be permitted to open a unique securities
depository account via which all payments shall be made. In the event that a foreign investor
is a securities company established under foreign law or a 100-per-cent foreign-owned
insurer, the investor may be permitted to open two securities depository accounts in
accordance with regulations on securities registration, depository, clearance and settlement
issued by the MOF.
2.6 Foundation for sustainable development of secur ities ser vice in Viet Nam
Main drivers or foundation to develop a sustainable securities market in Viet Nam includes:
Strong demand for capital mobilization for long-run economic development potential
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According to WB, the medium-term outlook of Viet Nam economy is still favorable. Viet
Nam remains an attractive destination for foreign investors. Provided that the government
maintains sound macroeconomic policies and continues reforms to enhance Viet Nam’s
competitiveness, real GDP growth is expected to rise to 7½ percent by 2013. The current
account deficit is projected to narrow to about 5 percent of GDP by 2013, as export growth
and private remittances are likely to rebound. Capital inflows are also expected to pick up as
investor confidence recovers. To serve the capital need for development, the securities market
will become an important channel to raise medium to long term capital through the issuance
of bonds or stocks given that the funding from banking system are still not sufficient to
support the economy growth.
The market opening under WTO commitment
Viet Nam is a transitional country that is gradually opening to outside influences. Its
successful application to join the World Trade Organisation has driven change in all
sectors of society as it has brought its social and legislative framework more into line with
international models to facilitate international transactions. As the fully open of securities
services and securities market for foreign participation by 2011, the foreign inflows will
come to the country to take advantages of highly growing securities market. Foreign
securities companies will be allowed to set up 100% foreign owned securities companies in
Viet Nam and foreign investors will be able to hold up to 100% of the total shares of listed
companies in Viet Nam in the sectors that are not “sensitive” and restricted by the
government.
The determination by Government to strengthen the role of securities market as a
vital channel for raising capital in balancing with banking system
Being different with the most countries at the beginning of stock market development, the
government was the one who set up a “regulated” stock market for companies and investors
to joint. More importantly, the government then takes the part to underpin the market
development by using its resources. A long with the existence of a viable stock market in
Viet Nam, the government perception about the role and benefits of a stock market to the
economy become increasingly high. The stock market development is now a key element
underneath economic growth. The strong supports and determinations by government to
develop the securities market in Viet Nam will be crucial for the long term development of
the market.
The increasingly high perception by public about securities and securities market
As common practices for many developing countries, cash transaction and holding money is
still popular in Viet Nam. The better perception of public market confidence will enable them
to invest in securities market. The role of government then is to proliferate the basic
knowledge on securities and securities market. The full disclosure of information in the
market will help to maintain the investor’s confidence.
The application of the latest IT technology on securities market
284
The application of new technology will allow the securities service providers to reduce
transaction cost and increase market competitiveness for investors. In the future, the two
exchanges are planned to build new and more advanced systems including trading system,
disclosure system, and surveillance system. The system for securities registrations, depository
and settlement will also be renovated to support for the expansion and development of the
market. Securities companies and other securities service providers will have a chance to
improve its technology and service quality to meet the increasingly high demand from local
and international customers.
2.7 Recommendations to develop and impr ove the efficiency of the Viet Nam secur ities
mar ket
According to the Prime Minister’s Decision 128 on Securities Market Development to 2010
and Vision to 2020. The stock market in Viet Nam has shown phenomenal development
during the past year. The number of companies listed in the stock market increased to 220
while the market capitalization reached 40% of GDP which far surpassed the Government’s
original target of 15% by 2010. The growth trend is expected to continue, driven by the
implementation of equalization of major state-owned enterprises (SOEs) starting this year.
The PM Decision 128 now provides renewed targets to achieve the stock market
capitalization of 50% of GPD by 2010 and 75% by 2020.
The main development objectives of the Viet Nam securities market for 2010 onward
includes:
-
Expanding the regulated or organized securities market; narrowing informal markets;
-
Improving transparency of the stock market; applying the best practices on corporate
governance for the public companies and securities business agencies.
-
Expanding scales and capacities of the securities business and service agencies to
ensure the system stability for the securities market.
-
Opening the securities service market under the committed roadmap for integration;
gradually applying the recommended principles on securities market regulations by
the International Organization of Securitises Committees (IOSCO) which are
consistent with certain development period of the market.
The suggested measures to achieve the above objectives will be as follows:
Macro measures:
The aims are to stabilize the political and economic environment to promote the public’s
investments and savings; to build the coordination mechanism at inter-ministerial level to
ensure the financial sector stability. The Government therefore should:
Firstly, play a role as a person to direct information and lead the market. The government
should not use administrative measures to interfere into the securities market, but should
285
provide to the public timely and objective information through the media to adjust the
securities market’s behaviors.
Secondly, adjust the market by relevant tools. One function of the State Capital Investment
Corporation to mobilize domestic and foreign capital sources in order to supplement business
capital through issuance of corporate bonds or project bonds, or setting up of investment trust
funds can be used as a tool to interfere into the securities market.
Thirdly, guarantee safety for the whole system which requires the close coordination between
ministries. The development of the securities market always relates closely with the other
parts of the financial market, especially the banking system. Therefore, it’s necessary to tie
the measures to make sure safety for the entire banking system.
Fourthly, development and implement the derivative tools on securities. These derivative
tools include: options, swap and futures. However, the development of these tools requires
the support of the advanced and modern technology. In the development condition for the
Viet Nam securities market at present, applying gradually the derivative tools are possible
and relevant.
Micro measures
The aims is for building a complete legal framework with full and clear legal documents to
regulate the securities market’s activities ; providing an effective transaction mechanism
through the arrangements and operations of the Securities Exchange; establishing some
organizations to support the market development.
•Restructuring the securities exchange market
-
- Improving the capacity of HCMC and Hanoi stock exchanges by restructuring their
organization in the most proper and efficient manner to reduce transaction cost and
make a better supervision and compliance enforcement; transforming stock exchanges
into self-regulated organization.
-
Completing the organizational setting and operations of the Hanoi stock exchange
towards the model of OTC market.
-
Guiding, operating and monitoring the unlisted public company’s securities trading.
-
Building and completing the bond trading market structure, especially the government
bonds.
• Innovating and Enhancing the securities market infrastructure
-
Renovating system of the stock exchanges and VSD in order to minimize the
transaction cost and improving the market efficiency.
-
Building and guiding to implement the IT standards applied for the stock business and
service, making sure to provide service and transparent information on the securities
market to all investors.
286
-
Completing the building of concentrated data centers serving the market management;
computerizing the exchange and update data. Applying IT technology in the market
supervising and monitoring.
• Developing commodities for the securities market
-
Completing the legal framework and policies to make sure the State manages united
the offering stocks to the public and the public companies; applying the corporate
governance rules to the public companies.
-
In conjunction with the SOE reform, building and implementing the plan to link the
equalization of SOEs with the listing in the securities market; transferring the foreign
capital enterprises into the joint stock companies and listing in the securities market;
selling the stocks which the State does not need to hold in the listed companies
according to the List of sectors and areas regulated by the government.
-
Improving the way to issues government bonds in the direction of increasing the
tender shares. Completing the legal framework, selecting and guiding the local
governments, big enterprises to issue bonds for capital investment mobilization.
-
Developing other goods in the securities market including bond derivatives, real estate
investment trust certificates (REITs).
• Developing the stock business and service providers.
Promulgating regulations to build legal base for the stock companies to restructure in the
direction of increasing capital scale, developing of human resources, expanding the scale and
network to provide stock services.
Building and developing the system of the market founders; system of the professional bond
business traders.
Expanding the professional scale and scale of the fund management companies; the fund
management companies implement the functions of managing investment lists and funds.
Promoting the commercial to establish fund management companies; diversifying the
collective investment types.
Applying corporate governance according to the best practice to the stock business, service
organizations; making standards the internal control, risk management and working process;
implementing the Rule of professional moral on stock business.
• Developing the supporting organizations
-
For the depository center: Improving the VSD capacity by modernizing the system to
meeting the market demand for registering, depository, clearing and settlement for all
stock traded in stock exchanges.
287
-
For the deposit members: Developing the deposit member network (securities
companies, custodian banks) to provide custodian service, safe keeping and
stakeholder’s right implementation.
• Developing investor base
-
Developing the professional stock investment organizations, promoting these
organizations to establish fund management companies and stock investment funds,
increasing the investment shares into securities market of these organizations.
-
Disseminating knowledge on stocks and securities market to the public, improving the
public’s understandings on the roles, interests, risks of the investment type through
stock investment funds.
• International integration on the securities market
-
Preparing and carrying out the program on common ASEAN capital market
integration.
-
Implementing to open the service securities market under the committed roadmap at
the bilateral and multilateral agreements.
-
Implementing rights and obligations of the IOSCO’s member; signing the Memory of
Understanding on the bilateral cooperation with the Securities Committees in the
regions; signing Memory of Understanding on the multilateral cooperation with the
IOSCO.
• State management on the securities market
-
Drafting law revision and regulations if necessary to enable the smooth the market
operations and minimize difficulties for market participants.
-
Improving the capacity for making policy, strengthening the effectiveness of the
monitoring and auditing works and law violations treatments on the stocks and
securities market; perfecting and applying the standards to assess the effectiveness of
the stock companies, fund management companies, warning the unusual transactions
in the securities market.
-
Improving and ensuring the transparency, openness and equity of the securities
market’s activities based on the completion and implementation the rules of
information announcement, corporate governance for the public companies.
-
Applying the securities market management principles under the recommendations of
IOSCO on the areas: management of issuing stocks, collective investment funds,
immediate market organizations, secondary markets.
Box: Three most important recommendations for securities sector development
Revisions of the Law on securities and current regulations in order to facilitate
288
the listing, information disclosure, securities trading and clearing and settlement
and in line with international practises.
Restructuring the two exchanges by defining the different traded products but
sharing the same infrastructure.
Capacity building for SSC as a regulator and supervisor of securities market in
terms of human resource and computerised system to meet the demand for
maintaining a fair, transparent and efficient market.
289
CHAPTER 3: BANKING SERVICES
Current State and Development Issues of the Banking Sector in Viet Nam
3.1 Over view of r efor m pr ocess in banking sector
During the past two decades, the banking sector of Viet Nam has undertaken significant
changes in line with the country's reform and international integration process.
In the late 1980s, the mono-banking system, in which the State Bank of Viet Nam (SBV)
performed both central and commercial banking functions, was transformed into a two-tier
banking system with the creation of the four state-owned commercial banks (SOCBs). The
enactment of the two Banking Ordinances in 1990 provided legal foundation for further
reform efforts in the following years, which resulted in the establishment of joint stock
commercial banks (JSBs), foreign bank branches and representative offices, and joint venture
banks (JVBs). These Banking Ordinances were upgraded in 1997 into the Banking Laws,
with subsequent revisions in 2003 and 2004 to incorporate more market-based rules and
regulations for banking operations and management.
By the end of the 1990s, internal governance weakness coupled with the impact of the Asian
financial crisis led to the emergence of non-performing loans (NPLs) problem in the banking
sector. As at the end of 2000, NPLs accounted for a large portion in the total credit
outstanding of banks, exerting adverse impact on the performance and soundness of the
banking sector and the overall economy. To deal with this situation, the Government began
the process of NPLs workout and restructuring of the commercial banks. Poorly performed
JSBs were either merged, dissolved or consolidated after being put under special control. As
a result, the number of JSBs reduced from over 50 to about 36 after several years. At the
same time, SOCBs were also reformed by recapitalization and improving governance. Policy
lending was separated from commercial lending with the establishment of Viet Nam Bank for
the Poor, which then became Viet Nam Bank for Social Policy (VBSP).
The conclusion of US - Viet Nam Bilateral Trade Agreement (BTA) in 2001 and later
accession to WTO in 2007 brought Viet Nam to a new stage of international integration.
Under this framework, Viet Nam committed to open the domestic market to 100% foreign
owned bank subsidiaries and gradually eliminate restrictions on the operation of foreign bank
branches. To cope with this increased competition pressure, another phase of reform was
introduced to the domestic banking sector, dated back to mid-2005 when the decision to
restructure and equitize the SOCBs was made. The capital of banks was also raised under
new regulation on minimum capital requirements issued by the Government. The new
Banking Laws, which are being drafted and to be adopted by the National Assembly in 2010,
are expected to pave the way for further sustainable development of the banking system.
290
3.2 Impor tance and str uctur e of banking ser vice sector
In line with the country's transition from a centrally-planning to a market economy, the
financial sector has experienced rapid liberalization and development. Beside the longtradition banking sector, stock and bond markets have emerged in recent years yet remain
small. Stock market capitalization increased from 2% of GDP in 2003 to 15% as at the end of
2008 after surging to 43% in 2007 due to a market bubble. Bond market is of similar size,
with total outstanding bonds accounted for 15% of GDP in 2008 (See Table 1.1 below). The
rapid expansion of stock market during the past three years, although reflected efforts of the
Government in improving market framework and developing market instruments, was much
driven by an inflow of portfolio investment and speculative factor, thus limiting the role of
this market as a channel of fund raising for the economy.
So far, the financial sector is still dominated by banks with total banking assets making up
nearly 140% of GDP. Loans and deposits as a percentage of GDP both had went up
significantly to 93% and 92% as at end-2008, respectively. Thus, the banking sector has
supplied the major source of domestic financing for growth in the past years.
Table 1.1. Financial Markets in Viet Nam (Percentage of GDP)
2004
Loans as % of GDP
61
Deposits as % of GDP
60
Share market (total capitalization) 3.50
Out standing bonds as percentage 8.4
of GDP
Insurance premium (both life and 2.00
non-life)
Pension funds
4.12
2005
70
67
5.55
8.2
2006
75
78
22.61
8.1
2007
93
99
43.38
13.7
2008
93
92
15
15.1
1.63
1.54
1.44
n/a
4.04
3.7
n/a
n/a
Source: Suiwah Leung, Banking and Financial Sector Reform in Viet Nam, ASEAN
Economic Bulletin Vol.26, No1 (April 2009)
After the promulgation of the two Banking Laws in 1997, the number and types of banks and
non-bank credit institutions have increased rapidly. Currently, Viet Nam's banking sector
comprises 5 SOCBs 52, 36 JSBs, 45 foreign bank branches, 55 foreign bank representative
offices, and 5 joint venture banks. In 2008, 5 100% foreign-owned bank subsidiaries have
been licensed but they have not yet officially been in operation 53. Non-bank credit institutions
include 2 policy banks, 17 finance companies, 13 financial leasing companies, the Central's
52
The Bank for Foreign Trade of Vietnam (Vietcombank) and Vietnam Bank for Industry and Commerce
(Vietinbank) has been equitized, with the State retaining a controlling stake of more than 90%. For the purpose
of this report, Vietcombank and Vietinbank are grouped under the SOCBs.
53
5 100% foreign-owned bank subsidiaries include ANZ (Vietnam) Ltd, HSBC (Vietnam) Ltd, Standard
Chartered Bank (Vietnam) Ltd, Shinhan Vietnam Bank Ltd and Hong Leong Bank Vietnam Ltd.
291
Credit Fund and 1019 local People's Credit Funds 54. Though abundant in number,
Vietnamese banks are still of small size compared with regional peers.
Table 1.2. Number of Credit Institutions
Type of Credit Institutions
State-owned Commercial Banks
Joint Stock Commercial Banks
Foreign Bank Branches
100% foreign-owned bank subsidiary
Joint Venture Banks
Policy Banks
Finance Company
Leasing company
People‘s Credit Fund
1997
05
51
23
0
05
0
2
3
939
2006
05
36
34
0
05
2
7
11
938
2007
05
34
41
0
05
2
7
12
986
2008
05
40
45
05
05
2
17
13
1019
Source: SBV, 2009, Report No. 49/BC-NHNN on reviewing the ten-yearimplementation of the Law on credits Institutions
As of 31 Dec. 2008, total chartered capital of CIs (excluding that of Bao Viet JSB and 5
foreign bank subsidiaries) reached VND 149,179.8 trillion, as high as 12 times of the figure
in 1997. In which, SOCBs increased 26.04 times, JSBs 40.43 times, JVB 6.72 times, foreign
bank branches 3.03 times, finance companies 349 times, financial leasing companies 6.42
times, and PCFs system 5.06 times. This increase is indicative of the strengthened financial
capacity of CIs as well as interest of the state, domestic and foreign individuals and
organizations in investment to the banking sector.
Size of total assets, deposits and loans by CIs as of Dec. 2008 had a significant growth in the
last decade. Specifically, in comparison with the year 1997 total assets increased by 16.21
times, deposits went up by 15.72 times and loans increased by 13.6 times.
Table 1.3. Share of total asset by type of institutions (%)
Type of Credit Institutions
State-owned Commercial Banks
Joint Stock Commercial Banks
Foreign Bank Branches
Joint Venture Banks
Finance Company
Leasing company
People‘s Credit Fund
1997
66.57
11.86
16.6
3.48
0.21
0.12
0.14
2006
62.3
22.8
9.8
1.1
2.1
0.8
1.1
2007
53.3
31.5
9.6
1.2
3.4
0.7
0.64
2008
51.48
32.45
10.26
1.25
3.1
0.97
0.86
Source: SBV, 2009, Report No. 49/BC-NHNN on reviewing the ten-yearimplementation of the Law on credits Institutions
54
SBV, 2009, Report No. 49/BC-NHNN on reviewing the ten-year-implementation of the Law on credits
Institutions.
292
The State-owned Commercial Banks continues to play a vital role in the banking system,
despite their gradual decline in market share during recent years. JSBs made a big gain in
terms of market share at the loss of SOCBs. As a result of market opening commitments,
foreign banks have increased their share in recent years.
Table 1.4. Share of deposit by type of institutions (%)
Type of Credit Institutions
1997
2006
2007
State-owned Commercial Banks
69.4
65.1
53.4
Joint Stock Commercial Banks
10.6
21.3
31.5
Foreign Bank Branches
15.93
9.6
9.9
Joint Venture Banks
3.08
1.1
1.2
Finance Company
0.17
1.2
1.7
Leasing company
0.02
0.8
0.7
People‘s Credit Fund
0.76
0.9
0.72
Source: SBV, 2009, Report No. 49/BC-NHNN on reviewing the
implementation of the Law on credits Institutions
2008
56.91
31.23
13.22
1.43
3.13
1.15
0.92
ten-year-
3.3 Cur r ent level of development
3.3.1. Definition of banking services:
So far, there has not been a uniform definition of banking service; neither is there a clear
demarcation between banking service and other financial services. Thus, WTO grouped
banking and other financial services under a category of financial services. The current Law
on Credit Institutions does not provide a definition of banking services, but identify credit
institutions as engaged in "monetary business and banking services", therefore may induce a
narrower concept of banking services. For the purpose of this report, banking services
include all such supplied by the banks to the market in order to meet the demand of
customers, including all type of fund raising, credit extension, payment services, forex
services...
3.3.2. Overall context of development:
Viet Nam has been able to maintain high growth and stable macroeconomic conditions for a
long period of time since Doi Moi. As population's income and living standards were raised
and business activities expanded, the demand for banking services also increased. The
Government's efforts in improving environment for banking operations create more
favourable conditions for diversifying and raising quality of bank services. In the context of
international integration, the banking sector is under greater competition pressure. All this led
to the growth of traditional banking services and introduction of more modern banking
services such as e-banking, internet banking, mobile banking, ATM etc.
As mentioned above, the banking sector in Viet Nam has grown rapidly in terms of number
of banks and network expansion during the past years. However, the penetration ratio is still
low. In 2007, there were 8.2 million bank accounts serving the total population of around 84
293
million, equivalent to a penetration rate of 10%. Five million of such accounts are held by
individuals. It is estimated that less than 10% of the population use bank services regularly 55.
Fund raising
Fund raising by credit institutions had high growth in recent years and provided a main
source of finance to the economy. In the last five years, annual growth of deposits was on an
increasing trend. Products diversification and the development of branch network have
contributed positively to this growth.
Table 1.5. Deposit Growth
Year
Deposit/GDP (%)
2004
2005
2006
2007
2008
60
67
78
99
92
Deposit Growth (compared with
previous year - %)
n/a
32.08
36.53
47.64
22.87
Source: SBV Annual Report 2004, 2005, 2006, 2007, 2008
SOCBs still take up the major share of deposits thanks to their large branch network and
longstanding reputation. In 2008, 56.06% of total deposits in the system were held by the
SOCBs (plus VBSP). As restrictions on foreign bank's deposit taking were gradually
liberalized in accordance with WTO commitment, their share has increased from 9.6% in
2006 to 13.22% in 2008. The JSBs had rapid growth in recent years and increased their
market share from 21.3% in 2006 to 31.23% in 2008. These developments led to the
considerable contraction of SOCBs' share from 65.1% in 2006 to 56.91% in 2008 56.
Lending
Lending has experienced high growth during the last decade, even overheated in 2007 and
first half of 2008. JSBs lending share expanded quickly, while SOCBs share declined.
Table 1.6. Share of credit by type of institutions (%)
Type of Credit Institutions
State-owned Commercial Banks
Joint Stock Commercial Banks
Foreign Bank Branches
Joint Venture Banks
Finance Company
Leasing company
55
1997
64
11.76
19.85
2.39
0.22
0.03
2006
67.1
19.6
8.3
1.39
1
1.3
2007
59.7
27.5
8.56
1.2
2.3
1.1
2008
58.2
26.54
10.27
1.3
1.92
1.19
IFC, 2008, Vietnam Financial Sector Diagnostics
56
SBV, 2009, Report No. 49/BC-NHNN on reviewing the ten-year-implementation of the
Law on credits Institutions
294
People‘s Credit Fund
1.69
1.5
1.06
1.1
Source: SBV, 2009, Report No. 49/BC-NHNN on reviewing the ten-yearimplementation of the Law on credits Institutions
Lending by economic sectors did not have much change over the years. Of the total lending
extended by the banking sector, agriculture, fishery and forestry occupies the largest part,
ranging around nearly 30% and reached 28.84 % in 2008. Next is industry, which accounts
for 25.81%, trade 18.67% and construction 13.76% in 2008, respectively.
Table 1.7. Lending by economic sectors (% of total lending)
Agriculture, Fishery, Forestry
Industry
Trade
Construction
2008
28.84
25.81
18.67
13.76
2007
28.92
26.02
18.24
14.15
2006
29.20
25.5
17.7
14.5
Source: SBV Annual Report 2006, 2007, 2008
Payment service
During the last decade payment service had significant developments. Commercial banks
continuously introduced new payment services, meeting diverse demand of users and expand
access by individuals and households.
- Ratio of cash over total liquidity has been on declining trend, dropping from 20.3%
in 2004 to 14.60% in 2008. Though cash payment ratio reduced from 20% in 2004 to 18% in
2006 57, cash continues to be the main payment method.
- The Interbank Electronic Payment System came into operation in 2002, was
expanded from five provinces and cities in Phase 1 to 63 provinces and cities in Phase 2 as
part of the implementation of the project of modernizing the banking payment system, and
expected to have 1500 members by the end of 2008. In 2008, the system processed more than
7.7 million transactions with total value of over 11 thousand trillion VND. The development
of this system is of significant importance in upgrading infrastructure for the proliferation of
payment services.
- Individual bank accounts have expanded fastly at an average annual growth rate of
150% in terms of account number and 120% in terms of balances. The number of individual
accounts increased from 135,000 in 2000 to around 5 million in 2005 and more than 8 million
in 2007.
- The development of modern banking services during past time has been positively
supported by information technology. Of which, bank card has had strongest growth. As of
April 2009, there were over 16 million bank cards being issued by 41 issuing institutions, the
majority of which was debit card (98.16%) and a small portion (1.8%) was credit card.
57
IFC, 2008, Financial Sector Diagnostic.
295
Commercial banks have installed more than 8,000 ATMs with over 27,000 POS (point of
sale). Under the SBV’s direction, two biggest card unions, Banknetvn and Smartlink,
accounting for more than 80% of the Vietnamese plastic card market, had connected their
ATM systems, allowing customers to do card transactions more easily 58.
Inter-bank foreign exchange market
While complicated developments happened to supplies and demands of the foreign exchange
market in 2008, the inter-bank foreign exchange market remained active with widened scale
and larger transaction volume. Inter-bank transaction volume increased by about 25% as
compared to that of 2007. Spot transactions increased by 26%, and forward and swap
transactions increased by 13%. Commercial banks conducted much more transactions in this
market to hedge themselves against foreign exchange risks.
In 2008, 79 banks participated in the inter-bank foreign exchange market, an increase of 14
participants in comparison with 2007. These new players participated actively, making the
market even more dynamic.
3.4 Development issues
3.4.1. Legal and regulatory framework for banking service has been developed in a relatively
uniform manner, yet there are still shortcomings which adversely affect the sector growth.
During the past years, the legal framework for banking sector has been gradually improved.
An initial milestone was 1990 when the two Banking Ordinances were introduced, creating a
legal basis for the transformation into a two-tier banking system. Subsequently, in 1997 the
Law on the State Bank of Viet Nam and the Law on Credit Institutions were promulgated and
came into force in October 1998. These two laws have created a more level playing field for
credit institutions, thereby contributing to the stability and economic development. The Law
on the State Bank of Viet Nam and the Law on Credit Institutions are the most important
legal documents which form foundation for banking operations in Viet Nam. Based on the
provisions of the two Laws, the Government and the State Bank of Viet Nam issued a
number of Decrees, Decisions, and Circulars guiding on the Laws implementation. These
legal documents form a relatively comprehensive legal framework governing both the
organization and operation of credit institutions in Viet Nam and create a legal basis for
credit institutions to operate in a more dynamic environment.
The Laws were revised in the years 2003 and 2004 in order to meet the requirements of
international integration, administration reform, the national cause of industrialization and
modernization, and to improve effectiveness of monetary-banking activities. Amendments
were made so as to deal with the shortfall in banking services, improve the quality of
operation, governance and encourage autonomy of credit institutions. Nevertheless, the fast
development of banking service market and the need to implement international
commitments on banking have revealed shortcomings in the legal framework for banking
58
SBV, 2009, reports at Banking Vietnam 2009, May 28-29th 2009
296
operation, which could not well respond to realities and thus impede the further advancement
of banking services, particularly the modern and new ones.
Fundamental provisions of the legal framework governing banking services
Licensing mechanism
The management and licensing mechanism for banking services does not match with
practical conditions. The SBV is in charge of issuing establishment and operation license to
credit institutions and banking operation license to other institutions. Conditions for licensing
the establishment and operation are related to legal capital requirement, qualifications of
founding members, qualifications of the management, charter and feasibility of business plan.
However, after more than 10 years implementing the Law on Credit Institutions, the licensing
of new banks was only done in practice following Decision 24/2007/QD-NHNN by the State
Bank of Viet Nam, which spells out more specifically the licensing conditions 59. So far, the
SBV has only granted establishment and operation license to 3 new commercial banks in Viet
Nam 60 in Viet Nam. Current there are two channels through which the SBV regulates and
licenses the provision of banking services by CIs: (i) Stipulation in the Establishment and
Operation License on the type of services that a CI is permitted to supply; and (ii) Permission
on the supply of specific banking service spelt out in particular Regulation on banking
operations (such as Regulation on Factoring operation, Regulation on Money Brokerage etc).
In fact, this mechanism does not respond to the operational dynamism of CIs and regulatory
requirement of the SBV, as shown in the non-updatability of the License to the specific
Operational Regulation issued after the License has been granted. This leads to the situation
where CIs are allowed to engage in operations not listed in the License and therefore
undermining the legal power of the License. In addition, the current mechanism requires CIs
to obtain permission from the SBV when they wish to supply new banking service on a case
by case basis. The prolonged licensing process may make CIs miss their business opportunity
and reduce their competitiveness.
Mechanism regulating new banking services
The banking legal framework lacks legal basis for the provision of new services by CIs and
management and supervision by the SBV.
The Law on CIs specifies CIs scope of operation based on their type of operation.
Accordingly, banks can provide all forms of banking services while non-bank CIs are subject
to more limited operation, being not allowed to take demand deposits, deposits with less than
1 year term, and provide payment services. The Law also emphasizes on autonomy of CIs in
making lending decision and bearing responsibility on their decision. However, the
operational scope of CIs is not clearly defined in the Law on CIs and implementing
guidelines. CIs can only provide new services after obtaining permission from the SBV on a
Similarly, the SBV issued Decision 40/2007/QĐ-NHNN stipulating specific licensing criteria for non-bank
credit institutions.
60
Including Lien Viet JSB, Tien Phong JSB, and Bao Viet JSB.
59
297
case by case basis, except for a few operations such as interest rate and foreign exchange
swaps. This mechanism limits the ability of CIs to diversify their services. In the context of
rapid developments in the banking industry and international integration, Viet Nam has
committed to permit foreign banks to supply a number of new banking services. The
Vietnamese CIs have also been introducing various new banking services such as ATM, ebanking (internet banking, mobile banking...), derivatives (futures, option, swap, swaption...).
Despite the numerous legal documents that have been issued, the banking legal framework
does not match up the dynamic and fast market development. A number of "gaps" have come
out; one example is the lack of laws on new type and new supply mode of services. This
situation not only hampers business operation of CIs but also affect regulatory activity of the
SBV, i.e. the SBV does not have legal basis to conduct supervision and inspection. To some
extent, this shortfall in legal framework also affect the accomplishment of Viet Nam's
obligation on policy transparency set out in the bilateral and multilateral trade agreements
(such as BTA, AFAS, WTO).
Mechanism regulating mode of supplying new services
The legal framework on banking services lacks provisions governing several modes of
supply, including cross border, consumption abroad and personal presence. The current laws
mostly govern the provision of banking services through commercial presence. With the
advancement of information technology, the supply of service in general and banking service
in particular through Internet has become popular. Through the Internet, foreign suppliers can
provide banking services to Vietnamese clients and vice versus, Vietnamese suppliers can
also provide banking services to clients abroad without having to establish commercial
presence. So long as regulations on these new supply modes are missing, the SBV can hardly
perform well its supervisory role. If the aforementioned shortcomings are not addressed
timely, banking service development and competitiveness of Vietnamese CIs will be
adversely affected.
Internal audit and control mechanism
The Law on CIs and guidelines of the SBV require CIs to establish: (i) internal examination
and control system under the management to assist the Management Board in getting control
of all operations by the CI; (ii) internal audit unit under the Board of Controllers to conduct
internal audits to all operations by the CI. In practice, CIs have not strictly complied with
these requirements, therefore reducing governance and competitiveness of the CI itself.
Prudential and risk-provisioning regulations
The Law on CIs and guidelines of the SBV spell out restrictions in order to safeguard
banking soundness, including subjects not allowed to extend credit to, restrictions on credit
extension, limits on credit extension, ratios for capital contribution and share purchase,
capital adequacy ratio, liquidity ratio, ratio of short-term funds usable for long-term
financing, and ratio of investment in fixed assets. These ratios have been developed based on
Basel I. Yet specific contents of several ratios are inconsistent with international practices,
298
for instance, market and operational risks are not accounted for in the risk provisioning
mechanism. The SBV has recently commenced drafting a new regulation on prudential ratios
which is more in tandem with Basel Committee stipulations.
CIs set aside provisions for the risks in banking operation and classify assets, identify the
amount and methodology of risk provisioning, and use provisions in accordance with the
SBV Governor's regulations. However, compared with international standards CIs' risk
provisioning practice does not include market risks. Despite guiding regulations issued by the
SBV, most CIs do not classify debts basing on "qualitative method" since the Regulation on
internal credit rating is not yet in place.
Cap on interest rate
The SBV started the negotiable interest rate mechanism in VND commercial lending by CIs
in 2002. The base rate announced by the SBV monthly only serves as a direction for
commercial rates decided by CIs. This was a breakthrough in the conduct of monetary policy
based on market rules, which encouraged CIs to expand operational network to raise funds
and lend at suitable interest rates in line with market demand and supply of capital. Also, it
enhanced business autonomy and competitiveness of CIs.
To address instability of the money market and put a halt on interest rate racing by CIs, the
SBV returned to interest rate cap mechanism in which all fund raising and lending interest
rates including those applicable to monetary market operations must not exceed 150% the
base rate. The interest rate cap was instrumental in stabilizing money market conditions.
Nevertheless, as the market activities became stable and general level of interest rate on
monetary market declined, this cap seems no longer justifiable and distorts market demandsupply forces. In a recent move, the SBV started a step by step removal of the interest rate
cap mechanism applicable to consumer loans 61.
Foreign exchange management mechanism
Since 1999, the SBV took a fundamental reform step in exchange rate management, moving
from administrative management to management based on market rules with regulatory role
of the state. In stead of announcing the official exchange rate, the SBV announced the
average interbank rate and commercial banks were allowed to set their exchange rates within
a band of ±0.1% around the SBV's announced rate. In July 2002, the band was relaxed to
±0.25% and after several adjustments, increased to ±5% since March 2009.
The SBV gradually reformed forex management policy towards liberalization and facilitating
the attraction of foreign investment. Especially, the SBV continuously reduced foreign
exchange surrender ratio from 80-100% in 1998 to 0% in 2003. Regulations on opening
foreign currency account, bringing foreign currency in and out country were relaxed
gradually. Policy on the management of enterprise's foreign borrowings and repayments and
related polices became more flexible and streamlined, thereby enhancing autonomy and
61
Circular 02/2009/TT-NHNN
299
accountability of enterprises and credit institutions. A milestone in the foreign exchange
mechanism was the promulgation of Ordinance on Foreign Exchange Management.
Accordingly, Viet Nam liberalized current account transactions and loosened capital
transaction control, thus fully accepted obligation of Article VIII of the International
Monetary Fund's Charter. However, the recent problems of forex demand and supply in the
market could be attributed partially to shortcomings in the regulatory mechanism and
dollarization of the economy.
Policy and regulatory mechanism on payment service
During the past time, the Government and SBV have step by step improved legal basis for
payment service via banks and non-cash payment. A series of legal documents on payment
activities have been developed, including: Decree on payment activities via payment service
suppliers, Decree on payment in cash, Law on negotiable instruments, Regulation on the
issuance and use of cheques, Regulation on payment activity via payment service suppliers,
Regulation on interbank electronic payment. These legal provisions facilitated both banks and
customers in using non-cash instruments via banks. Notably, in 2006 the Prime Minister
approved the Plan on non-cash payment for the period 2006-2010 and vision towards 2020 in
Viet Nam.
Money market
The SBV step by step developed legal framework for the functioning of money market to
meet practical demand and consistent with international practices. The SBV's regulation on
operation of interbank market in accordance with international practices dated back to 2001.
To further facilitate the money market, the SBV issued regulations on money brokerage and
money market instruments, including hedging instruments. The SBV has also promulgated
regulations on money market operations between the SBV and CIs such as open market
operations, discount, rediscount, secured lending with valuable papers as mortgages;
regulations on treasury bill and bond auction through SBV, and regulations on valuable paper
depository.
3.4.2. Competitiveness Issues in the Banking Sector
Higher competition is an advantage for users of banking service and brings about positive
benefits to economic growth since it: (i) Lower financial service unit cost (not necessarily the
total expenditures on financial services); (ii) For enterprises, enabling them to reduce cost
and/or risks in managing business financing accounts; (iii) Facilitate savings by households
because of better access; and (iv) Ensure higher security for future access to funding,
therefore reduce the need for prudential savings.
The competition in banking sector shall be examined in the following aspects:
competitiveness of the country according to Global Competitiveness Report, competitiveness
of banking sector vis-à-vis other financial services, competition in the banking sector and
competitiveness of individual CI.
Competitiveness of the banking sector in comparison with other countries
300
The banking sector has been developing in the general context of low competitiveness of the
whole economy. Global Competitiveness Report 2008-2009 of the World Economic Forum
assess that during the period Viet Nam is ranked 70/134 with the average score of 4.1
(compared with the rank of 69/131, 64/122, and the score of 4.0, 4.1 in 2007-2008 and 20062007 respectively). Viet Nam is in the first of the three stages of development. Further, the
Report assesses in general the country suffers from burdensome government regulation and
weak auditing and reporting standards, where it is ranked 105th and 106th, respectively.
Educational system (ranked 120th) is also a weak area which needs urgent attention. Financial
market development is also at an early staged, being ranked at 106/134.
On financial development indicator, Financial Development Report 2008 of WEF ranked
Viet Nam at 49 out of 52 countries assessed. The report also showed that several indicators of
Viet Nam have high competitive ranking, comprising financial stability indicator, indicator
on the size and efficiency of the banking sector. Yet most of the remaining indicators are less
competitive than other assessed countries.
301
Table 1.8. Financial Development Index 2008 of selected countries
Country
USA
Japan
Singapore
Malaysia
China
Thailand
Indonesia
Philippine
Viet Nam
Rank 2008 (out of 52)
1
4
10
20
24
29
38
48
49
Score (1-7)
5.85
5.28
5.15
4.48
4.09
3.82
3.31
3.0
3.0
Source: WEF, 2009, Financial Development Report
Table 1.9. Viet Nam Financial Development Index 2008 (selected data)
Index 2008
3rd pillar: Financial stability
Risk of a currency crisis
3.01 Change in real effective exchange rate
3.02 External vulnerability indicator
3.03 Current account balance to GDP
3.04 Dollarization vulnerability indicator
3.05A External debt to GDP (developing
economies)
3.05B Net int’l investment position to GDP
(adv. Economies)
Risk of systemic banking crisis
3.11 Frequency of banking crises
Risk of sovereign debt crisis
3.14 Local currency sovereign rating
3.15 Foreign currency sovereign rating
4th pillar: Banks
Size index
4.01 Size index
Efficiency index
4.02 Efficiency index
4.03 Public ownership of banks
Financial information disclosure
4.04 Public credit registry coverage
4.05 Private credit bureau coverage
4.06 Credit Information Index
Rank (out of 52)
49
Score
3.0
14
25
30
34
18
-0.8
30.4
0.7
70.0
34.6
n/a
n/a
12
1.0
45
43
9.5
8.5
24
6.2
21
n/a
5.2
n/a
13
42
45
9.2
0.0
3.0
302
Table 1.9. Viet Nam Financial Development
Index 2008 (selected data) Continued
7th pillar: Size, depth, and access
Size and depth
7.01 M2 to GDP
7.02 Private debt to GDP
7.03 Public debt to GDP
7.04 Bank deposits to GDP
7.05 Stock market capitalization to GDP
7.06 Relative value-added of financial
institutions to GDP
7.07 Private credit to GDP
7.08 Stock market value traded to GDP
Access
7.09 Financial market sophistication
7.10 Venture capital availability
7.11 Ease of access to credit
7.12 Ease of access to local equity market
7.13 Bank branches
7.14 Ease of access to loans
Rank (out of 52)
Score
16
68.7
22
24
48
44
5.0
61.9
7.2
1.2
27
n/a
58.7
n/a
52
38
40
27
n/a
45
3.0
3.1
4.7
5.5
n/a
2.8
Source: WEF, 2009, the Financial Development Report
Comparing with regional countries, Vietnamese banks are still of small size with relatively
low profitability. Though official data of NPLs based on Viet Nam Accounting Standards
(VAS) show a moderate NPLs ratio, international organizations often assumes a much higher
NPLs ratio if IAS is applied.
303
Table 1.10. Comparison of Viet Nam banking sector with regional countries
(Data as of Dec. 2008)
Total assets
(billion USD)
Credit
(billion USD)
ROE (%)
ROA (%)
NPLs (%)
Viet
Nama
127.66
Malaysiab
Indonesiab
Philippinesb
386.25
213.98
119.52
73.10
208.85
119.42
61.59
9.7
1.0
3.5
18.5
1.5
2.2
21.94*
2.08*
3.8
6.91
0.77
4.51
Source: a. ACB, April 2009, Banking Sector Analysis Report
b. Central bank websites, calculated
*. Return: annual profits before taxes
Thus, the competitiveness of Vietnamese financial sector in general and banking sector in
particular is still low compared with regional and world countries.
Competitiveness of banking sector vis-à-vis other financial services
The growth of other financial services such as insurance, stock market would not pose a great
challenge to banks as the main provider of credit and risk management service to enterprises.
When the economy grows, a part of household savings may be attracted to insurance
products. However, the insurance sector is still small with insurance revenue accounts for
1.8% of GDP in 2007 62, despite its steady and fast growth in recent years. While the capital
market is not yet developed, banks can provide intermediary services to insurance companies
(asset management service) and securities companies. Thus growth in these sectors will not
hamper, rather, it facilitates development of the banking sector. The development of capital
market depends on fundamental progress in legal framework, accounting practices, business
governance, and transparency. Shortcomings in these areas are not yet basically addressed,
which in turn impede on effective development of the capital market. In 2008, stock market
capitalization was at 15% GDP, after surging to 43% GDP in 2007 due to speculative
factor63.
Thus, in the next 10 years, the banking sector will continue to play a vital role on fund
mobilization and credit allocation in the economy. Banks will remain dominating institutions
in the financial market.
Competition within the banking system
62
IFC, 2008, Vietnam: Financial Sector Diagnostic
Suiwah Leung, Banking and Financial Sector Reform in Vietnam, ASEAN Economic Bulletin Vol.26, No1
(April 2009)
63
304
Entry by foreign banks will add up to competitive pressure in the banking sector
As new comers, foreign banks will initially compete with each other in providing supporting
services for FDI, FII, forex, and commercial-related services of major domestic companies of
good credit reputation. The scale of the foreign bank group thus depends on the scale of FDI.
Foreign banks can apply 1 or both 2 of the market access modes to penetrate into the retail
banking market. These include establishment of 100% foreign owned subsidiaries to expand
network or making strategic investment in domestic joint stock banks. JSBs benefit from the
transfer of technology, product development, new services, managerial skills, risk
management skills from foreign strategic partners. The major impact of foreign bank entry
would be more fierce competition in a small market. A real danger to SOCBs comes from
strategic partnership between JSBs and foreign banks. Currently, the seek for foreign
strategic partner faces difficulty due to global financial crisis and limited capacity of JSBs.
In the situation of Viet Nam, the comprehensive commitments in opening banking service
market presents a risk to Vietnamese banks due to unequal business environment. In general,
Vietnamese banks are less competitive than foreign banks in import aspects of (i) total asset
size, (ii) level of banking technology modernization, (iii) human resource and (iv) governance
capacity based on international standards.
In addition, with the ability to be commercially present in Viet Nam under all forms, foreign
banks can choose to establish both branch and subsidiary in Viet Nam 64. The maintenance of
both branch and subsidiary create much better competitiveness for foreign banks compared
with domestic banks since the former can develop business network through subsidiary
(having national treatment) and extend large credits through branches (credit limit is
calculated upon the parent bank's capital).
Fast development of joint stock commercial banks help them gain quickly on market
share.
As mentioned above, JSBs may gain lots of benefits from the relaxation of foreign ownership
participation. On the other hand, JSBs are much more vulnerable than foreign banks in face
of competition from SOCBs. Since many JSBs are limited in terms of geographical location,
if SOCBs perform better JSBs may go down because the SOCBs enjoy a major competitive
advantage of being able to accept more credit risks thanks to the government’s implicit
guarantee and to exceed the lending limit to a customer.
JSBs will focus on supplying services to good SMEs, risk management services when the
legal framework for such services is issued. Some JSBs will participate actively in the
savings market in urban areas and provide banking service to high income households.
Foreign banks will be the major competitors in new banking service, and SOCBs will be the
main rivals in deposits and lending by JSBs.
64
03/5 foreign banks licensed to establish their subsidiary have maintained both branch and subsidiary in
Vietnam, including ANZ, HSBC, Standard Chartered Bank.
305
In the coming time SOCBs continue to be the major savings mobilizer and credit
allocator
SOCBs are too big to specialize in a certain target market. However, they may remain the
major service provider in rural areas. As time goes by, credit decision will become
centralized and credit allocation becomes fully commercial-based. However, a determinant
factor of banking operation is the implicit guarantee of the government towards SOCBs. This
implicit guarantee may create moral hazards in credit extension by SOCBs and also put
SOCBs on a more advantageous position in savings mobilization compared with JSBs. That
said, if SOCBs do not move to fully commercial based, the development of the banking
sector will be limited and the overall size and capacity of service provision of the banking
sector will reduce. The on-going equalization policy will gradually reduce SOCBs advantages
and nourish a healthier competitive environment 65.
Competitiveness of individual credit institution
The competitiveness of any CI is not measured by its market share or even ROE, although
these indicators aim at showing better performance of a more competitive institution. There
are two aspects of an individual institution's competitiveness. The comparative advantage of a
CI is closely related to its historical role in the market, while competitiveness is more related
its governance and flexibility in the use of resources.
Comparative advantage of different groups of CIs
- Foreign banks: financing FDI and related services, specialized forex service and
service for big companies, retail banking to wealthier people (including credit card).
- JSBs: credit to SMEs, domestic transaction services, retail banking in urban areas
including modern banking when the market develop; and
- SOCBs: credit to SOEs, domestic savings mobilization especially from urban and
rural areas, forex services, payment and credit services.
Competitiveness of individual institution
A competitive CI should have the following characteristics: (i) Capacity to innovate; (ii)
Capacity to allocate and reallocate asset and liability portfolio; (iii) Capacity to improve
productivity and manage its use of resources; (iv) Solvency, capital and liquidity; and (v)
Strong owners.
Thus, for a CI to be competitive, it should have both capacity and incentive to compete.
Foreign banks are highly competitive but probably will only operate in certain suitable
market segments. JSBs shall be more competitive when their shareholders put higher
demands on performance. SOCBs will face considerable challenges in enhancing efficiency
because of their historical structure, one of which is to create pressure on the management to
65
02 SOCBs (VCB and VietinBank) have accomplished equalization, other 02 SOCBs (BIDV and MHB) are in
the process of preparation for equalization.
306
become more competitive. In order to achieve this, SOCBs should operate purely on a
commercial basis within the prudential framework set out for the banking sector. They also
need to be able to decide on prices, credit allocation and make other business decisions in a
commercial way.
3.5 Tr ends and For ecast of demand for banking ser vices in the medium and long ter m
3.5.1. Demand for banking services continue to grow strongly in the years to come because of
the following factors:
- Demand for banking services will grow strongly thanks to the great potential of the
Vietnamese market. Currently the penetration rate of banking service is quite low, as shown
in only 10% of the population using bank account 66.
- Changes in population structure, population growth (especially in urban areas), the
increasing number of industrial areas and new urban will lead to significant expansion in the
number of enterprises and individuals having a demand for banking service.
- The number of Vietnamese overseas, overseas workers goes up; therefore demand
for remittances (foreign exchange) and other bank payment services tends to rise more
sharply.
- Income per capita of Viet Nam has been gradually improved, resulting in
corresponding increased demand for banking services 67.
- Business and investment cooperation between Viet Nam and foreign partners are
more and more developed. The expected increase in the number of Vietnamese enterprise in
coming time will also help boost demand for banking services; and
- Better infrastructure, especially telecom, will facilitate innovation in banking
utilities and thus stronger banking service growth.
3.5.2. Demand from the customers' point of view
Trend of banking service demand could be examined from the aspect of customers' demand.
Results of a survey 68 on banking service conducted with both individual and institutional
customers in Ho Chi Minh City done by Saigon Marketing Newspaper in early 2008 revealed
that:
- As for individual consumers: 51.7% of the surveyed people (mainly savings and
demand depositors) had the need for safe deposits at suitable interest rate; 43.7% of the
surveyed people (mainly users of different types of card) wanted to be served convenient and
timely payment services.
- As for institutional consumers: 38.6% of institutional consumers have a need to
place deposits; 29.7% have payment needs; 16.8% need domestic financing and 14.9% need
international financing.
66
See McKensey, March 2008, Report on “How young consumer could sharp Vietnam’s banks”
In 2008 income per capita of VN exceeded 1000 USD/ year.
68
See http://www.sgtt.com.vn/
67
307
- As for demand for banking service improvement: With regard to lending, 31.7% of
the surveyed consumers hold that banks need to simplify procedures to make them
understandable, transparent, time-saving and ensure appropriate, stable interest rate and costs;
With regard to payment and fund transfer: 28.1% think that banks need to accommodate
faster transfer and withdrawal, improve connection within each bank as well as among banks;
With regard to international trade finance: 24% need more information, preferential treatment
policy for major and frequent customers; With regard to treasury operations: 16.3% need
faster processing by banks, customer advice, and more modern ATMs.
3.6 Ser vice Gap
3.6.1. Banking services are still monotonous, poor in variety, low in quality. The
banking system is not directed towards customer demand and relies on traditional banking
services, i.e. fund raising, credit extension, and payment. Fund raising is mainly by accepting
deposits and credit extension is mainly by lending.
Modern banking services are either not developed or developed in an un-uniform manner.
Many important services are not yet introduced or develops below potential, particularly
individual and retail services, which enjoy great potential for growth (such as account,
cheque, card, payment, asset management, mortgage credit, consumer credit etc.).
3.6.2. Banking service utility remains low because of little application of technology
in product development and non-linkage of services. Modern banking services receive undue
investment. Asset management, financial consulting, money brokerage, financial
intermediation and support, trading in financial instruments, financial information provision
and transfer services are undeveloped. E-banking (debit card, credit card, ATM, internet
banking, home/office banking, phone banking…) and electronic distribution channel have
grown robustly but many limitations exist, including low utility and economic efficiency.
Monetary, interest rate, exchange rate derivatives in forex, investment and treasury operations
(such as swaps, forwards, futures, and options) are not yet developed or still in experimental
phase.
3.6.3. Bank transaction procedures remain cumbersome and inconvenient for
customers; style of service is typically bureaucratic and not yet customer-centered. These
barriers restrict the accessibility of banking service to a part of customers having proper
demand and capability of using banking service.
3.6.4. The banking service market is below potential, inadequate competition,
competitive modes are simple. The level of meeting social demand for banking service is low
due to limitations in quantity, quality, and accessibility.
Competition by quality of service, technology and brandname is not yet popular, leading to
instability of the service market, which is prone to interest rate racing and network expansion
competition in a wasteful way. On the other hand, CIs do not cooperate and associate well,
thus reducing considerably efficiency of the whole system (for example, ATMs system is not
yet connected, neither is common payment among banks).
308
3.6.5. The system of microfinance is undeveloped. There is a lack of professional
institutions specialized in serving certain sector(s), customers, particularly with regard to
industries/sectors making substantial contribution to economic growth, customers in the
remote, isolated, rural and disadvantaged regions. Hence, CIs have not yet met the demand
for banking services of different groups of users, including low-income people, poor people
without collateral and who have great difficulty in accessing bank credit.
3.6.6. Banks are of small size, with low level of governance and monitoring. The
capacity of project appraisal, credit monitoring and modern technology application is still
weak. Physical infrastructure of banks and the economy is not yet uniform. These problems
impeded on development of banking services and eroded competitiveness of banks.
3.6.7. Traditional banking services contain lots of risks at both funding and financing
sides; credit quality is not good with high NPLs ratios. While credit is the main business of
CIs, its high risk and in proportionate profitability have been and continue to threaten
soundness of CIs.
Credit is the main source of income for CIs. Income from payment service, forex trading,
investment and other banking services is generally low. Credit growth of the banking sector
has been too fast, at an average 25%/year during the period 2000-2008, even reached 50% in
some years. Several CIs experienced credit growth as high as 40%/year. This growth is quite
risky, particularly given the limited and slowly improved level of equity and risk
management capacity. Credit, therefore, is one of the operations that accumulate the biggest
risks to CIs.
Most of the low-quality risk assets lie in bad debts. In the meantime, risk provisioning
capacity is limited; some CIs could not set aside sufficient risk provisions. This increases
vulnerability of CIs in the context that macroeconomic conditions are not firmly stable,
domestic investment and business environment contains large risks, enterprises are still weak
in competitiveness, efficiency, and financial and payment capacity. Even when CIs tend to
extend secured credit, the risks are still quite high because ability to analyze, evaluate and
manage credits of CIs is still weak, while property and commodity markets are
underdeveloped and volatile. In addition, asymmetric, inadequate and unreliable
financial/credit information is also a cause of ineffective credit allocation and adverse
selection of credit users by the banking system.
3.6.8 Service supply modes are not diversified. Compared with the GATS mode of
supply, Vietnamese banking services are mainly provided domestically. Cross-border supply,
personal and commercial presences are limited. Total revenues from export of financial
services of Viet Nam only accounted for 3.5% of total service export revenues in 2003.
3.7 SWOT Analysis
Strength:
- The banking sector is varied in types and sizes, thus achieving complementarily
among banks and meeting diversified needs of different groups of customers.
309
- Banks have been developing in relatively stable macroeconomic conditions and
consecutive high growth during the last decade, which enabled them to expand the scale of
operation and facilitated the introduction of new services. Though the country in general and
banking sector in particular are adversely affected by the financial crisis and global recession,
Viet Nam has been weathering this turmoil rather well and is among few countries with
positive growth in the first half of this year.
- Being the main provider of credit to the economy, banks have gained a relatively
firm market position in terms of operational network, knowledge on customers and
confidence of the public.
Weakness:
- The legal and regulatory framework is not uniform, with inadequate provisions on
creditors' right, prudential regulations, risk provisioning and accounting standards are not yet
consistent with international standards and practices.
- With exception of foreign banks, the general weak governance and risk management
capability entail great potential risks to banks' operations.
- Important infrastructure for banking activities is poor, for example: clearing and
settlement system, core banking, and card switching system.
- Most Vietnamese banks are small in terms of capital and assets size compared with
regional countries, let alone developed nations in the world. This hampers the
competitiveness and capacity to provide services in international markets of banks.
- The diversification and introduction of new services to meet changing demand of the
economy are happening at an unsatisfactory pace. So far, most banks still rely on traditional
services of deposit taking, lending and payment.
- Qualifications and capacity of bank staff and managers have not matched with rapid
development of the banking service sector.
- Limited capacity of bank supervisors and supervisory methodology. Bank
supervision is still compliance-based, thus limiting the assessment and dealing with risks in
the system.
Opportunities:
- The on-going liberalization of financial sector under multilateral and bilateral
frameworks enables the entry of foreign banks under different forms, including the
formulation of strategic partnership between foreign and domestic banks, thereby pushing up
the transfer of technology, human and financial resources to the banking sector.
- Since the current penetration rate is still low, banks have a huge potential market to
provide services to. In addition, the economic reform and opening process will help further
expand this potential market through increased economic activities and income of the
population.
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- As followers, Vietnamese banks can learn from lessons of the more developed
countries and adopt best international practices.
Threats:
- As a result of the on-going international integration process, Viet Nam has become a
highly open economy in terms of trading and investment. Its vulnerability to external shocks
is therefore considerably increased. Though the extent of banks' direct linkage to international
markets is still limited, the indirect impacts on banks through other sectors of the economy
have risen significantly.
- International experiences show that financial liberalization could be a threat to
systemic stability if the former is not accompanied with regulatory and institutional reforms.
Thus it is important to have proper sequencing of liberalization in line with the enhancement
of capacity to conduct prudential regulation and reforms of governance and legal framework.
- Higher and strong competition in the banking system could lead to bank failures and
collapses that imply systemic instability if exit strategy and framework are not properly set
up.
The prerequisites for stimulating the banking sector growth
3.8 Macr oeconomic stability is a necessar y condition for the sustainability and gr owth
of the banking sector
Macroeconomic policy exerts an important impact on the development of the banking sector.
Stable macroeconomic conditions contribute to the soundness of banks, driving the growth of
banking system and help boost demand for banking services of the economy. Vice versus,
instability of macroeconomics would have adverse implications on the stability and
development of the banking sector. Specifically: (i) High inflation and slow real growth add
to the risk of crisis due to bankruptcy of companies and credit institutions have difficulty in
selling collaterals at the accepted value; (ii) High inflation creates pressure on stability of
exchange rate and interest rate; and (iii) High real interest rate exacerbates the risk of
systemic crisis because of higher debt service, greater possibility of company failure, and the
financing of high risk activities.
Actual developments in 2008 have shown that when macroeconomic condition is instable and
inflation rises, banking operations face a lot of difficulties due to tightening policy of the
SBV, which make banks encounter liquidity problems, leading to worsened performance of
banks and even threatening stability of the overall banking system.
On another aspect, banking sector development drives economic growth and vice versus.
Through more effective fund allocation and transaction services, and with risk-mitigation
products provided to companies and households, financial services contribute to promote
savings and efficient investment. As the economy grows and households become wealthier,
demand for banking services will rise. However, this cycle could be inverted by weak
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governance (frauds, directed lending, liquidity crisis, loss of solvency), which triggers loss of
confidence in banking system.
3.9 An Enabling Business Envir onment for Banking Ser vice Gr owth
In principle, as the legal provisions governing the supply, management, and supervision of
banking services, legal framework on banking service has a great impact on the business
operation of credit institutions. Banking service laws can promote and support actively the
development of banking services if the former is suitable with practical conditions. On the
contrary, banking service laws could hamper its development if this legal system entails
considerable shortcomings.
Thus, an enabling legal and regulatory framework for banking service development should
foster fair competition in the sector. Higher competition is an advantage for users of banking
service and brings about positive benefits to economic growth since it: (i) Lower financial
service unit cost (not necessarily the total expenditures on financial services); (ii) For
enterprises, enabling them to reduce cost and/or risks in managing business financing
accounts; (iii) Facilitate savings by households because of better access; and (iv) Ensure
higher security for future access to funding, therefore reduce the need for prudential savings.
Application of modern information technology is a foundation for developing modern
banking services
In the last several years the robust development of telecommunication services (mobile
phone, internet ...) and rapid growth in the number of users have generated more demand on
modern banking services (such as e-purse, e-money, online payment ...) and allowed CIs
open additional channel of service distribution through electronic means (for example, mobile
banking, SMS banking, internet banking, phone banking...). In addition, the level of
telecommunication infrastructure development also makes it possible for CIs to deploy crossborder banking service supply.
The application of information technology in banking operations and governance help banks
manage risks better since information technology is used in the analysis, forecasting,
providing inputs for business decision making, concentrated risk management, efficient
liquidity management, and connection and integration of banking operations.
The quality of telecom service is a contributing factor to improved quality of banking
services, an example is the relationship between ATM service and data transmission line.
3.10 High quality human r esour ce is a necessar y condition for developing banking
ser vices
Human resource is ultimately the key factor for any country's development in general and
banking sector in particular. With the vision of building a knowledge economy, diversifying
modern banking services, and expanding network, the banking sector needs a large cadre of
staff who are professionally well trained.
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The current shortage in both quantity and quality of human resource increased competition in
attracting human resource among CIs and raised salary costs of CIs.
3.11 Str engthening pr otection of cr editor 's r ight and establishment of effective
bankr uptcy mechanism ar e essential in heightening confidence in banking sector and
contr ibuting to the gr owth of banking ser vices
The legal framework on protecting creditor's right plays an important role not only to the
economy but also to CIs and businesses. An effective mechanism of creditor's right
protection will assist in creating and maintaining confidence of investors and lenders, thereby
allocating and using social resources in an efficient way, creating legal prerequisite for
stabilizing economic relations, reducing financial intermediation cost, enhancing accessibility
of enterprises and bringing about sound functioning of the financial markets. A
comprehensive legal environment for banking business can not lack the provisions on
protecting creditor's right with adequate mechanisms to protect legitimate rights and interest
of the creditor – as provider of finance for other partners in economic-commercial
relationship. In Viet Nam, provisions on protecting creditor's right have been established
under the Law on Bankruptcy and the Civil Code.
Similarly, ineffective regulations on bankruptcy will make enterprises having financial
trouble fall into stagnation, they can not restructure debts and neither be able to raise
necessary funds for new projects. In an economic crisis situation, countries need a reliable
bankruptcy mechanism to deal with consequences and quickly restore financial capacity for
enterprises which are in need of new capital. If enterprises can not mobilize more funds when
they have financial difficulty and bankruptcy mechanism can not address bad debt problem,
macroeconomic instability will prolonged and consequently investor's confidence and
accessibility to credit being undermined.
Report on business environment of the World Bank shows that investor (including creditor)
protection and bankruptcy procedure indices are very limited, thus affect on the stability and
growth of the banking sector.
Table 2.1. Ranking of Viet Nam's business environment
Ease of...
2008 rank
Doing Business
92
Starting a Business
108
Dealing with Licenses 67
Employing Workers
90
Registering Property 37
Getting Credit
43
Protecting Investors
170
Paying Taxes
140
Trading Across Borders 67
Enforcing Contracts
42
Closing a Business
124
2007 rank
91
97
63
84
38
48
165
128
63
40
121
2006 rank
..
90
62
82
35
80
175
128
50
41
119
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Source: World Bank, Report on Doing Business 2007, 2008, 2009
3.12 Recommendations on banking ser vice development str ategy up to the year 2020
and vision to the year 2025
i.Recommendation on the Vision
Developing diversified banking services driven by the demand of the economy, focusing on
quality enhancement and effectiveness of traditional banking services, and on fast
development of modern banking services based on high technology; to reach the average
level of other countries in the region in term of both service quality and quantity by the year
2025.
ii.Recommendations on Strategic Goals
Firstly, the development of banking services should make contribution to the implementation
of socio-economic strategies for the period from 2011 to 2020 with the focus on
industrialization and modernization strategies, agricultural and rural development and
improvement of access to banking services for SME and individuals.
Secondly, the development of banking services should ensure the safety and the effectiveness
of operations of each credit institution as well as credit institution system as a whole.
Thirdly, the cooperation and interconnection among credit institutions and between credit
institutions and other organizations in research development for modern banking products
and services should be strengthen in the direction of market demand, building up technology
infrastructure for common use.
iii.Recommendations on Development Objectives for Basic Banking Services
Development objectives for fund mobilization service
To mobilize to the largest extent funds from domestic and oversea resources in order to meet
credit demand of the economy; at the same time, to stimulate organizations and individuals to
accumulate assets, to make investment and deposit their funds in banks in VND with the aim
of ensuring economic interest of depositors and enhancing quality of fund mobilization
service.
To diversify fund mobilizing methods and facilities in VND and foreign currencies with
convenient procedures and attractive conditions.
To foster the mobilization of idle funds and public savings currently is in the kinds of gold
and foreign currencies by offering attractive fund mobilization methods and secured
measures for ensuring the value of customers’ deposits. To concentrate on customers’
deposits and savings; deposits and borrowing funds in the interbank market, as well as on
promoting valuable papers issuance; trusted funds acceptance (inside and outside of the
country); assets management.
To diversify and improve fund mobilization service quality in combination with development
of other services such as credit, investment, non-cash payment, and account and assets
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management based on the principle of mutual risk and profit sharing between customers and
credit institutions in order to make contribution to the building up of a diversified banking
system with multi features for the economy.
To change the mobilized fund structure in the direction of increasing medium and long-term
funds. To gradually foster the issuance of debt instruments and long-term bonds in
accordance with international best practices and in order to meet listing requirements of
Securities Trading Center.
To encourage credit institutions compete with each other in term of fund mobilization mainly
based on quality, convenience and technology of mobilization service, reputation and
trustworthy of the credit institution rather than mainly based on interest rate or promotions.
To create favourable conditions for credit institutions to access international financial
markets, especially fund resources (investment trust, financial trade, ODA, favourable credit,
deposits…) from financial institutions, non-governmental and governmental organizations of
various countries. To take advantages of international favourable credit to make investment
for social policy subjects, to develop socio-economic infrastructure and other economic
development programs. To allow Vietnamese credit institutions having met requirements to
issue and list fund mobilization instruments, bonds, stocks in regional and international
financial markets.
Development objectives for credit and investment services
To diversify and improve quality of credit services in the forms of loans, discounting
valuable papers, guarantee, factoring, credit cards, financial leasing, advances and other
forms of credit in order to better serve the demand for investment fund in business and
consumer production of the economy.
To establish a flexible credit market with healthy and fair competition environment among
types of credit institutions; to create opportunities for all organizations or individuals seeking
funds, doing lawful business and being able to repay the loans to have easy access to bank’s
credit.
To improve credit institutions’ credit provision and credit risk management abilities in
different fields such as loans, financial trade, financial leasing, project finance. To completely
apply market discipline in credit operations, ensuring proper correlation between risk and
profit, prioritizing credit provision to investment projects and loans that have high economic
return with low risk. To use funds appropriately to broaden medium and long-term credit
provision to investment projects, constructions having high economic return and to ensure the
accordance between fund structure and fund utilization of credit institutions.
To foster co-financial and syndicated loans of credit institutions to big projects, especially to
socio-economic infrastructure development projects. To step by step implement new credit
services, credit and FX derivatives in accordance with international best practices.
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To continue to broaden credit provision according to size, fund structure and strictly in
compliance with prudential regulations and limitations for credit operations, at the same time
enhancing risk management ability of credit institutions. Quality and safety of credit
operations are the first priority, closely attaching credit growth with quality control and
effectiveness of credit growth; fostering bad debts write off and reducing the occurrence of
new non-performing loans.
To continue to reform credit regime, policies, and procedures bearing in mind the simplicity
and convenience for use. Credit institutions should have full autonomy and selfresponsibilities for their credit operations, improving market disciplines, trading principles,
transparency; applying international standards to credit operations of credit institutions;
avoiding administrative intervention in business course or ordering credit institutions to
provide credit. To prevent and control any negativeness in credit operations.
Development objectives for payment service
To robustly develop payment services through banks, non-cash payments based on
application technology and modern banking payment system which is safe, trustworthy, and
effective and in accordance with international best practices and standards; diversifying
payment services through banks in order to encourage economic sectors, especially
individuals to use payment services through banks, reducing the use of cash for payments.
To ensure adequate and safe cash payments and treasury services for the economy. To closely
connect payment services with other banking and financial services, especially fund
mobilization, credit and FX services. To ensure the cooperation between organizations
providing banking services and other organizations, enterprises, organizations providing
consumer products and services, the public through provision and use of non-cash payment
services, convenient cards services with low fees. To strengthen the connection and
cooperation among organizations providing non-cash payment services, especially focusing
on development of payment infrastructure for common use in order to save costs, add to
effectiveness and competitiveness of the system as a whole.
To broadly implement electronic payment services and electronic automatic transactions
system. To foster investment at the same time in research development and implementation
of new payment instruments in accordance with international standards, including electronic
money, electronic wallet, domestic payment cards, international payment cards, universal
cards, smart cards and checks. To concentrate into broad implementation of payment services
through banks for e-business.
To focus on fostering account services, firstly individual accounts with convenient and safe
procedures, attaching various features to attract low cost funding in payments and establish
fundamentals for development of card payment, personal cheques and non-cash payment
services.
To broaden forms of international payment services (L/C, wire transfer…) in order to support
international investments and import-export of goods and services. To broaden services such
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as issuance and payment agency for payment cards, cheques, and gradually develop the
issuance of international payment cards of Viet Nam.
To create favourable conditions for development of overseas national currency exchange
through banks and to apply effective measures to attract overseas national currency exchange,
having at the same time appropriate management regime to avoid dollarization. To organize
propagating and advertising programs on overseas national currency exchange and
international wire transfer. To establish transfer channel for direct overseas national currency
exchange with correspondent banks in countries where a lot of Vietnamese living and
working. To open more payment points and convenient methods for overseas national
currency exchange.
Development objectives for FX and other services
To concentrate foreign currencies resources into the banking system to best meet with lawful
foreign currencies needs of enterprises and individuals. To effectively control the flow of
foreign currencies in the economy to reduce the dollarization. To ensure the rights to
ownership, buying, selling and using foreign currencies of enterprises and individuals in
accordance with provisions of the law. To strengthen and reorganize foreign exchange
operations, ensuring that floating foreign currencies in the market to be gathered into the
banking system.
To create favourable conditions for organizations and individuals to access the FX market
and FX services; for credit institutions to implement risk management services, investment
and other monetary operations, especially derivative instruments such as monetary, interest
rate, exchange rate (between VND and other currencies; between foreign currencies,
including gold) in domestic and international financial markets in accordance with
international best practices and standards in order to better meet with demand for foreign
currencies of customers, enhancing the ability of credit institutions in prevention of interest
rate and exchange rate risks related to credit institutions’ assets and income. To foster capital
trading services in monetary market, especially in interbank market in order to effectively use
working capital and ensure the solvency.
To create favourable conditions for credit institutions to effectively involve in the provision
of other financial services in order to diversify income resources and increase revenue of the
credit institution such as gold trading; capital arrangements; investment brokerage; hedging
through derivative instruments,…) as supplementary services in diversification business
strategy, broadening customer base and taking advantages of technological infrastructure and
service provision ability of Vietnamese credit institutions.
Development objectives for banking service market and identification of clients of the
banking system
To implement planning and appropriate allocation of credit institutions in accordance with
socio-economic development requirements for localities and regions. To refine types of credit
institutions, methods and forms of effective banking services provision, especially focusing
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on microfinance and development financial institutions (development bank, import-export
bank…). To broaden agency relationship with foreign financial institutions, fostering the
access to international financial markets and the business present of Vietnamese credit
institutions in regional and international financial markets. At first, to promote the provision
of international banking services cross the borders to important markets such as US, EU and
Asian.
The clients of banking system include all organizations and individuals having demand for
banking services. Organizations, individuals having sufficient financial ability and met
requirements of banking procedures are treated fairly and have the same unlimited access to
banking services in accordance with provisions of the law and based on agreement principle.
Banking services should be broaden to the whole economy, business and consumer
productions of individuals and households, serving key economic sectors and regions having
development potential as identified in the Strategy of socio-economic development for the
period of 2011-2020 and Plan of socio-economic development for the period of 2011-2015.
As for policy objects, the Government needs to have clear policy and regime based on
principle of fully separating policy banking from commercial banking in order to help credit
institutions do business and develop by market discipline. Credit institutions could
voluntarily participate in policy loan program through agency or trust service or provide other
supporting service with market conditions and self-responsibility.
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CHAPTER 4: TELECOMMUNICATION SERVICES
4.1 Cur r ent State and Development Issues of the Telecommunication Sector in Viet
Nam
Telecommunications and Internet have continued to have the high growth, the development
speed of telephone subscribers is rapid, and total telephone subscriber on whole network is
82.25 subscribers million, in which mobile subscriber holds around 85.5 percent (70.3ms
mobile subscribers), 14.5 percent for fixed-line telephone (11.95mn fixed-line telephone
subscriber); penetration rate is 97.5 percent. In total 70.3ms mobile subscribers has over 88
percent for subscribers using GSM technology (about 62mn subscribers), remainder is
subscribers using CDMA technology. There are 20.67 Internet users million in the whole
country and the penetration reached 24.20 percent; total number of broadband subscriber
reached 2 million.
To December 2008, the number of mobile customers in Viet Nam reached to over 70.3mn.
According to the summary report of MIC in December 2008, Viettel Corporation, which is
owned by the Vietnamese Military, continued to lead the Vietnamese mobile market with a
market share of around 34.1%. Viettel has a clear lead over the next largest mobile operators,
MobiFone and VinaPhone, which had market shares of approximately 28.4% and 25.6%,
respectively.
The growth rate of mobile subscriber reached almost 96% for 2008. The mobile penetration
rate reached 83.4%. In 2008, Viet Nam developed over new 34 mobile subscribers against
2007. It should be remembered that the figures for the number of Vietnamese mobile
customers are based on the assumption that the market contains a large number of inactive
prepaid users.
Competition and growth in Viet Nam’s mobile sector has been boosted by the recent wave of
tariff cuts, which have been introduced by the various operators. Further cuts may follow in
the near future, possibly resulting in a price war. Looking ahead, we now predict that Viet
Nam will surpass the 100% penetration threshold in 2010, instead of 2011 as previously
predicted. By the end of 2012, we envisage almost 136mn customers and a penetration rate of
almost 147%. Continued customer growth will be supported by a steadily expanding
population, as well as the arrival of increased competition and new investment.
Meanwhile, according to Viet Nam’s Internet Network Information Centre (VNNIC) – it
belongs to MIC, in 2008, the number of broadband subscribers rose by 58% against 2007. By
the end of December, broadband penetration in Viet Nam had risen to 2.43%, up from 1.5%
at the end of 2007. In the Q4 of 2008 had seen accelerated efforts to increase the level of
investment in broadband technologies and to encourage further take-up. In September 2008,
incumbent operator VNPT launched a campaign to promote its ‘MegaVNN’ ADSL service to
fixed-line users. The promotion, which runs from September 16 to October 30, offered free
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ADSL modem and registration fees for new MegaVNN users and customers who shifted their
indirect internet services to MegaVNN on fixed phone lines. We continue to believe that
broadband subscriber growth will be strong over the next five years. By the end of 2008,
Vietnamese Internet market had around 2.05mn broadband subscribers (equivalent to a
penetration rate of 2.43%).
The Current state of Telecoms Market of Viet Nam
Mobile
In 2008, Vietnamese mobile market share with participation of 7 operator: Vinaphone,
MobiFone, Viettel (using GSM technology); S-Fone, EVN Telecom (using CDMA), HT
Mobile (in the period of switching from CDMA into e-GSM technology), Gtel (has not put
into operation) takes place actively. However, both HT Mobile and Gtel are considered as not
operating; CDMA networks have not create the great change steps on mobile market and it is
pressured very much by network using GSM technology.
The latest data from Viet Nam’s Ministry of Information and Communications (MIC)
suggests that there were almost 50mn mobile subscribers at the start of June 2008. Of this
figure, some 90% are understood to be prepaid customers. This high proportion of prepaid
subscribers means that mobile ARPU in Viet Nam is about US$6 per month, one of the
lowest rates in Asia.
Obtaining reliable and detailed data on the number of mobile subscribers served by Viet
Nam’s seven mobile network operators remains a challenging exercise. None of the operators
publish data on their own subscribers, while the MIC only publishes data on an occasional
basis.
According to MIC’s year-end summation report on 2 January 2009, Viettel, which is owned
by the Vietnamese military, continued to lead the Vietnamese mobile market at the start of
June with approximately 24mn subscribers and a market share of around 34.1%. Viettel has a
clear lead over the next largest mobile operators, MobiFone and VinaPhone, with 20mn and
18mn customers, respectively. Both MobiFone and VinaPhone are owned by incumbent
operator VNPT. Meanwhile, according to the Ministry, fourth-ranked S-Phone had 5.1mn
customers.
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Mobile m arket 2008
EVN ,
4.6%
S-Fone ,
7.3%
VinaPhone ,
25.6%
HT Mobile,
0.0%
Gtel, 0.0%
Viettel ,
34.1%
MobiFone ,
28.4%
We estimate that, Viettel continued to have the biggest market share, the next is MobiFone
and VinaPhone, respectively. The number of customer of S-Phone rose over the number of
subscriber of EVN Telecom because in 2008 HT Mobile (Hanoi Telecom) handed over
subscribers of its CDMA mobile network for S-Fone. Therefore, the market share of S-Phone
is bigger than EVN Telecom.
Together, Viet Nam’s three GSM operators controlled over 88% of the mobile market at the
end of 2008. The number of mobile CDMA subscribers had reached almost 8.3mn at the end
of 2008, up from just below 2.3mn at the end of 2007. Although the CDMA subscriber base
is expected to continue growing, growth is predicted to be less rapid than for GSM
customers. As a result, the CDMA operators are likely difficult to get the market share from
the larger operators.
Table 1: Viet Nam Mobile Market, June 2008
Operator
No. of Subscribers (mn)
Market
(%)
34.1%
28.4%
25.6%
7.3%
4.6%
Share
Viettel
24.0
MobiFone
20.0
VinaPhone
18.0
S-Fone
5.1
EVN Telecom
3.2
HT
Mobile
(Viet
0
0.0%
Namobile)
Gtel
0
0.0%
Total
70.3
100%
Despite the continuation of rapid subscriber growth, the high proportion of prepaid customers
increases the likelihood that the sector contains a high level of inactivity. Future moves to
discount inactive mobile users could result in a significant fall for the penetration rate. Viet
Nam’s MIC recently pledged to conduct an audit of all operators’ counting methodologies
over deciding whether a SIM card is active or not. Another factor contributing to the
relatively high penetration rate is the large number of multiple SIM cardholders which are
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thought to exist within Viet Nam’s mobile market. This phenomenon is largely a
consequence of the high level of market competition and the plethora of promotional
campaigns that exist.
By the end of 2007, MobiFone and VinaPhone, both controlled by VNPT, had a combined
subscriber base of 19mn. By the end of June 2008, the two VNPT-controlled operators had
expanded their combined subscriber base by nearly 36%. During 2007, MobiFone and
VinaPhone deployed 6,000 new base stations. VinaPhone aimed to add a further 5,000 base
transceiver stations (BTSs), in order to achieve its target of 9,000 BTS by the end of 2008. In
May 2008, VinaPhone awarded a contract to UK vendor Aircom International in order to
provide it with network planning and design services.
Furthermore, in December 2007, both MobiFone and VinaPhone began reducing their call
charges by as much as 25-28% in order to safeguard and expand their market shares.
Accordingly, activation fees for post-paid mobile subscribers fell from VND136, 364 to
VND109,000, while monthly subscription charges remained the same at VND54,545. Call
charges are being reduced by 20% on average for post-paid subscribers, while, for prepaid
subscribers, the charges are being cut by nearly 30%.
In December 2007, it was announced that VNPT had entered a partnership with Motorola to
expand and enhance VinaPhone’s GSM network in major cities, including Hanoi and Ho Chi
Minh City. Motorola was contracted to install over 650 cell sites and provide optimization
and maintenance services. Then in June 2008, it was announced that Motorola had signed
further contracts worth US$28mn for the expansion of VinaPhone’s network in twelve
Northern provinces of Viet Nam. Under the agreement, more than 1,000 cell sites will be
deployed. Motorola is also understood to be co-operating with VinaPhone in order to expand
GPRS coverage and provide EDGE service in major metropolitan areas.
MobiFone has said that, in 2008, it expects to earn total revenues of VND16trn (US$1bn) and
return a profit of VND6.65trn. In order to achieve these goals, the company will continue to
expand its coverage area and increase its service quality in all localities and cities throughout
the country. It plans to raise its number of BTS to 10,000 by the end of the year. MobiFone is
understood to be preparing for an IPO. It is thought that approximately one-third of the
company will be floated, with the government retaining a 33.3% stake with the final third
going to a strategic investor. The IPO is expected to be the first of several planned
privatizations in Viet Nam’s telecoms sector.
Norwegian telecom company Telenor has continued to fuel speculation about its possible
entry into Viet Nam’s mobile market. We believe that the privatization of MobiFone is seen
as one possible route of entry to the sector for the operator. Telenor has had a representative
office in Viet Nam since 2005.
If Telenor does make a bid to acquire a stake in MobiFone, it is unlikely to go unchallenged.
It is expected that Singapore Technologies Telemedia (STT), which controls 75% of Asia
Mobile Holdings, and as such controls a 40% stake in Indonesia’s second-ranked mobile
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operator Indosat will also make a move to acquire MobiFone assets. STT expects the sale of
MobiFone’s stake, originally slated for 2008, to be delayed until 2009.
Although Viettel, MobiFone and VinaPhone continue to dominate the mobile sector, Viet
Nam’s three CDMA operators have recently enacted policies that are designed to expand
their current minority market shares. S-Fone, which has South Korea’s SK Telecom as a
shareholder, is also said to be considering a cut in tariffs in line with market trends.
In April 2008, the smallest of Viet Nam’s CDMA operators, HT Mobile, began migrating
customers away from its CDMA network towards GSM technology. Those customers staying
with HT Mobile will receive a new GSM handset. However, those who choose to retain a
CDMA service will be switched to S-Fone’s network. HT Mobile decided to implement the
transition after failing to reach its target of luring 1mn customers by the end of 2007.
Meanwhile, new operators are poised to enter Viet Nam’s mobile market in the coming
months. In January 2008, it was reported that the MIC was ready to grant a license to Global
Telecom Corporation (GTel) to offer mobile services. GTel is backed by Russian giant
VimpelCom, which is said to be prepared to invest up to US$1bn into the GTel mobile
network over the next few years. In July 2008, VimpelCom said that it had acquired a 40%
stake in GTel-Mobile for US$267mn. State-owned GTel and subsidiary GTel TSC hold the
remaining 51% and 9%, respectively, although the Russian operator is considering buying a
further 9% from its Vietnamese partners and has pre-emptive rights to do so. An MIC official
confirmed that GTel had asked permission to supply GSM-based mobile services and that the
Ministry was working on the necessary formalities, adding that GTel will be licensed to use
the 1800MHz frequency. Over the next five years, VimpelCom plans to invest US$1.8bn in
GTel-Mobile. The new operator aims to have 20mn mobile customers by 2013.
GTel is backed by Russian giant VimpelCom, which is said to be prepared to invest up to
US$1bn into the GTel mobile network over the next few years. In July 2008, VimpelCom
said that it had acquired a 40% stake in GTel-Mobile for US$267mn. State-owned GTel and
subsidiary GTel TSC hold the remaining 51% and 9%, respectively, although the Russian
operator is considering buying a further 9% from its Vietnamese partners and has preemptive rights to do so.
However, MobiFone and Vinaphone appear to have taken early measures to counter loss of
their market shares by the challenges from smaller operators announcing in December 2007,
a decision to reduce call charges by as much as 25-28%. Accordingly, activation fees for
postpaid mobile subscribers fell from VND136,364 to VND109,000, while monthly
subscription charges remained the same at VND54,545. Call charges are being reduced by
20% on average for postpaid subscribers, while, for prepaid subscribers, the charges are being
cut by nearly 30%. To date, rival operators have yet to mention a fall in their tariffs.
3G market
323
In October 2007, the Vietnamese Government granted permission for the MIC to license four
3G mobile network operators. In addition, five mobile operators will be granted permission to
undertake mobile WiMAX trials. The decision followed more than a year during which the
MIC was understood to be preparing the 3G licensing criteria. Applications for licenses from
domestic operators are scheduled to be heard in 2008 but, at the time of writing, it was
announced that the submission deadline would be postponed until January 2009. The winning
bidders were announced in H109, including: Viettel, Mobifone, Vinaphone and cooperation
between EVN telecom and HT-Mobifone.
A number of major foreign operators have expressed an interest in investing in the
development and deployment of 3G networks in Viet Nam. Japan’s NTT DoCoMo, which
opened an office in Hanoi (its fourth overseas office) in September 2007, sees the annual
30% growth rate of the Vietnamese telecoms market as a big draw. These sentiments are
similar to those expressed by French incumbent France Telecom.
According to reports, both MobiFone and VinaPhone are expected to upgrade their
infrastructure to 3G. MobiFone has completed a two-year 3G trial and is in the final stage of
submitting a deployment proposal with Ho Chi Minh City and Hanoi, the first cities deployed
services in 2008, possibly in partnership with France Telecom. Meanwhile, VinaPhone
concluded a similar trial with Nokia in Danang in August 2007. As for Viettel, S-Fone and
Hanoi Telecom (HT Mobile), all three are understood to have requested UMTS licenses from
the Ministry, while we would expect newcomer GTel to similarly be interested.
It is unlikely that all six of Viet Nam’s existing mobile operators will win licenses. Indeed,
the government looking to award four 3G licenses at the most. It has been proposed by the
Radio Frequency Department that each of the four 3G licenses be granted 2x15MHz
frequency division duplexing slots in the 1920-1980MHz and 2110-2170MHz bands, and a
5MHz time division duplexing slot in the 1900-1920MHz range. The 2010-2025MHz band is
to be reserved for further UMTS applications, and the RFD envisages that each network will
be granted a minimum 5MHz block.
A lack of content and the cost and availability of 3G handsets will all present impediments to
growth in Viet Nam’s 3G market, with we now estimating no more than 300,000 subscribers
in the first year of 3G deployment. However, in spite of 3G, there is a real threat to growth in
the Asia Pacific region as a whole, and it comes from WiMAX, which can cover huge
distances and which is able to provide wireless internet access in the most remote towns and
villages. Five operators are currently trialing WiMAX services; these include VNPT-owned
Viet Nam Data Communications (VDC), in Lao Cai Province; Viet Nam Multimedia
Corporation (VTC), in Hanoi and Ho Chi Minh; FPT Telecom; EVN Telecom and Viettel.
The latter three are testing both wireline and mobile WiMAX services.
Fixed-Line
At the end of 2007, Vietnamese fixed-line incumbent, VNPT, had 7.02mn fixed-lines at the
end of 2007, out of a total telecoms subscriber base of 27.8m. The traditional fixed-line
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services provided by VNPT amounted to 77% of the country’s total fixed-line subscriber base
with 3.01mn customers using fixed wireless services provided by operators such as Viettel
and S-Fone. By the end of 2008, the fixed-line customer amounted to 11.95mn, which is
equivalent to a penetration rate of 14.1% (this data published by MIC).
Unusually for telecoms markets in Asia, the Vietnamese fixed-line sector still offers growth
opportunities. Viet Nam’s government is determined to increase the speed with which
VNPT’s virtual monopoly in the fixed-line sector is broken. In December 2006, the Ministry
of Posts & Telematics (now, the Ministry of Information and Communications) awarded a
national wireline license to FPT Telecom. FPT’s fixed-line service will be based on a next
generation network, which will support the provision of IP-based voice telephony, as well as
high-speed broadband and IPTV. In 2008, FPT reportedly had 307.350 ADSL customers,
with broadband services offered in 10 provinces.
In addition to controlling the greater part of the local voice telephony market, VNPT was,
until 2002, the only body authorized to offer long-distance and international services.
However, both Saigon Postel (a privatized former subsidiary of VNPT) and mobile operator
Viettel have since begun offering domestic and international VoIP services. VDC also
introduced its own prepaid and post-paid VoIP under the brand name FoneVNN in 2003 and,
in November of that year, became Viet Nam’s first provider of virtual private network (VPN)
services.
In an effort to expand its fixed-line customer base, VNPT chose Swedish vendor Ericsson to
supply equipment to accommodate 200,000 additional fixed-line subscribers in Viet Nam’s
central region. The deal is part of the second phase of a project to expand reach and capacity
in the area. The first phase began in August 2006, when Ericsson won a contract to install
600,000 lines.
In August 2008, it was reported that Viet Nam Telecom National (VTN), a VNPT subsidiary,
planned to deploy Fujitsu’s high speed optical WDM as the transmission backbone of its
next-generation network. VTN manages the domestic infrastructure of the incumbent stateowned operator VNPT. The company will deploy the WDM in a trunk-line network
traversing approximately 3,000km in Viet Nam’s southern region, linking 21 provincial
capitals. The network is scheduled to be completed by early 2009.
Meanwhile, the MIC has pledged to develop the country’s fixed-line infrastructure, especially
in rural areas. Behind the government’s plan to invest in fixed-line telephony is its desire to
ensure a balanced and sustainable development of traditional voice telephony services
alongside mobile telephony. One reason why the government aims to support the funding of
telephony in rural areas is the difference in revenue terms between fixed-line connections in
urban and rural areas; whereas an urban wireline subscriber will typically generate an average
monthly revenue of close to VND50,000, this figure falls to VND30,000 in more remote
parts of the country.
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Furthermore, in an effort to regulate the fixed-line market, and ensure greater equality, the
MIC announced plans to raise the cost of inter-province calling for all fixed-lines. At present,
users pay VND120 (US$0.007) per minute, said to be below cost price, and the MIC has
recommended raising this to VND200 (US$0.012) per minute. However, in order to offset the
increase in tariffs, monthly subscription fees will be reduced to VND 20,000 from VND
27,000, which will hopefully attract a number of new customers.
These changes are due to commence from 2009, with fixed-line rates set by the MIC until
2010. After 2010, operators will be given the freedom to set their own rates, although the
MIC will continue to set the ceiling price in order to ensure there is a level playing field.
Fixed Wireless
With great advantages of cost for investment and time to deploy service in comparison with
fixed line, fixed wireless has developed strongly. With providing of Gphone (VNPT) and
HomePhone (Viettel) and Ecom (EVN Telecom) service packages has created competition
between three providers more and more violently. There are many promotional programs of
providers such as: cost for installing, service price, etc. If in March 2008 customer had to pay
VND 149,000 for the initial cost and terminal equipment then in months of the end of 2008
this cost was zero. Further, customers were gave additional VND 150,000 in their account for
monthly cost. Attracting of price is key factor for developing the great number of fixed
wireless subscriber in past year.
With the limited availability of traditional fixed-line infrastructure and around 70% of Viet
Nam’s population living in rural areas, an increasing number of Vietnamese telecoms
operators – including mobile operators – are introducing fixed wireless services. Facing high
levels of saturation in already crowded urban mobile markets, fixed wireless access (FWA)
has been seen by Viet Nam’s mobile operators as a way of supplementing revenue streams.
Fixed wireless services can be launched on existing mobile networks and therefore incur few
start-up costs. They are seen as a cost-effective way of providing telecoms services to lowincome households. Mobile market leader Viettel has around 70% of its subscriber base
living in rural areas; this indicates the importance of the operator’s fixed wireless business
unit. Viettel’s post-paid service, HomePhone, was launched in August 2007, a few days after
its prepaid service. By offering special discounts, it is expecting to increase the number of
customers subscribing to HomePhone. Although press reports have suggested that Viettel had
over 13mn customers at the end of 2007, this figure is thought to include both mobile and
fixed wireless customers. Discounting its 11.9mn mobile customers, this would leave Viettel
with just over 1mn fixed wireless customers at the end of the year.
Viet Nam’s fixed-line incumbent VNPT also offers a fixed wireless service called GPhone.
The service operates over VinaPhone’s GSM network and is charged at fixed-line prices,
making it affordable for low-income households. GPhone was launched in two phases, with
services initially being launched in eight provinces and cities (including Lai Chau, Thai
Nguyen, Ha Tay, Quang Nam, Quang Ngai, Can Tho, Hau Giang and An Giang) in June
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2007, and the rest of the country during August 2007. Total GPhone subscribers reached
838,000 by the end of 2008.
Fixed-line has developed slowly
Service fixed-line seems too difficult to implement for enterprises outside of VNPT, because
investing network is very large. Therefore, although Viettel has provided this service but
Viettel doesn’t focus to develop it. FPT also has provided the fixed-line at the end of 2008
but mainly concentrated in the Hanoi City; number of subscribers are not many.
Besides the cost of initial investment is large; the booming development of mobile networks
has made users no longer attractively with fixed-line service and has caused this service in
past two years developing quietly and slowly.
Both economy and service side then fixed-line service is not able to compete with mobile
service or fixed- wireless. Therefore the development of this service is very slow and
depressed for service providers and users. However, to develop a persistent
telecommunications infrastructure, the country shall continue to develop this network. In the
past years, with the role as the decisive service provider of telecommunications, VNPT still
has continued to invest and develop this network. But in the near future to ensure sustainable
development of this service then the State management agencies should have priority for
enterprises providing this service.
Broadband
According to Viet Nam’s Internet Network Information Centre (VNNIC), the number of
internet users in the country had risen to 20.834mn by the end of 2008. This is equivalent to
24.04% of the total population. The number of internet users grew by 26% in 2007 and by
12.3% in 2008. Meanwhile, according to the VNNIC, the number of broadband subscribers
rose by 150% in 2007 and by 58.3% in 2008. By the end of 2008, broadband penetration in
Viet Nam had risen to 2.43%, up from 1.5% at the end of 2007. The rapid take-up of
broadband services illustrates the growing popularity of such services within the country.
However, it is notable that two-thirds of Vietnamese broadband subscribers are from Hanoi
and Ho Chi Minh City. Holding back faster growth is the fact that ADSL services remain
expensive and service quality remains poor, with slow speeds and unstable connections
beyond the largest cities.
Currently, the number of ADSL subscriber on the whole country reach over 2mn. Meanwhile,
in the end of 2006, this figure online was around 500,000 subscribers. VNPT has held the
dominant market share with over 1.2mn subscribers (about 60 percent); the next is Viettel
with over 430,000 subscribers (hold 21 percent of market share); and FPT has over 285,000
subscribers (14 percent); remainder is other Internet service providers (EVN Telecom, SPT,
OCI, etc.).
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Broadband Internet market share
others
6%
FPT
14%
VNPT
59%
Viettel
21%
The high level of PC ownership in Viet Nam means that demand for internet and broadband
services is expected to remain strong. According to a survey conducted by Alcatel-Lucent,
some 95% of Vietnamese households have access to a desktop PC, of which 16% are
planning to purchase a laptop. Furthermore, growth in broadband demand is set to soar, as the
Vietnamese government has been investing heavily in developing the broadband sector,
announcing its commitment to inject VND100trn (US$6.3bn) in order to raise penetration
rates significantly. Also, since joining the WTO, a number of high-profile global companies
have relocated their operations to Viet Nam, and the employment of local staff has boosted
incomes. The result has been that a significant number spend between US$10 and US$20 on
their home internet bills, accessing multimedia content including games and downloads.
Increased competition is also expected to encourage increased broadband usage.
Internet sector in 2008
25,000
20,000
15,000
10,000
5,000
1
2
3
4
5
6
7
8
9
10
11
12
No. of Internet Users ('000)
No. of Broadband Internet Subscribers ('000)
In June 2007, VNPT increased its fixed-line network capacity with the help of Nortel
Networks, in order to introduce enhanced broadband services and tap the great potential for
further broadband growth. As a result of this investment, VNPT’s north-south fibre optic
network capacity was doubled from 20Gbps to 40Gbps. The move formed part of VNPT’s
plans to cater for 600,000 high-speed internet customers by the end of 2007. VNPT set itself
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the conservative target of Source: VNNIC 1.5mn broadband subscribers by the end of 2009, a
figure which was, in fact, surpassed in April 2008. In February 2008, VNPT invested US$1bn
in broadband development in 2008. The investment was used to raise existing capacity to
200Gbps by mid-2008, rising to 300Gbps at a later date. Furthermore, the investment will
fund the expansion of VNPT’s broadband network over the next two years, aimed at
providing coverage in previously underserved regions. The new investments will also allow
VNPT to connect a larger number of public high schools and government offices.
In September 2008, VNPT launched a campaign to promote ADSL MegaVNN and fixedtelephone users. The promotion, which ran from September 16 to October 30, offered free
ADSL modem and registration fees for new MegaVNN users and customers who shifted their
indirect internet services to MegaVNN on fixed phone lines. Users were also given free
internet accounts of VND100.000 (US$6) for two months. Customers using both MegaVNN
service and fixed phones received a free service for three months.
Along with its domestic internet services, VNPT provides data networking services to large
corporate customers through a partnership with UK operator Cable & Wireless (C&W). In
September 2008, VNPT subsidiary, Viet Nam Data Communication Company (VDC),
announced an extension to its partnership with C&W for the delivery of IP VPN services.
According to the agreement, C&W will offer on-net IP-based VPN services to VDC’s
customers. As part of the deal, C&W has upgraded its point-of-presence (PoP) network node
coverage in both Hanoi and Ho Chi Minh City.
WiMAX
In addition to expanding its ADSL network capacity, VNPT has been trialing WiMAX
services in the cities of Hanoi and Ho Chi Minh. This follows the operator’s earlier success
with WiMAX trials in Lao Cai. However, VNPT is not the first operator to test WiMAX,
with both Viettel and FPT Telecom having been carrying out similar trials. In addition to
developing WiMAX services, Viettel is also a major provider of internet services to business
customers. In June 2008, Viettel launched a major sales promotion campaign targeting
businesses with leased-line services. The company said it would waive installations fees and
user fees for a month for new leased-line subscribers. The total package would save
customers VND60mn (US$3,680). In addition, the firm said it would give new subscribers a
free web domain, ten e-mail addresses and a hosting service for one year.
In March 2008, Saigon Postel Corporation (SPT) became the sixth operator to be awarded a
WiMAX license by Viet Nam’s Ministry of Information and Communications. SPT is
affiliated with mobile operator S-Fone. Three of the other five operators to have been
awarded similar licenses also have links with the country’s mobile sector: VNPT is
responsible for mobile operators VinaPhone and MobiFone, while Viettel and EVN Telecom
also provide mobile services. Meanwhile, the fourth WiMAX licensee, Viet Nam Multimedia
Corporation (VTC), offers mobile digital TV services among other broadcast services.
Finally, FPT Telecom is already licensed to offer fixed-line voice and internet services; so
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far, however, it has been licensed to only carry out trials of wireline and wireless WiMAX
services. The connection between WiMAX licensees and the mobile sector also indicates that
WiMAX has become more closely entangled in mobile wireless technology rather than under
the guise of a fixed network wireless technology, in which it was originally conceived. SPT
has indicated that it will test WiMAX services in the 2.3GHz to 2.4GHz band across Ho Chi
Minh City and one of the neighbouring provinces of Tay Ninh, Binh Duong, Dong Nai, Ba
Ria-Vung or Long An. The majority of other operators’ WiMAX trials are also being
conducted in Viet Nam’s two major cities, Hanoi and Ho Chi Minh City.
Table 2: Viet Nam – WIMAX Trial lists
WiMAX
Operator
License Pilot Launch
Date
Viet Nam Post and
Trials carried out in Hanoi, Ho Chi Minh City and
Mar-06
Telecoms (VNPT)
Lao Cai
Viet Nam Multimedia
Mar-06 Trials carried out in Hanoi and Ho Chi Minh City
Corporation (VTC)
To carry out trials of both wireless and wireline
FPT Telecom
Mar-06
WiMAX
To carry out trials of both wireless and wireline
EVN Telecom
Jan-07
WiMAX
Viettel
Mar-06 To carry out trials of wireless WiMAX
Saigon
Postel
Trials to be carried out in Ho Chi Minh City and
Mar-08
Corporation
one neighboring province
In February 2008, the Ministry of Information and Communication awarded a license to
CMC Telecom to provide internet services in Viet Nam. The operator, an affiliate of CMC
Corporation, will reportedly be the 10th internet service provider in the country. CMC
Corporation, which set up CMC Telecom in 2007, will offer its services through its
partnership with CDMA operator EVN Telecom. The chairman of CMC Corporation
confirmed that, if licensed, CMC would consider launching WiMAX broadband wireless
services and stated that US chip manufacturer Intel would support deployment. However, in
order to launch services, any WiMAX provider must currently be at least 51% state owned.
Given that CMC is less than 51% state owned, it would require a change in regulations for it
to be able to offer WiMAX services. Along with its license to provide internet access, CMC
Telecom also gained two further licenses – one for online services provision and one for
internet content provision. However, the operator is not currently allowed to build their own
telecoms infrastructure. As part of its partnership with CMC, EVN Telecom is responsible for
investing in transmission infrastructure, while CMC is to invest in IT and communications
services, which will provide services for the customers of both groups. CMC has stated that
its strategy is to focus on large corporate clients and governmental organizations, a strong
sector for internet use in Viet Nam, as 89% of companies are estimated to have internet
connections.
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Meanwhile, in March 2008, ISP One-Connection Internet (OCI) launched an online
advertising site; something it claims will give companies a chance to take full advantage of
video and online advertising. As a concept, online advertising has not yet developed in Viet
Nam, but it is a potentially large market, and one that OCI thinks will grow by 50% each year
from 2008, potentially reaching VND600bn by the end of 2012.
VINASAT-1 Satellite
April 2008, Viet Nam has successfully launched the first VINASAT-1 satellite; Viet Nam
Post and Telecommunications Group (VNPT) is the investor of the project. VINASAT-1 has
confirmed the national sovereignty of Viet Nam in the space, helping to enhance the picture,
prestige of Viet Nam in general, telecommunications and ICT in particular. Putting into
operation the first telecommunications satellite, Viet Nam has been active in all of
transmission plans, including modern transmission ways, improve national communication
infrastructure, assuring safety and reliability for network infrastructure, telecommunications,
facilitate the development of telecommunications services, radio, television, etc. With
transmission capacity is over 10,000 voice channels and Internet, data transmission; over 120
television channels of high quality, VINASAT-1 will bring telecommunications services,
Internet and television to remote areas, mountainous and islands, etc. where other
transmission ways are difficult to deploy. Six months after it is putted into operation and
commercial exploitation, at the end of December 2008, about 30% of VINASAT-1 capacity
was used, provided services to a large number of customers using services such as VTV,
VTC, HTV, VOV, MODEC, THAICOM. VNPT also signed a business contract with the
business and exploitation company of WebsatMedia Satellite capacity to provide VSAT
service in Indonesia and Singapore market. To expand the market, VTI has continued
negotiating, signing the contract to provide services to some domestic and foreign customers.
Competitive Landscape
Competitor Analysis
Table 3: Key Players – Viet Nam Telecoms Sector
Company Name
Ownership
Viet Nam Posts and
Telecommunications Government (100%)
(VNPT)
Viet Nam Telecom Services Company
VinaPhone
(100%)
Viet Nam Mobile Telecom Services
MobiFone
Company (100%)
Viettel
Ministry of Defense
Joint Venture: Saigon Postel and SLD
S-Fone
(consortium comprising SK Telecom, LG
Electronics and Dong Ah Elecomm)
Electricity of Viet
Electricity of Viet Nam (100%)
Nam
(EVN
Market
Local, long-distance and
international telephony,
data, internet
Mobile
Mobile
Mobile, local telephony
Mobile
Local, long-distance and
international telephony,
331
Telecom)
data, internet and mobile
Joint Venture: Hanoi Telecom, Hutchison
Mobile
Telecommunications International (HTIL)
Joint Venture: Global telecom Corporation –
the Ministry of Public Security, Vimpelcom
Gtel Mobile
Mobile
– the mobile provider has the second potion
of Russia.
FPT
FPT Corporation
Fixed-line
In 2008, an important year of competition based on service:
Hanoi Telecom
In 2008, we can say that the main competition in the market is price. The telecommunications
enterprises continuously reduce prices to attract customers, from the mobile service to fixedline and ADSL service. These promotional programs have created conditions for people with
low incomes approaching with telecommunications services. However, the money promotion,
2-multiplied account, 2-multiplied account when new their SIM or account is activate; this
causes a telecommunications market to be difficult to manage; number of virtual subscription
is very much, appear many forms using the mobile phone to implement the disturbing
behavior, illegal action.
One light point in competition market between enterprises in the past year; besides the
competition tool of price then value-added services in the mobile phone have been used for
competition between enterprises. A range of value-added services has been provided and
used as a competition tool between cellular networks. We can include the services such as
Live-info of MobiFone, Data-safe and Ez-mail of VinaPhone, Yahoo Messenger service, ichat of Viettel. Competition in services will help to speed up their network deployment,
infrastructure construction for 3G network, and create the fair-competition. We can say that
2008-year is an importance year in order to service became main competitive factor of the
Viet Nam’s telecommunications market in next year, especially when tariff of telecoms
services approaches the floor price.
In 2008, cost for advertising is the largest in sectors in Viet Nam:
According to a report on advertisement investment in 2008, the telecommunications industry
sector was most expenditure for advertising with 71.28 million USD.
Compared to 2007, cost for advertising of the telecommunications branch has increased
nearly 50%. These numbers reflected correctly the situation of intense competition of
telecommunications branch in the past year.
Key Players
a. Fixed-Line
The provision of traditional PSTN-based telecoms services is still effectively under the
monopoly of Viet Nam’s state-owned operator VNPT, which became responsible for the
country’s telecommunications services in 1995. Its fixed-line services are run through a
network of 61 local push-to-talks (PTTs), while the country’s two mobile operators are both
subsidiaries of VNPT’s telecommunications business, Viet Nam Telecoms Services (GPC).
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Viet Nam does not have an independent regulatory body – regulation and policy development
now fall under the aegis of the MIC.
The Viet Nam fixed-line user base grew by around 19% in 2008. There were thought to be
over 11.95mn fixed-lines at the end of 2008, which is equal to a penetration rate of 14.1%.
The country continues to have one of the lowest rates in the region, although ahead of
Indonesia, Pakistan, the Philippines and India.
Table 4: Regional Fixed-Line Penetration Overview
Country
Taiwan
Hong Kong
Australia
South Korea
Japan
Singapore
China
Malaysia
Sri Lanka
Viet Nam
Thailand
Indonesia
Philippines
Pakistan
India
Bangladesh
b. Mobile
Fixed-line
2007 (%)
58.6
54.0
46.5
46.2
41.6
41.5
28.2
16.3
13.5
13.2
10.9
7.0
4.4
4.1
3.4
0.8
Penetration Regional Rank 2007 (2006
Rank)
1 (1)
2 (2)
3 (3)
4 (4)
5 (5)
6 (6)
7 (7)
8 (8)
9 (-)
10 (10)
11 (9)
12 (11)
13 (13)
14 (12)
15 (12)
16 (-)
Until mid-2003, the mobile market was nominally a duopoly. Both incumbent operators –
MobiFone and VinaPhone – are indirect wholly-owned subsidiaries of VNPT. MobiFone
introduced services at 900MHz in 1993, following a Business Co-operation Contracts (BCC)
agreement with Comvik of Sweden, while VinaPhone launched its own GSM 900 network in
1996.
During H203, Saigon Postel subsidiary S-Fone launched CDMA-based services, although it
is only since the end of H104 that S-Fone has begun to acquire significant numbers of
subscribers. Meanwhile, Ministry of Defense - run Viettel launched a very successful GSM
network in 2004 and has already overtaken S-Fone to become the country’s second largest
mobile operator (after the two VNPT-owned operators). Since then, Viet Nam has also
welcomed the entrance of newcomers EVN Telecom (which operates under the E Mobile
brand) and latterly Hanoi Telecom (which operates under the HT Mobile brand). E-Mobile
and HT Mobile, which began commercial operations in February 2006 and January 2007,
respectively, both offer CDMA-based services (although from April 2008 HT Mobile started
to shift its customers to a GSM network offering). With a penetration rate of just over 40%,
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Viet Nam continues to move up the regional rankings, and is now ahead of China and
Indonesia.
Table 5: Regional Mobile Penetration Overview
Country
Hong Kong
Singapore
Taiwan
Australia
South Korea
Malaysia
Thailand
Japan
Philippines
Pakistan
Viet Nam
Indonesia
China
Sri Lanka
Bangladesh
India
Mobile Penetration 2007 Regional Rank
(%)
(2006 Rank)
140.9
1 (1)
121.9
2 (2)
104.6
3 (4)
99.6
4 (3)
90.4
5 (6)
87.8
6 (5)
84.9
7 (9)
81.9
8 (7)
64.0
9 (8)
49.2
10 (12)
41.4
11 (13)
41.2
12 (11)
39.4
13 (10)
39.3
14 (-)
24.5
15 (-)
20.2
16 (14)
2007
c. Broadband
Viet Nam’s internet user base more than doubled during 2003 and 2004 and, at the end of
2004, was estimated at nearly 5.87mn, representing penetration in excess of 7%. Indeed,
during the course of the year Viet Nam leapfrogged both the Philippines and China in terms
of internet take-up. There are now nine licensed internet service providers (ISPs) in Viet Nam
and six internet exchange providers. By the end of 2007, internet user penetration had
increased to 21.8%. In July 2003, VNPT subsidiary Viet Nam Datacommunications
Company (VDC) launched the country’s first ADSL service in Hanoi, Ho Chi Minh City and
Hai Phong City. Broadband figures, according to the Viet Nam Internet Network Information
Centre (VNNIC), are thought to have surpassed 1.2mn subscribers by the end of 2007, which
is equivalent to a penetration rate of 1.5%.
Table 6: Regional Broadband Penetration Overview
Country
South Korea
Australia
Hong Kong
Taiwan
Japan
Broadband Penetration 2007 (%)
31.1
29.4
26.4
23.6
22.3
Regional Rank 2007
1
2
3
4
5
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Singapore
Malaysia
China
Thailand
Viet Nam
Philippines
Bangladesh
Indonesia
India
Sri Lanka
Pakistan
21.5
6.3
5.3
4.0
1.5
1.1
0.5
0.4
0.3
0.3
0.2
6
7
8
9
10
11
12
13
14=
14=
16
4.2 Viet Nam business envir onment industr y SWOT
o Strengths
-
An increasingly competitive mobile sector
-
Impressive growth in mobile and fixed-line sectors during 2008, with subscribers up
by 96% and 19%, respectively
-
WTO membership in 2007 makes Viet Nam a more appealing investment centre –
stronger growth in broadband market could be the result of this
o Weaknesses
-
Fixed-line sector remains largely monopolized, under the control of Viet Nam Posts
and Telecommunications Group
-
Lack of key strategic investors in the sector’s main operators
-
Although communications are relatively advanced in the larger cities, many rural
areas have little access to any telecommunications services
o Opportunities
-
Increase in competition in the mobile sector will lead to a sharp rise in growth
-
Government approach to liberalization of the telecoms industry could see entrance of
strategic investors such as NTT DoCoMo, SingTel and Telenor
o Threats
-
Pace of deregulation is irregular
-
Nearly one-third of Viet Nam’s villages lie in mountainous areas and are limited
access to telecommunications services; a delay in network expansion could slow
potential growth in fixed-line, mobile and internet sectors
-
Number of inactive mobile subscribers is unknown in what is still a market that lacks
transparency and reliable data
335
-
Poor quality of ADSL services and relatively still high prices are combining to hold
up broadband growth
4.3 The pr er equisites for stimulating the ser vices sector gr owth
Business Environment
Viet Nam continued to progress up the latest set of Business Environment Rankings for Asia,
moving to 13th place from 14th in the previous quarter. The country now sits behind Indonesia
and in front of Bangladesh. In this update Viet Nam receives a higher score in the telecoms
market category, offsetting a weakened country risk score.
The higher telecoms market score that Viet Nam receives in the current update is a reflection
of increased mobile market penetration, which has seen stronger than anticipated growth.
This has led to greater opportunities for growth than we had previously envisioned. The
demand for mobile services has largely arisen out of lower tariffs, making the cost of services
more affordable, and also the improvements to network coverage and capacity carried out by
operators.
Viet Nam’s telecoms market generally suffers from a lack of foreign investment, with inward
investment currently allowed only under certain conditions. Despite the potential for future
broadband growth, broadband penetration remains extremely low by regional standards, and
investment in alternative technologies such as WiMAX is still in the early stages.
Along with its relatively low telecoms market score, Viet Nam has a weak score in the
regulatory independence category, which is a reflection of the high level of state control over
the sector and its leading operators. The country’s accession to the WTO should result in
further market liberalization, and we expect to see this start to happen either later this year, or
more likely in 2009, when a 33.3% stake in MobiFone is sold to a strategic investor. Under
WTO regulations and in accordance with the government’s commitments, foreign investors
are allowed to participate in joint ventures with domestic companies. A minimum capital
requirement has been set out, with VND1.6trn required for a network infrastructure deal,
VND500bn for a project spanning at least two provinces and VND160bn for a project
covering a single province.
The more Viet Nam opens up to foreign investment, the more it can expect to attract further
investment. FDI pledges amounted to US$47bn from January to August, beating the most
optimistic projections. According to Phan Huu Thang, director of the Foreign Investment
Agency, FDI disbursement also rose to US$7bn in the first eight months of the year and is
expected to reach US$11-12bn for the full year. The top five investors in Viet Nam were
Taiwan, Singapore, Japan, South Korea and Hong Kong, with top ranked Taiwan having
1,700 projects across various sectors and Singapore having the highest registered capital of
US$10bn.
Viet Nam has attracted high inflows of FDI in spite of its ongoing economic woes. Viet
Nam’s primary attraction is as a base for manufacturing, due to its young – 50% of the
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population is under the age of 25 – and increasingly skilled workforce. Compared to similar
developing countries in the region, wages in Viet Nam are highly competitive, amounting to
just two-thirds of those found in Indonesia, Philippines and China. With a population of 82
million, Viet Nam is also becoming an increasingly popular destination for market-based
foreign investment due to its booming consumer market, with foreign retail brands seeking an
early foothold.
The government has taken extensive steps to attract foreign investment, in particular offering
tax breaks and reasonable land rentals in priority areas. Infrastructure has also been improved
with plans to build more highways, industrial parks and export processing zones.
2009 is expected to see MobiFone’s IPO take place, which has already received considerable
attention from a number of global operators, given the potential for growth in the telecoms
industry. With Credit Suisse hired as the operator’s financial advisor, around 10-15% stake is
to be made public with a similar amount offloaded to a strategic investor. Market rumours, as
cited by Dow Jones, suggest that a further 19% could also be sold off, leaving the
government still with a majority shareholding of 51%.
Table 7: Business Environment Rankings
Country
Singapore
Japan
Hong Kong
South Korea
Australia
Malaysia
Taiwan
India
China
Pakistan
Philippines
Indonesia
Viet Nam
Bangladesh
Thailand
Sri Lanka
Telecoms
Market
62.5
67.5
57.5
62.5
57
60.5
52.5
72.5
63.3
57.5
47.5
52.5
47.5
52.5
47.5
31.5
Country
Structure
96.7
66.7
76.7
70
83.3
63.3
63.3
35.7
35
39.3
46.7
42.7
33.3
30
32.7
56.7
Independence
of Regulator
80
90
80
80
70
90
90
80
50
80
60
50
60
60
40
50
Country
Risk
66.1
86
81.9
75
77.3
74.2
77.6
59.1
70.6
29.3
57.2
50.3
48.7
35.8
59.7
58.3
Telecoms
Rating
74
73.4
69.2
68.8
68.4
67.7
64.5
62.6
55.4
52.5
50.6
49.4
46.1
45.6
44.6
44.5
Rank
(Q408
Rank)
1 (1)
2 (2)
3 (4)
4 (5)
5 (3)
6 (6)
7 (7)
8 (8)
9 (9)
10 (11)
11 (12)
12 (10)
13 (14)
14 (13)
15 (16)
16 (15)
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Table 8: Viet Nam: Regulatory agencies and their responsibilities
Regulatory agency
Responsibilities
The Ministry of Information and Communications of the Socialist
Republic of Viet Nam is the state administration in charge of policy
making and regulatory matters in posts, telecommunications,
information technology, electronics, internet, radio transmission and
emission techniques, radio-frequency management and national
information infrastructure, management of public services, as well as
Ministry of Information of control over, on behalf of government and as stipulated by laws
and
Communications and regulations, the state capital in posts, telecommunications and
(MIC)
information technology enterprises. Its main functions include:
No. 18 Nguyen Du Street, submitting to the government drafts of laws, ordinances, regulations,
Hanoi, Viet Nam
strategies and development plans on posts, telecommunications and
- Tel: 00 844 39435602
information technology;
- Fax: 00 844 38263477 • giving guidance in implementation of laws, ordinances, regulations,
- E-mail:
as well as development strategies and plans related to posts,
tonghop@mic.gov.vn
telecommunications and information technology;
- Web: www.mic.gov.vn • regulating the access to and the interconnection between public
switched telephone networks, specialized and private networks;
• regulating the electronics and information technology industry
development plan;
• regulating charges and tariffs in the fields of posts,
telecommunications and information technology;
• planning, assigning and allocating radio frequency spectrum;
controlling and monitoring radio frequency spectrum and radio
equipment; organizing radio frequency, satellite orbit registration and
co-ordination;
• granting licenses in posts, telecommunications, radio frequency and
internet;
• regulating the quality of posts, telecommunications and information
technology networks, plants, products and services;
• regulating numbering resources, codes, domain names and
addresses used in the fields of posts, telecommunications and
information technology;
• conducting international co-operation activities in posts,
telecommunications and information technology; and,
• inspecting all activities and settling all regulatory breaches in the
fields of posts, telecommunications and information technology.
Legislation and Market Liberalization
The government’s telecommunications policy is formally set out in a decision of the Prime
Minister, Decision No.158/QD-TTg of 18 October 2001, which ratifies Viet Nam Post and
Telecommunications development strategy until 2010 and Orientation until 2020. The policy
Decision provides a comprehensive range of sector development objectives and targets, along
with key underlying strategies for their achievement.
338
The government’s telecommunications policy recognized the current weakness of the legal
structure governing the telecoms sector. In line with its policy, the Government ratified the
Ordinance on Post and Telecommunications (the ‘Ordinance’) on May 25 2002. The
Ordinance took effect on October 1 2002 and has replaced the Decree No.109/1997/ND-CP
dated November 12 1997 on network and telecommunications services. The Ordinance is
expected to achieve two primary aims: the consolidation of the legal structure into a single
law – which means the repeal of the set of contradicting laws and regulations – and to
modernize the legal structure and address the important issues that arise in a competitive
market structure.
In 2008, this is a year that the Ministry of Information and Communications boosted building
and improving the legal corridor, policy for developing ICT branch, MIC have assigned the
mission to build five Laws to submit to Government and National Assembly: Frequency
Law; Post Law; Telecommunications Law, Newspaper Law (amendment, supplementation)
are implemented to submit National Assembly in 2009.
On 28 August 2008, the Government of Viet Nam issued Decree No. 97/2008/ND-CP on
management, provision and use of internet services, which replaced the former Decree No.
55/2001/ND-CP dated 23 August 2001. This decree is a breakthrough in internet
management, encouraging internet application to every socio-economic field. This decree
specifies the right to inform and responsibility for information posted in the internet of users,
and allows all economic components to supply internet services.
MIC built and submitted to Prime Minister to promulgate Decision no. 155/2008/QD-TTg
dated on 01 December 2008 to get approved the plan on adjustment of local fixed telephone
service charges; it helps people in rural areas approaching to cheaper charge levels when
calling in local. Local fixed telephone service charges were reduced; it will be incentive the
demand of people simultaneously it will facilitate telecommunication enterprise increasing
revenue and expanding telecommunication market.
The functions of Viet Nam Posts and Telecommunications (VNPT) are set out in Decree No.
51 (Decree No. 51/CP ratifying the Statute on VNPT). VNPT is active in all aspects of
telecommunications, including infrastructure ownership and operation, and provision of
telecommunications services.
New rules on investment in telecoms, delivery:
The Government issued Decree No 121/2008/ND-CP on December 3 on investment in the
telecommunications sector and in delivery services. The regulation provides that foreign
investors in network infrastructure projects must form joint ventures or co-operate with
licensed domestic enterprises.
According to the Decree, economical organizations with foreign capital, not discrimination
against size of capital, if take part in post and telecom field must set up a Investment Project
and have to obey all legal regulations on investment stipulated at this Decree. Investment
project with foreign capital not discrimination against capital size; domestic investment
339
project to sep up network infrastructure to provide telecommunication service not
discrimination against capital size; domestic investment project to provide delivery and
telecom service without network infrastructure has capital from VND 300 billion and above
must be appraised to get Investment Certificate. Subjects’ conditions of project set up
network infrastructure in order to provide telecommunication service is investor must be
state-owned enterprise or enterprise with state-owned capital gains ruled shares. If the
investors are foreigners, they must joint venture with domestic investors who granted license
for setting up network infrastructure and providing telecom service in Viet Nam and has
capital rate in conformity with commitment to joint WTO of Viet Nam. The minimum capital
of this type of project is VND 160 billions. Projects allowed setting up a public network
infrastructure in national wide must have minimum registration capital is VND 1,600 billions.
Investors should apply to get Telecommunication License after got Investment Certificate or
Business Registration Certificate. The Decree stipulated in detailed conditions on investment
in the field.
For foreign-invested projects to provide telecommunications services not involving network
infrastructure systems, foreign investors within three years of Viet Nam’s accession to the
WTO who seek to provide basic telecom services or internet assess must form a joint venture
with a licensed telecommunications services provider in which the licensed provider holds at
least a 49-per-cent interest. A foreign-invested enterprise in the telecommunications sector
must obtain two types of license, both a business registration certificate or investment
certificate and a telecommunications certificate.
Regulation
The regulation of the telecommunications sector in Viet Nam falls under the responsibility of
the Information and Communications (MIC), which fulfils the dual role of policy maker and
regulatory authority. The key functions and responsibilities of the organization of MIC are
outlined in the Government Decree No. 187/2007/ND-CP of 25 December 2007. The Decree
sets out a wide range of functions and responsibilities under four different groupings. It is
noted that MIC exercises regulatory control over both post and telecommunications. The
MIC has responsibility for drafting laws, ordinances and policies on telecommunications,
issuing decisions, directives, rules and technical standards, managing international treaties on
telecommunications and radio frequency and issuing and revoking permits in accordance
with regulations.
The direct regulatory body over internet activities in Viet Nam is the Viet Nam Internet
Network Information Centre (VNNIC). The VNNIC is a non-profit affiliation to the Ministry
of Information and Communication, established under the Decision No. 02/2008/QD-BTTTT
dated on 3 May 2008. The purpose of the VNNIC is to carry out the functions of managing,
allocating, supervising and promoting the use of internet domain names, addresses and
autonomous system numbers (ASN) in Viet Nam. VNNIC also provides internet-related
guidance and statistics related to international activities on the internet.
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The main goals for developing the telecommunications sector in Viet Nam are defined in the:
-
Post and Telecommunication Ordinance of 2002;
-
Decision 158/2001/QD-TTg of October 18, 2001, approving Viet Nam Post and
Telecommunications development strategy through 2010 and vision to 2020.
-
Direction for IT and telecommunications development direction in the period of
2011-2020 (for short “take-off strategy”) dated on 7, July 2007.
MIC built and submitted to Prime Minister to promulgate Decision no. 155/2008/QD-TTg
dated on Dec. 01, 2008 to get approved the plan on adjustment of local fixed telephone
service charges; it helps people in rural areas approaching to cheaper charge levels when
calling in local. Local fixed telephone service charges were reduced; it will be incentive the
demand of people simultaneously it will facilitate telecommunication enterprise increasing
revenue and expanding telecommunication market.
Beside promulgated policies, strategies, MIC amended and submitted to The Government and
The Prime Minister the plans, schedules, and mechanism aiming at solving difficulties,
direction, development process and meeting the urgent demand in the period of international
integration. This is Viet Nam Radio, Television broadcasting MasterPlan to 2020; Project on
licensing 3G; ICT MasterPlan to 2020; Particular mechanism, policy for training IT and
telecommunications human resource.
The Ministry completed and submitted to Government to issue Decree no. 121/2008/ND-CP
dated on Dec. 03/2008 on the investment activities in posts and telecommunications sector;
Decree no. 97/2008/ND-CP dated on Aug. 28/2008 on the management, provision and use of
Internet service and electronic information to replace Decree no. 55/2001/ND-CP dated on
Aug. 23, 2001; Decree No. 90/2008/ND-CP on August 26 dated August 13 on preventing
spam e-mail. The issue of these Decrees confirmed the role of State management on posts,
telecommunication and Internet fields
Table 9: The list of documents approved by Government
No.
Number/ sign
Date
1
121/2008/ND-CP
03/12/2008
2
155/2008/QD-TTg
01/12/2008
3
97/2008/ND-CP
28/8/2008
4
90/2008/ND-CP
13/8/2008
5
88/2008/QD-TTg
04/7/2008
Description
The investment activities in posts and
telecommunications sector
Approving the plan on adjustment of local fixed
telephone service charges
On the management, provision and use of
Internet service and electronic information on
Internet
On preventing spam e-mail
Defining the functions, tasks, powers and
organizational structure of the Radio Frequency
Directorate of the Ministry of information and
Communication
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Besides building the big projects submitting to the National Assembly, The Government and
the Prime Minister, MIC built and promulgated legal documents system under their
jurisdiction to promote State management in IT and telecoms field, to guide and concretize
the policies of State, facilitate for enterprise deploying service provision, developing market,
ensure interests of users.
Table
10:
The
list
and Internet field promulgated by MIC
No
Number and sign of
Date
document
of
documents
in
telecoms
Content
Decision
02/2008/QĐ-BTTTT
5/3/2008
03/2008/QĐ-BTTTT
6/3/2008
12/2008/QĐ-BTTTT
31/3/2008
15/2008/QĐ-BTTTT
2/4/2008
23/2008/QĐ-BTTTT
16/4/2008
24/2008/QĐ-BTTTT
16/4/2008
30/2008/QĐ-BTTTT
6/5/2008
39/2008/QĐ-BTTTT
30/6/2008
40/2008/QĐ-BTTTT
2/7/2008
51/2008/QĐ-BTTTT
18/11/2008
Defining the functions, tasks, powers and
organizational structure of the Viet Nam Internet
Network Information Center (VNNIC).
Promulgating the Working Regulation of the
Ministry of Information and Communications
Promulgating the Regulation on training of, and
grant of certificates to, maritime radio station
operators
On amending and supplementing areas where
public utility telecommunications services will be
provided until 2010
Defining the functions, tasks, powers and
organizational structure of the Directorate for IT
Application Promotion
Defining the functions, tasks, powers and
organizational structure of the Information
Technology Department
Defining the functions, tasks, powers and
organizational structure of the Digital Content and
Software Technology Institute.
Defining the functions, tasks, powers and
organizational structure of the Viet Nam Computer
Emergency Response Teams (VNCERT)
Promulgating norm support to maintain and
development of public utility telecommunication
service supply period from 2008 to 201
Promulgating the Regulation on take-over test of
quantity of public-utility telecommunications
services, and payment and finalization of funds in
support of the provision of public-utility
telecommunications services during 2008-2010
Circular and Inter-Circular
11/2008/TT-BTTTT
26/12/2008
Guiding management on development support and
maintain of public-utility telecommunications
services for fisherman
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No
Number and sign of
Date
document
10/2008/TT-BTTTT
24/12/2008
09/2008/TT-BTTTT
24/12/2008
85/2008/TTLTBVHTTDL-BTTTT
18/12/2008
07/2008/TT-BTTTT
18/12/2008
06/2008/TTLTBTTTT-BCA
28/11/2008
05/2008/TT-BTTTT
12/11/2008
03/2008/TTLTBTTTT-BNV
30/6/2008
43/2008/TTLT-BTCBTTTT
26/5/2008
Content
On national domain name “.vn” dispute resolution
Guide circular on managing and using Internet
resource.
Guide on licensing, registering, implementing
advertisement on news paper, computer network,
publishing and checking and handling the infringe
Guide some contents on activities providing
information on blog in Decree no. 97/2008/ND-CP
dated on Aug. 28, 2008 of Government on
managing, providing, using Internet service and
electronic information on Internet
On ensuring infrastructure safety and information
security in activities of post, telecommunications,
and IT
Guide some items of Decree no. 97/2008/ND-CP
dated on Aug. 28, 2008 of Government on
managing, providing, using Internet service and
electronic information on Internet
Guiding functions, tasks, powers and organizational
structure of Department of Information and
Communication of provincial-level People’s
Committees; and Division of Culture and
Information of district-level people’s committees.
On the management and use of expenditures for
information technology application in activities of
state agencies.
Directive
04/2008/CT-BTTTT
22/5/2008
03/2008/CT-BTTTT
6/5/2008
On the management and development
telecommunications infrastructure
On stepping up the use IPv6 address.
Licensing and Spectrum
Viet Nam’s Ministry of Information and Communications is responsible for all licensing
related to telecommunications services. Prior to Viet Nam’s entry to the World Trade
Organization (WTO), foreign telecoms operators were prevented from making direct
investments in Vietnamese telecoms operations. Instead, Business Co-operation Contracts
(BCCs) served as a transitional investment model in the telecoms sector and ensured that the
provision of all telecommunications services was based on a system of revenue sharing with
local companies. Since joining the WTO, however, Viet Nam’s MIC has allowed a number of
local telecoms companies to enter into joint ventures with foreign partners for the provision
of a wide range of communications services, including fixed voice telephony, packetswitched data transmission services, circuit-switched data transmission services, telex
343
of
services, telegraph services, facsimile services and private leased circuit services. For nonfacilities-based services, the foreign capital contribution to these joint ventures must not
exceed 51% of legal capital. Despite these continued restrictions which govern the licensing
process, it will be permissible for wholly foreign-owned firms to provide registered telecoms
services to Vietnamese organizations and individuals once Viet Nam has been a WTO
member for two years. Furthermore, three years after Viet Nam’s WTO accession, foreign
companies will be allowed to establish local branches and provide telecoms services, under
the condition that the chief representatives of the branches reside in Viet Nam.
In order to provide fixed or mobile voice telephony services for which no network
infrastructure is required, foreign partners will be allowed to participate in joint ventures with
Vietnamese telecoms firms, with a capital contribution of up to 51%, within the first three
years of Viet Nam’s WTO membership. Once that initial three-year period has passed,
foreign operators will be authorized to choose their own local partners when establishing
joint ventures and will be allowed to raise their capital in the joint venture to 65%.
Meanwhile, for virtual private network services and value-added telecom services, some
large foreign partners will be permitted to independently provide those services using the
network infrastructure of a local operator. Currently, foreign partners wanting to provide such
services must select Vietnamese partners and contribute up to 70% of capital in the joint
venture.
For satellite services, the Vietnamese government is committed to expanding the number of
companies involved in this field, but only once Viet Nam has been a WTO member for three
years. In addition, the government will allow foreign partners to connect to underwater
optical cable networks, of which Viet Nam has membership. Licensed companies will be
authorized to sell transmission lines to international telecoms service providers, which have
network infrastructure (such as VNPT, Viettel, EVN Telecom), and also to virtual personal
network and IXB service providers such as FPT, VNPT, Viettel and EVN Telecom four years
after the date of Viet Nam’s WTO membership.
4.4 Regulator y Developments
In May 2008, it was reported that Taiwanese incumbent Chunghwa Telecom planned to set
up a US$30mn ‘internet data joint venture’ with Viet Nam’s military run cellco Viettel. The
move forms part of Chunghwa’s efforts to expand overseas. Chunghwa is Taiwan’s largest
operator, leading each of the fixed-line, mobile and broadband markets by number of
subscribers. Chunghwa has said that it hopes to expand its business through overseas
investments as saturation at home leads to an inevitable slowdown. The operator has said it
will use Viet Nam as a base from which to enter other countries such as Laos. In the new
venture, Viettel will own a 70% stake while Chunghwa will take the remaining 30%.
According to reports published in February 2008, Viet Nam’s Ministry of Information and
Communications (MIC) is to hold an exam to select which networks are most capable of
providing 3G services. All seven 2G licensees are eligible to enter. These are MobiFone,
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VinaPhone, Viettel Mobile, S-Fone, EVN Telecom, HT Mobile and non-operational
newcomer GTel. The MIC has said it will grant just four licenses. Incumbent VNPT, which
runs VinaPhone and MobiFone, and military-owned Viettel, are both said to be worried about
failing the test through a simple mistake. An MIC spokesman said that the cellcos will be
tested on around 200 standards, which it is currently defining. The MIC has said that it will
seek comments before compiling the official examination contents and will deliver the exam
documents in March 2008. Competitors will then have two months to complete the exam
documents. The ministry will consider the exam documents in May, and it will grant 3G
licenses in Q208. According to the MIC, winners will be granted 15MHz of frequency
division duplex (FDD) spectrum and 4MHz of time division duplex (TDD) spectrum.
However, any winner that fails to launch 3G services (presumably by a set date) will be fined
and risk having their frequencies withdrawn.
In March 2008, VNPT announced that the country’s first commercial telecoms satellite
would be launched on April 12 2008. Vinasat-1 is capable of handling more than 10,000
telephone, internet and data transmission channels. People living in remote areas will be
among those to benefit most, as the satellite is expected to provide them with access to
modern telecoms services for the first time. Speaking at a briefing ceremony in Hanoi on
March 12, VNPT Deputy General Director Nguyen Ba Thuoc said the successful launch of
the satellite would be of great importance to Viet Nam’s socio-economic development. Worth
more than US$200mn, Vinasat-1 will be positioned at 132 degrees East Longitude in a
geostationary orbit and has a design life of 15 years.
4.4.1 Fixed-Line Tariffs
The Ministry of Information and Communications (MIC) plans to raise the calling rate for
inter-province calling on fixed-lines, according to Viet NamNet Bridge. At present, fixed-line
tariffs for inter-province calls are below cost price at VND120 (US$0.007) per minute, but
the MIC plans on increasing this to VND200 (US$0.012) from 2009 until 2010. In order to
offset the increase and attract a greater number of subscribers, monthly subscription fees will
be reduced to VND20,000 from VND27,0000.
After 2010, operators will be given the freedom to adjust tariffs as they see fit, and in
accordance with market changes, although the MIC will set a ceiling price on charges.
The regulator believes the changes in pricing will allow a greater number of subscribers
residing in rural areas the ability to purchase phones.
The fixed-line market is also to receive a boost in funding after the government announced a
VND1,200trn (US$73mn) spending package to develop basic telecommunications services
including public-access telecom centres.
VNPT will receive VND744.3bn (US$45mn), Electricity of Viet Nam (EVN) Telecom will
get VND337bn (US$21mn), Viettel Telecom with VND107.5bn (US$6.4mn) and Viet Nam
Maritime Communication and Electronic Company (Vishipel) on VND10.6mn
(US$600,000). The budgets of VNPT, EVN Telecom and Viettel Telecom will go towards
345
the maintenance of existing services and new landline installations for up to 599,000
telephones as well as maintenance and set-up of public telecom access stations comprising
4,500 existing centres and 366 new centres.
4.4.2. 3G Licenses
According to reports published in February 2008, Viet Nam’s Ministry of Information and
Communications (MIC) is to hold an exam to select which networks are most capable of
providing 3G services. Participants will have until January 2009 to complete and return their
documents to the MIC. All seven 2G licensees are eligible to enter. These are MobiFone,
VinaPhone, Viettel Mobile, S-Fone, EVN Telecom, HT Mobile and non-operational
newcomer GTel. The MIC has said it will grant just four licences in Q209. Incumbent VNPT,
which runs VinaPhone and MobiFone, and military-owned Viettel, are both said to be
worried about failing the test through a simple mistake. An MIC spokesman said that the
cellcos will be tested on around 200 standards, which it is currently defining. According to
the MIC, winners will be granted 15MHz of frequency division duplex (FDD) spectrum and
4MHz of time division duplex (TDD) spectrum. However, any winner that fails to launch 3G
services (presumably by a set date) will be fined and risk having their frequencies withdrawn
4.5 Commitment of Viet Nam after WTO in telecoms sector
Nearly one year after entering the WTO, the telecom market of Viet Nam has witnessed
positive moves.
In state management, the Ministry of Post and Telematics became the Ministry of
Information and Communications in August 2007 to expand its wings to not only telecom
and information technology but also television and broadcasting. This is the result of Viet
Nam’s accession to the WTO, to perform its WTO commitments.
The Ministry of Information and Communications is building and completing legal
frameworks, policies and specialized regulations in order to develop new technology and
services; encourage domestic and foreign firms to modernize the national information
infrastructure.
The common trend of Viet Nam’s telecom industry is developing the general infrastructure to
develop information and communication services. As the state management agency in the
information and communication sector, the Ministry will create a healthy, competitive
environment and ensure harmony between the interests of the state and those of businesses
and service users, as well as decrease the digital gap between urban and rural areas. The
major mission of the ministry is creating a favorable environment for business, encouraging
cooperation and healthy cooperation, maintaining sustainable development and harmonizing
the interests of businesses and service users, urban and rural areas.
Since 2007, Viet Nam has become a full member of WTO. This is a short description of
commitments of Viet Nam and the roadmap to the telecom sector.
346
General notes: a "non-facilities based service supplier" means a service supplier which does
not own transmission capacity but contracts for such capacity including submarine cable
capacity, including on a long-term basis, from a facilities-based supplier. A non facilitiesbased supplier is not otherwise excluded from owning telecommunications equipment within
their premises and permitted public service provision points (POP).
Viet Nam has committed to maintain appropriate measures to prevent major suppliers of
basic telecommunications services from engaging in anti-competitive practices. Viet Nam has
also committed to ensure that interconnection with the network of a major supplier will be
available at any technically feasible point under non-discriminatory terms and in a timely
manner. Where a license is required for engaging in telecommunications business, the criteria
must be publicly available. There will be an independent and impartial regulatory body
overseeing the industry. Scarce resources, including spectrum, numbers and rights of way,
will be allocated in an objective, timely, transparent and non-discriminatory manner.
With the roadmap of commitment to open market after Viet Nam has become an official
member of the WTO. The end of 2009, the telecommunications industry in Viet Nam will
open the door to integration; the foreign investors to invest strongly in the
telecommunications industry of Viet Nam. The telecommunications industry in Viet Nam
still is attractive to foreign investors by its potential development. This is just the opportunity
for the telecommunications industry in Viet Nam to reach a new high but also the challenges
for the domestic operators in the face of strong competition in quality and service really.
We make a summary of commitments of Viet Nam in the following table:
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Table 11: Legal conditions for telecoms business in Viet Nam
Activity
Establishing commercial entity in Viet Nam
providing:
Basic telecom services (Voice telephone, packetswitched data transmission services, circuitswitched data transmission services, telex
services, telegraph services, facsimile services
and private leased circuit services. References to
"basic telecom services" encompass local, long
distance and international services for public and
non-public use, through any means of technology
(e.g. cable, wireless, satellites).
"Private leased circuit services" involve the
ability of service suppliers to sell or lease any
type of network capacity for the supply of
services listed in any other basic telecom service
sub-sector. This includes capacity via cable,
satellite
and
wireless
network.
Other services (videoconference services, video
transmission services, excluding broadcasting,
radio based services (including mobile telephone
(terrestrial and satellite), mobile data, (terrestrial
and satellite), paging, PCS, trunking) and
internet exchange service (lXP).
Timeline
Non
facilitiesbased
services
Conditions
Upon accession, foreign
investors
permitted
to
establish joint venture with
foreign capital not exceeding
51% of legal capital of the
joint venture.
Comments
Must form joint venture
with
a
telecommunications
service supplier duly
licensed in Viet Nam.
Foreign investors in
business
cooperation
contracts ("BCCs")
will
have
the
possibility to renew
current
arrangements or to
convert them into
another form of
establishment with
conditions no less
favorable
than
those they currently
enjoy.
Three years after accession, No restriction on joint
joint venture with foreign venture partner.
capital not exceeding 65% of
legal capital.
Facilitiesbased
services
Must form joint venture
with telecommunications
service supplier duly
Upon accession, joint venture licensed in Viet Nam.
with foreign capital not
exceeding 49% of legal 51% ownership gives
capital will be allowed.
management control over
the joint venture.
Establishing commercial entity in Viet Nam Non
providing:
facilitiesbased
Virtual Private Network (VPN)
services
Facilitiesbased
services
Upon accession, foreign No limitation on choice
investors
permitted
to of partner.
establish joint venture with
foreign capital not exceeding
70% of legal capital of the
joint venture.
Upon accession, joint venture
with foreign capital not
exceeding 49% of legal
capital will be allowed.
Must form joint venture
with telecommunications
service supplier duly
licensed in Viet Nam.
349
Establishing commercial entity in Viet Nam Non
providing:
facilitiesbased
Value added services (Value added services are: services
electronic mail, voice mail, on-line information
and database retrieval, electronic data
interchange
(EDI),
enhance/value-added
facsimile services, incl. store and forward, store
and receive, code and protocol conversion and
on-line information and data processing
(including transaction processing) services.)
Facilitiesbased
services
Upon accession, foreign
investors
permitted
to
establish BCC or joint
venture with foreign capital
not exceeding 51% of legal
capital of the joint venture.
(The WTO commitments refer
to "legal capital" but this
should
probably
be
understood as a reference to
"charter capital" throughout.)
Three years after accession,
joint venture with foreign
capital not exceeding 65% of
legal capital.
Upon accession, BCC or joint
venture with foreign capital
not exceeding 50% of the
legal capital will be allowed.
Foreign investors in
BCC will have the
possibility to renew
current
arrangements or to
convert them into
another form of
establishment with
conditions no less
favorable
than
those they currently
enjoy.
Must form joint venture
with telecommunications
service supplier duly
licensed in Viet Nam.
51% ownership gives
management
control
over the joint venture
Establishing commercial entity in Viet Nam Non
providing:
facilitiesbased
Internet access services (IAS)
services
Upon accession, foreign
investors
permitted
to
establish joint venture with
foreign capital not exceeding
51% of legal capital of the
joint venture.
350
Facilitiesbased
services
Three years after accession, No
limitation
joint venture allowed with choice of partner.
foreign capital contribution
not exceeding 65% of legal
capital.
Upon accession, joint venture
with foreign capital not
exceeding 50% of the legal
capital will be allowed.
on
Must form joint venture
with telecommunications
service supplier duly
licensed in Viet Nam.
351
4.5.1 The shareholding structure in providing basic services with facilities based model:
With the Facilities-based services, upon accession, joint venture with foreign capital not
exceeding 49% of legal capital will be allowed. Foreign partner must form joint venture with
telecommunications service supplier duly licensed in Viet Nam. The 51% ownership gives
management control over the joint venture.
In fact, the Decree 36 of Viet Nam government, in which the maximum 30% of shareholders for
foreign company are permitted, is still in effective. Viet Nam has not yet issued any decree
updating the commitments of WTO.
4.5.2 The share-holding structure in providing basic services with non-facilities based
model:
With the non facilities-based services, upon accession, foreign investors permitted to establish
joint venture with foreign capital not exceeding 51% of legal capital of the joint venture. The
joint venture must be formed with a telecommunications service supplier duly licensed in Viet
Nam.
Three years after accession, joint venture with foreign capital not exceeding 65% of legal capital
and there is no restriction on joint venture partner.
With Virtual Private Network (VPN) service and value added services of telecommunications (email, Internet access, voice mail, facsimile service, etc.) are provided on network infrastructure
that controlled by Viet Nam: Upon accession, joint ventures shall be allowed without limitation
on choice of partner. Foreign capital contribution shall not exceed 70% of legal capital of the
joint ventures.
4.5.3 Computer and related services:
Officially abrogate the limitation that is still reserved in the Viet Nam-U.S Bilateral Trade
Agreement (BTA), according to this agreement then after 2 years from the date of WTO
accession, 100 percent foreign-invested companies have the right to provide service for any
objects, including Vietnamese organizations and individuals.
After 3 years from the date of WTO accession, Viet Nam allows foreign companies establishing
their branches and providing service in Viet Nam with condition that the chief of branch has to
be a resident in Viet Nam.
Allowing service provider according to contract shall be brought foreign labor (expert, engineer,
etc.) into Viet Nam implementing contract.
4.6 Recommendations for development goals up to the year 2020 and Vision to the year
2025 for the Vietnamese ser vice sector
4.6.1 Telecoms development forecasts by 2020
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Mobile
Table 12: Current status and forecasts of Mobile Sector – 2005-2020
No. Description
1 No. of Mobile Phone Subscribers ('000)
No. of Mobile Phone Subscribers/100
2
Inhabitants
3
No. of Mobile Phone Subscribers/100
Fixed Line Subscribers
4 No. of 3G Phone Subscribers ('000)
3G Market As % Of Entire Mobile
5
Market
2005 2006
2007 2008 2009f
2010f
2011f
2012f
2013f
2014f
2015f
2020f
9.300 18.980 35.805 70.300 87.533 105.357 119.807 124.669 127.881 132.078 136.352 143.556
11
22
41
83,4
97
119
133,5
137
139
142
145
151
143,5
204,1
313
588
626,6
725,6
780,7
778,4
716,5
682,7
677,6
549,1
0
0
0
0
300
0
0
0
0
0,3%
1.360
1,3%
2.100
1,8%
3.050
2,4%
4.026
3,1%
13.208
10,0%
16.362
12,0%
Mobile sector 2005-2015
160.000
160
140.000
140
120.000
120
100.000
100
80.000
80
60.000
60
40.000
40
20.000
20
0
20
05
20
06
20
07
20
08
20
09
f
20
10
f
20
11
f
20
12
f
20
13
f
20
14
f
20
15
f
0
No. of Mobile Phone Subscribers ('000)
No. of 3G Phone Subscribers ('000)
No. of Mobile Phone Subscribers/100 Inhabitants
Competition and growth in 2008 boosted by the wave of tariff cuts, which have characterized
recent operator strategies. Further cuts may follow in the near future, possibly resulting in a price
war. Lower mobile service prices are expected to stimulate the growth of dual SIM ownership, as
mobile users increasingly take advantage of special offers. Conversely, lower prices will also
likely lead to increased customer churn and a higher number of inactive prepaid users. The
investment in network expansion and improvement has also had a positive impact on service
quality and coverage.
Looking ahead, we now predict that Viet Nam will surpass the 100% penetration threshold in
2010. By the end 2015, we envisage a market of almost 136.4mn customers and a penetration
rate of almost 147%. Continued growth over the next few years will be supported by a steadily
expanding population, as well as by the arrival of increased competition and new investment. A
number of major international investors – including Japan’s NTT DoCoMo, Norway’s Telenor,
SingTel and France Telecom – have all shown an interest in bidding for a stake in Viet Nam’s
second-largest mobile operator MobiFone. Furthermore, Russia’s VimpelCom is also expected to
353
30.147
21,0%
expand its presence in Viet Nam, through its ‘GTel Mobile’ joint venture with the Vietnamese
government.
It should be remembered that the figures for the number of Vietnamese mobile customers are
based on the assumption that the market contains a certain number of inactive prepaid users.
Meanwhile, our forecast for Vietnamese 3G customer growth is based on the assumption that the
first commercial deployments of 3G services will occur in 2009. In the early stages of 3G
deployment, we do not expect consumer demand to be strong, and envisage just 300,000
subscribers by the end of 2009. The cost and availability of 3G-compatible handsets are expected
to be the main obstacles to 3G growth in the early years of our forecast. However, the
government has made 3G development a priority, and we believe that this will encourage
stronger consumer demand in the latter years of our forecast. We predict over 16.4mn 3G
customers at the end of 2015, which would equate to around 12% of Viet Nam’s mobile user
base. It should be noted that these figures are lower than those predicted in our previous update.
Fixed-Line
Table 13: Historical Data & Forecasts of Fixed-Line sector
2005
No. of Main Telephone
Lines in Service ('000)
No. of Main Telephone
Lines/100 Inhabitants
6.480
7,7
2006
9.300
10,9
2007
2008
2009f
2010f
2011f
2012f
2013f
2014f
2015f
2020f
10.028
11.950
13.970
14.520
15.346
16.016
17.848
19.347
20.124
26.144
13,2
14,1
15,7
16,4
17,1
17,6
19,4
20,8
21,4
27,5
Our current forecast for the growth of Viet Nam’s fixed-line market over the next five years is
based on an estimate of 11.95mn fixed-lines at the end of 2008. This figure, which is equivalent
to a penetration rate of just over 14.1%, is based on data provided by the country’s Ministry of
Information and Communications (MIC). It is predicted that the market will expand, helping to
raise penetration to almost 15.7 by 2009%.
Continued fixed-line growth in Viet Nam has been encouraged by the 15-20% tariff cuts, which
were applied to local fixed-line charges (Decision no. 155/2008/QD-TTg dated on 12 January
2008 of the Prime Ministry on approving the plan on adjustment of local fixed telephone service
charges). The effects of these cuts are expected to continue being felt in the immediate future.
However, towards the end of the decade, we predict a slowdown in fixed-line growth, as
increased mobile substitution and the proliferation of VoIP services results in weaker demand for
fixed-line services. The slowdown will partly reflect fixed-line saturation in urban areas of Viet
Nam, while rural parts of the country will be more inclined to take up mobile telephony. Viet
Nam’s fixed-line incumbent, Viet Nam Posts and Telecommunications Group (VNPT), is
expected to retain its dominant position in the market. Despite this, traditional PSTN fixed-line
subscriptions account for only around 77% of the total market, with the remaining fixed-lines
being based on fixed-wireless services (using WLL technology). The proliferation of fixedwireless services, especially in rural, remote, deep areas where have difficult infrastructure
354
condition for developing telecoms network infrastructure, should contribute to a loss of market
share for VNPT.
Fixed line sector 2005-2015
25
20.000
20
15.000
15
10.000
10
5.000
5
-
0
20
05
20
06
20
07
20
08
20
09
f
20
10
f
20
11
f
20
12
f
20
13
f
20
14
f
20
15
f
25.000
No. of Main Telephone Lines in Service ('000)
No. of Main Telephone Lines/100 Inhabitants
Our current five year forecast envisages a significant slowdown in the rate of fixed-line growth,
particularly in the latter years of our forecast. We predict that fixed-line penetration will surpass
21.4% in 2015, and increase only marginally to 27.5% by 2020.
Internet
Table 14: Telecoms Sector – Internet – Historical Data & Forecasts
No. of Internet Users ('000)
No. of Internet Users/100
Inhabitants
No. of Broadband Internet
Subscribers ('000)
No. of Broadband Internet
Subscribers/100 Inhabitants
2005
10.711
2006
14.684
2007
2008
18.551 20.834
12,7
17,2
21,4
210
517
1.294
0,2
0,6
1,5
2009f
24.123
2010f
26.385
2011f
27.563
27,1
29,3
30,2
2.049
4.757
8.236
13.037
2,43
5,3
9,1
14,3
24,04
355
2012f
2013f
2014f
2015f
2020f
28.322 28.704 31.066 32.536 55.806
30,6
31,2
18.341 19.780
19,8
21,5
33,4
20.835
22,4
34,6
24.073
25,6
58,7
49.817
52,4
Internet sector 2005-2015
2015f
2014f
2013f
2012f
2011f
2010f
2009f
2008
2007
2006
2005
-
5.000
10.000
15.000
20.000
25.000
30.000
35.000
No. of Broadband Internet Subscribers ('000)
No. of Internet Users ('000)
We issue Internet user and broadband subscriber forecasts based on figures in December 2008
published by Viet Nam’s Internet Network Information Centre (VNNIC). The VNNIC
announced that there were just over 20.8mn internet users in Viet Nam at the end of 2008, which
equated to 24.04% of the total population. According to the VNNIC, the number of internet users
increased by over 26% in 2007 and by over 12% in 2008. We continue to believe that internet
user growth in Viet Nam will remain strong over the next five years. We now predict that the
number of internet users will expand by around 15.8% in 2009 and will rise to over 26.3mn by
the end of the year. By the end of 2015, we anticipate a market of around 32.5mn Internet users,
equivalent to over 34.5% of the population in 2015.
The VNNIC has said that the number of broadband subscribers rose by over 58% in 2008,
reaching 2.049mn. This new growth occurred on the back of the impressive 150% growth
recorded in 2007. As with internet user growth, we continue to believe that broadband subscriber
growth will be strong over the next five years. However, we now predict a lower rate of growth
for 2008, envisaging growth of no more than 100% for the year as a whole. By the end of 2008,
the whole market had almost 2.049mn broadband subscribers, which is equivalent to a
penetration rate of 2.43%. Although growth in 2008 will be much lower than in 2007, we do not
envisage such a steep decline in growth in 2009 and 2010. Indeed, for those two years, growth is
expected to remain between 70% and 85%. By the end of our forecast in 2015, we anticipate a
market of just over 24mn broadband customers; this is equivalent to a penetration rate of almost
20%.
356
The strong broadband growth in the latter years of our forecast will be supported by a number of
developments, not the least of which is the considerable investment which is currently occurring
in the broadband sector. However, increased competition is also expected to increase the
affordability of broadband services. The arrival of new broadband service providers, some of
them international operators, will help to stimulate competition. Furthermore, the launch of
commercial WiMAX services – expected sometime in the next few months – should also help to
boost broadband take-up.
4.6.2 Development goals up to 2020 and vision the year 2025 for Vietnamese telecoms sector
General goal
Telecommunications infrastructure reaches the objectives on the level of using service equivalent
to the average level of the developed industrial countries, to keep with convergence trend of
technology and Telecommunications - Information Technology - Communications service, to
form the integrated networks with the broadband, large capacity, new technology, anywhere,
anytime with any access devices; meet the need of information technology and communications
application, to shorten the digital divide, ensuring the national security and defense.
Build up, to develop national infrastructure with modern technologies being on a par with those
of the regional advanced countries, which cover the whole nation with high capacity and quality;
provide modern, diversified and abundant Internet and telecommunications services
Provide Internet and telecommunications services with high quality, reasonable prices in order to
satisfy all diversified demands of service users.
Ensure IT application and ICT development for the information security in all areas: political,
economic, social.
Strengthen Internet and Telecommunications universalization in the whole nation; to shorten the
distance of service between the different regions; give priorities on socioeconomic development;
to ensure national security and defense.
Specific objective
Network development:
Strengthening capacity of national backbone network, constantly expanding international
transmission network (optical fiber transmission, satellite). To 2020, capacity of backbone
network shall meet all applications, ensure the implementation of the new services.
Develop mobile network which cover all provinces throughout the country, almost communes in
the key region and many important highway.
Develop national and international telecommunications network with high capacity, high
security, high confidence, to multi-connect on the basic of combination of sea fiber optic cables,
357
land fiber optic cables, and satellite information system, to response demands for broadband
services.
Ensure that all ministries, industries, state administrative agencies, provincial and district
authorities will be connected with Internet broadband and will be linked with the server of the
Government; 100% of institutes, universities, junior colleges, secondary colleges, professional
colleges, high schools will have high- speed Internet access; more than 95% of secondary
schools, hospitals will be connected with the Internet by 2010.
Develop fiber optic cable network to all provinces and cities throughout the country, but creating
fiber-optic ring structure in the key regions in order to strengthen information security.
Telecommunications services:
Quickly develop, diversify and explore effectively types of telecommunications services, Internet
with high quality, safety, security to serve the economic-social development, national security,
defense, industrialization, and modernization of the country.
Speed up the universal process of telecommunications services in the whole country. Besides
the basic services such as fixed-line, mobile service, Internet, need to promote new services such
as WiMAX, 3G ... and e-commerce, e-government service, public service, community service
and other value-added services.
Provide the whole society and consumers with modern, diversified and abundant Internet and
telecommunications services with the prices less than or equal to the average level of the
regional countries; to satisfy all demands for information in service of socio-economic
development, national security and defense. Universalize Internet and Telecommunications
services to all regions, parts of the country with higher service quality. By 2015, fixed-line
density will reach around 21-22 per 100 populations, and mobile telephone density will reach
around 144 - 146; broadband Internet subscriber’s density will reach around 24-26 for 100
habitants (100% of which will be broadband subscribers); Number of Internet users will account
for 32.5 million people.
Ensure the majority of staffs, employees, civil servants, teachers, doctors, students of
universities, of college and vocational will have more chance to use Internet services.
Speed up the universalization of Internet and fixed telephone services in the whole country. To
ensure that 100 % of small villages (hamlets) will have access to pubic telephone, that 100% of
communes will have access to public Internet services, that 100% of districts and communes will
be connected Internet broadband by 2015.
Ensure that 100% of population will have free access to obligatory services: such as information
of firefighting, emergency medicine, emergency security Maintaining, expanding, ensuring
information searching related natural calamity, rescue…
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Telecommunications market:
To bring into play all resources of the country combined with international cooperation to
effectively expand and develop market. To develop a competition market, create conditions for
all economic sectors to participate in activities of telecommunications, Internet field.
Actively exploit the domestic market, while reaching out to operate on international market.
There is initiative in international integration according to the committed roadmap of multilateral
and bilateral agreements.
Development orientations
Development of market orientations
a) Create conditions for all enterprise to participate in Internet and telecommunications in
an environment of fair and transparency competition.
b) Give priorities for all economic sectors participate in business and investment, and
provide Telecommunications and Internet services, especially in the market of reselling services,
of providing value-added services and Internet.
c) Create favorable conditions for all Telecommunications and Internet enterprises to
actively exploit domestic market while expanding their business and investment operations on
international one.
Orientation of network development
a) Build up, develop Telecommunications and Internet infrastructure with modern and
advanced technologies with high effective, security and confidence, which cover the whole
nation.
b) Enhance step by step the acceptance of the transferred modern technologies NGN
(next generation network) according to private conditions of each enterprise in order to provide
diversified services on the basics of uniform telecommunications infrastructure.
c) Strengthen the formulation of optical cables network to communes in country-dweller
and the high building in urban renewal.
d) Quickly perfect external network by strengthening the utilization of fiber optical cables
and increase the rate of optical cables under ground to improving services quality and urban
sophistication.
e) Develop broadband access network to ensure that Internet application will be improved
such as: e-government, e-commerce, e-learning…
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f) Speed up the development of mobile telecommunications network to reach mobile
information network of third generation and the next ones.
Orientation of service developments
a) Prioritize the development of new services according to technological integration
trends of radio, television, information technologies and telecommunications and of fixed and
mobile telecommunications.
b) Pay attention to develop mobile, broadband and value-added services on the basic of
financed infrastructure.
c) Quickly apply applications services on Internet such as: e-government, e-commerce,
multimedia, entertainment, etc.
d) Create conditions for the development of transmission, leased-line, VPN services for
the purpose of exploiting maximized capacity, of ensuring the effective using of public
telecommunications network.
4.7 Main solutions
4.7.1 Perfect legal environment, improve government’s management skills in
Telecommunications and Internet
a. Perfect legal environment
-Renew and update the system of relevant legal documents and law on
Telecommunications and Internet to exploiting domestic resources, and create a competitive
environment of fair and transparency.
-Promulgate Telecommunications Law, Radio and Frequency Law.
-Build up and promulgate regulations on information security.
-Build up and promulgate legal documents aim at concretizing related
Telecommunications and Internet in the promulgated e-transaction Law and information
technologies Law.
b. Raise the effectiveness of the State management capacities
-Keep improving state management in Telecoms and Internet area from Central to
locality, focus on building, improving and completing ability of agency who manages
directly telecoms, radio frequency, Internet and information safety and security.
-Hold training course and developing the human resource who do state management
tasks at Central level and locality corresponding requirements of competing and integrating
360
period. Give priority to Chief Information Officer (CIO), ICT high ranking specialist training
course.
- Guarantee the implementation of investing project programs in time with a good
quality to accomplish infrastructures, work conditions; and improve capabilities of
government administration organizations on telecommunications and Internet in center and
local areas, which is suitable to their functions and tasks.
- Deploy standardize working process (ISO) mission, speed up the task of applying
information technologies to administrating government on telecommunications and Internet.
4.7.2. Build mechanism of policies and implementation laws to develop inner force, and
promote competitions in fields of telecommunications and Internet:
a) License supporting telecommunications and Internet services:
- Plan the number of businesses supporting network infrastructures based on ensuring
principles: develop a healthy market, create a good condition for enterprises to accumulate
capitals, maintain and expand their business; make use of the available infrastructures of
telecommunications and Internet, improve the performance of using the investing capital of
the government; have an effective and economical usage of the telecommunications
resources and national resources.
- Give out mechanisms and policies of licensing in a suitable way and encourage
companies to take part of reselling their services, supporting value added services, Internet
services based on network infrastructures invested; develop infrastructures of inside region
networks to supply services of accessing in large bandwidths, connecting computer networks;
use available infrastructures (cable television, information on electric wires, so forth..) to
support telecommunications and Internet services and associate with other services.
b) Price, fee and cost:
- Re-balance telecommunications and Internet service prices base on cost and supply
and demand relationship. Step by step change the service prices which are lower than their
costs to guarantee effect of firm business in an international competition, integrating…
- Gradually change connection fee and channel rental fee between firms based on
cost. Determinate clearly portion in telecommunications service supplying in connection fee.
- Respect self price decision right of telecommunications and Internet firms. Avoid
pricing intervention by administrative methods. Government only decides prices of public
services, and market restrain that have affection to market penetration of other firms.
- Gradually renovate cost and permission fee systems. Using telecommunications and
Internet resource (frequency, digital warehouse, domain name, Internet address) following
361
economical resource wasting avoiding principles and simultaneously do not increase
excessive firms' manufacturing and business cost.
c) Standard and quality of networks and services:
- Strengthen building standards in telecommunications and Internet area to
correspond Viet Nam law, international general rules.
- Strengthen management of quality of telecommunications and Internet networks and
services in the form of pronouncing such quality on the basis of standards which are
compulsorily or voluntarily applied by telecoms and Internet companies.
- Strengthen management of quality of terminals, radio information equipment and
other equipment that may interfere with radio information in the following forms:
pronouncement of standard satisfaction, standard verification, mutual recognition
arrangement (MRA), and management of electro-magnetic compatibility (EMC).
d) Connecting and sharing telecoms and Internet infrastructure:
- Consider permitting enterprises to apply specific mechanisms in respect of
investment and tendering in urgent circumstances, in order to ensure the capacity of network
connection among enterprises.
- Build and promulgate provisions on public telecoms network connection for
facilitating the signing and performance of connection agreements among enterprises.
- Build and promulgate criteria for evaluating network capability and economic and
financial mechanisms which serve the performance of connections and resolution of disputes
among enterprises.
- For several services of not high competitiveness, consider the application of nonsymmetric management mechanism in connections, in order to promote competition and
facilitate new enterprises to join the market.
- Encourage the sharing of telecoms and Internet infrastructure, including: location of
terminals, transmission equipment, cable tubes, cable tanks, cables, fiber cables, antenna
posts, back-up home wares and other means.
- Facilitate telecoms enterprises to lease infrastructure of other sectors, such as
television, electricity, to establish a network that provides telecoms and Internet services.
- Gradually research and consider the application of a number of special mechanisms
in certain localities under certain conditions: roaming for the sake of public duties, national
security and safety; local loop unbundling for promoting competition and facilitating service
users.
362
d) Telecommunications and Internet Resource:
- Plan telecommunications and Internet resource based on investment guarantee,
economic and efficient usage.
- Give priority to plan and distribute resource for new technologies and services such
as next generation Internet, mobile information and communication, wide band wireless
telecommunications, etc.
- Research and experiment new resource system such as Ipv6, ENUM... to satisfy the
requirement of fast development of networks and services.
- Gradually study and apply methods of remaining number portability, domestic and
international long distance carriers pre-selection to increase competition and user benefit.
e) Information security guarantee:
-Build and complete regulations
telecommunications network and Internet.
of
security
guarantee
and
safety
in
- Build, improve and complete ability of emergency system, computer breakdown
overcome, and network criminal preventing.
- Apply cryptography technologies and technique solutions for transactions on
telecommunications networks and Internet.
g) Enforcement of laws:
- Strengthen the inspection and supervision of Internet and telecoms business
activities, especially relating to network connection, charges and service quality.
- Apply economic, technical and professional measures, concurrently enhancing intersector coordination, in order to prevent effectively any smuggling in telecommunications and
Internet.
- Strictly deal with organizations and individuals who have committed any breach of
laws in telecommunications and Internet, in accordance with current legal provisions.
4.7.3. Promote competitiveness of enterprises, satisfying requirements of international
integration:
a) Reform the organization, management and business activities of enterprises:
- Establish strong telecoms corporations and companies which possess modern
technologies and management skills, high specialization and trade in different areas but focus
on telecommunications and Internet.
363
- Telecoms and Internet enterprises should obtain self-determination in their business
activities and have an independent accountancy. The mechanism of cross-balance between
telecoms and Internet services shall be revoked thereafter.
- Gradually separate the performance of public duties and the performance of
business activities of an enterprise on the basis of altering connection charges and carrying
out the Public Telecoms Service Fund.
- Pushing the equalization of enterprises under the approved work plan, firstly
focusing on value added services, Internet and mobile telecommunications.
- Encourage and facilitate equities telecoms and Internet enterprises to list their shares
in domestic and foreign securities markets.
b) International relationship:
- Improve the cooperation efficiency in current international projects
- Search for opportunities and apply new cooperation forms in accordance with
investment law and international treaties in Viet Nam.
- Looking for foreign investment environment in accordance with international law
and treaties.
c) Attract investment:
- Reform companies, correct production structures, invest and create good conditions
for companies to run good business, drastically improve the ability of accumulation from
inner capital used for re-invest in development.
- Intensify attracting investment from inner sources: credit capital … Concentrate on
capital from equitizing corporations, provide services for citizens to participate in invest in
telecommunications and Internet.
- Keep on attracting foreign direct investment (FDI) to develop telecommunications
and Internet.
- Utilize the Official Development Assistance (ODA) to apply telecommunications
and Internet in rural areas, highlands, islands and to serve other public activities.
d) Human resource development
- Apply special treatment policies to management, economic, and technical experts to
meet growing demands for international integration and competitiveness in the field of
telecommunications and Internet.
364
- Adjust labor structure in telecommunications and Internet sector in the direction of
hiring external service and labor so as to make use of social labor force and enhance
productivity in telecommunications and Internet.
e) Science and technology promotion
- Focus on application research and technology transfer, contributing to the reform of
production and trading organization, increase of labor productivity and competitiveness of
telecommunications and Internet businesses.
- Formulate funds for science and technology to facilitate research, manufacture and
testing of new technology.
-Research, deploy and test advanced technology in the area of telecommunications
and Internet to catch up with and raise the competitiveness of Vietnamese enterprises.
4.7.4. Reform provision methods of public telecoms services in an international economic
integration and competitive environment
- Progressively promote activities of Fund for public telecoms services to specify
commercial transaction and public benefit tasks of enterprises in the period of
competitiveness and international economic integration.
- Formulate and effectively develop the program on provision of public telecoms
service in 2006-2010 in order to step-by-step improve service univerlization level and narrow
the gap of telecommunications and Internet development among regions and areas
throughout the country.
- Establish special set-ups in charge of providing telecommunications and Internet
services for Party and State agencies to keep raising service quality and information safety
for Party and State’s specialized network, meanwhile, facilitate enterprises in doing business
and strengthening their competitiveness and capacity for successful integration.
4.8 The missions of Ministr ies, Br anches, enter pr ises
Ministry of Information and Communications:
- Be responsible for deployment arrangement and implementation supervision of the
Planning. Based on the country’s economic development, submit Prime Minister the contents
to be updated and adjusted.
- Formulate and submit the Government or issues according to the given authority
policies and mechanisms to successfully realize the Viet Nam’s Telecommunications and
Internet Development Planning towards 2015, including:
365
o Develop documents guiding the issues related to telecommunications and
Internet in on the promulgated E-transaction Law, Information Technology Law and
Ordinance on Post and Telecommunications.
o Develop documents guiding the issues related to telecommunications and
Internet after Law on Telecommunications, Radio and Frequency are promulgated.
- Study and complete organizational structure of State management agencies in
charge of telecommunications, wireless frequency, Internet and information safety to meet
the requirement of the period of competitiveness and integration.
- Base oneself on the market development period; submit to Primer Minister Decision
on licensing telecommunications and Internet provider.
- Develop and complete emergency investment method to provide integration of
public telecommunications network.
Ministries of: Finance, Planning and Investment, Interior, Public Security, Transportation:
- Ministry of Finance coordinates with Ministry of Information and Communications
to develop new fee management mechanism and direct implementation of equalization in
telecommunications and Internet enterprises; Release finance regulation for Public-utility
Telecommunications service Fund’s operation; Ensure budget’s arrangement and allocation
to implement operation and use of telecommunications and Internet in Party and
government’s organizations. Release finance mechanism to provide telecommunications and
Internet service to Defend and Security’s operations.
- Ministry of Planning and Investment coordinates with Ministry of Information and
Communications to implement main investment projects; develop emergency investment and
bidding mechanism in order to connect public telecoms networks.
- Ministry of Interior presides and coordinates with Ministry of Information and
Communications to complete country management structure of telecommunications, Internet
and develop enterprise’s reform method.
-Ministry of Public Security presides and coordinates with Ministry of Information
and Communications to release security rules of network and information in the area of
telecommunications and Internet.
- Ministry of Transportation presides and coordinates with Ministry of Information
and Communications to release guideline for development of telecoms transmit line to follow
roads, bridges, culverts, pavements to raise implementation process.
366
Other ministries, provinces, cities:
- Ministries, provinces and local areas are responsible for assigned functions and
coordinate with Ministry of Information and Communications to implement development
scheme dependent on particular trait of industry, local area.
- People’s committees belonging to the government develop local posts and
telecommunications scheme and implement Telecommunications and Internet development
scheme in the local area.
367
CHAPTER 5: PUBLIC SERVICES
5.1 The r ationale for developing public ser vices in Viet Nam
5.1.1. Development Background
Viet Nam began its socio-economic reforms in 1986. Under the ongoing reforms, the country has
recorded major achievements. Its economy grew fast at an average of 7.65 percent in the 1991 to
2007 period, and was able to maintain at 6.23 percent in 2008 (Statistical Yearbook 2007). The
performance of Viet Nam is also impressive in terms of improvement of its people’s living
standard and implementation of the United Nations Millennium Development Goals (MDGs). To
implement 8 MDGs of the United Nations (UN), Viet Nam has identified its own 12 concrete
development goals (VDGs) to be accomplished by the year 2010. So far, some of MDGs have
been reached or exceeded. One of the utmost important development goals which were
accomplished early is poverty reduction. Within a ten-year period, from 1993 to 2004, the
number of population who lived below the national poverty line was brought down from 40.4
millions to 19.7 millions, or 60 percent of the number of poor households (MDGs Report, 2005:
14). Basic education in Viet Nam has been considerably improved over the past decade and the
Government continues to express its vigorous commitments to renovating the national
educational system, in which primary and kinder-garden levels were given special attention.
Vietnamese become healthier as people can afford more nutritious diet and get access to fresh
water and better medical and hospital treatment. The National Health Development Strategy in
2001-2010 of Viet Nam also recognized the importance of health not only as a component of
people’s quality of life but also as a decisive factor for socio-economic development. According
to the latest Human Development Report of the United Nations Development Program (UNDP),
in 2005, Viet Nam Human Development Index was recorded at 0.733, ranking 105 within 177
countries with data; life expectance at birth of Vietnamese people was 73.7 years old; adult
literacy rate was 90.3 percent; and combined primary, secondary and tertiary gross enrolment
ratio was 63.9 percent (UNDP, 2007). While successful socio-economic development is often
thought to bring about, in fact, it could not have been attained without an impressive
performance of the Vietnamese public services.
5.1.2. Conceptualization of “Public Services” in Viet Nam
Historical legacy has an important effect on the current development of public services in Viet
Nam. Before the reform period, the Government controlled almost all kinds of services activities,
ranging from commerce, finance, tourism, and transportation to education, health, administrative
service, security and defense. Virtually, all these services could be considered as “public
services” since they are provided by the public sector and not for profit aims. Private sector was
368
allowed to take part only in the supplies of some final demand services in a micro scale and with
little impact on the economy as a whole. Since the beginning of the reforms, the Government has
lifted its ban on the private sector in the supplies of an increasing number of services. Some of
the latter such as the security guard, airlines, and notary service, until recently, were still strictly
regarded as the realm of state activities. At the same time, the Government still keeps control in a
form of state monopoly or oligopoly on the distribution of a number of other services such as rail
transport, postal services, telecommunication, broadcasting, publications, and utilities services on
the reasons of their strategic importance to national socio-economic development and security.
The context of transition from the commanded toward market economy with a socialist
orientation is extremely important since it explains the ongoing debates on how to understand the
term “public service” (dịch vụ công) in Viet Nam. On the one hand, a free market economy
needs minimal role of state in the production of services and goods when there is a “market
failure.” On the other hand, socialist orientation tends to emphasize the necessity of state in the
provision of public services where it finds out many areas of “market failure.” In a research of
the Central Institute of Economic Management (CIEM, 2007: 3), public services in Viet Nam are
defined as “activities which are provided by the State or private sector authorized and facilitated
by State to meet basic demand of the society for the benefit of the society and community.”
There are two popular ways to classify public services in Viet Nam. According to the nature of
service providers, public services can be categorized into three groups (CIEM, 2007: 4): i)
services directly provided by state organizations such as security, defense, public healthcare, and
the above residual service group; ii) services provided by non-government and private
organizations under the authorization of the State such as construction of public projects
(housing, roads, and other public facilities); and iii) services provided in a form of public-private
partnership such as in the provision of basic services such as education, healthcare, water,
sanitation to the local community by the coordinating efforts among government agencies,
NGOs and community organizations.
This research, however, adopts a narrow classification that sees public services in Viet Nam
including two major categories: i) social and community services such as education, healthcare,
cultural and sport services; and ii) public administrative services such as state management.
Table 1: Comparison of UNSO National Accounts and Viet Nam’s Level-I Sub-Sectors
UNSO National Accounts Categories
Services:
Public administration
Community, social, personal
Viet Nam’s Classification System
Level-I
Description
1
State management, security & defence,
compulsory social protection
Education and training
Health care and social works
2
3
369
4
5
6
7
Recreational, cultural and sport activities
Party, mass and association activities
Community services
Some
services
of
international
organization and associations
Source: Based on GFSS, 2006: 156.
5.1.3. The Roles of Public Services in Economic Growth and Socialist Orientation
A sound public sector is a key to rapid economic growth in Viet Nam over the past two decades.
In 2007, total six public service groups (state management, education and training, health and
social works, recreation-sport and culture, and community and personal service) account for
around 9.97 percent of GDP growth of the entire economy. State management, and education
and training play a key role in this contribution of the public sectors.
370
Table 2: Contribution of Seven Public Services Group to GDP Growth in 2007
GDP in 2007
(VND billion at 1994 Growth
constant prices)
2007
461443
8.48
12196
8.22
15467
8.69
6568
7.99
2515
7.99
491
8.15
Rate
in Contribution (%
of growth)
100
2.64
3.36
1.42
0.54
0.11
Total Economy
State Management
Education and Training
Health and social works
Recreation, Sport and Culture
Party, mass and associations
Community
and
personal
services
8860
7.92
1.91
Source: Author calculated, based on GSO. 2008. Statistical Yearbook 2007. (Hanoi:
Statistical Publishing House).
A number of researches have pointed to a strong positive correlation between economic
development and a system of sound governance, and the fact that countries with effective
institutional and administrative system and socio-political stability tend to perform better in
terms of economic growth and attraction of foreign investment. Over the past years, Viet Nam
has implemented public administration reforms to better deliver administrative services. Given
the extensive reach of the state into the Vietnamese society and economy, and public
administrative system is involved in almost government activities, better public administrative
service performance surely has a spill over effect on the performance of other sectors of the
economy.
Yet, growth alone is not enough for a country to reach its goals of development. Important public
services such as healthcare and education, community services, cultural and sport services, have
made significant contribution to the improved quality of economic growth through the
amelioration of people’s well-being and human resource development. When provided by the
government at little cost to users, these public services are akin to a transfer equal amount of
money to all individuals or households, and become extremely important for the lower- and
middle-class Vietnamese. Moreover, specific services such as public health insurance and
pension are essential to a majority of Vietnamese civil servants and government officials
including those who are retired.
Table 3: Effects of Public Services Development on Socio-economic and political Development
Public Services
State Management
Education and Training
Economic
Development
X
X
371
Improvement
of Improvement
Social Well-being
Political Life
X
X
X
of
Health and social works
X
Recreation, Sport and Culture
Party, mass and associations
Community
and
personal
services
5.1.4. Challenges for Public Service Development
X
X
X
X
X
Public services of developing countries are often subjected to numerous criticisms for a lack of
infrastructure, absenteeism of service providers like teachers and doctors, poor quality,
corruption, non-transparency, favouritism, and discrimination. In a number of studies, these are
usually attributed to the lack of resources and the conflict between the needs of equity and those
of efficiency. The 2004 World Development Report (WDR) “Making Services Work for Poor
People” (WB, 2004: 3, 4) has highlighted four roots of the public service delivery problem: i)
The government misallocates resources - that is the government spends on the ‘inappropriate’
goods or for the ‘inappropriate’ people; ii) The resources do not reach frontline service providers
– or even if resources are correctly allocated, due to ‘leakages,’ money doesn’t reach its ultimate
needy destination; iii) The incentives to provide the services may be weak even when the money
reaches the service provider, raising the problem of accountability and monitoring; and iv) There
is a demand side failure – that is, people may not avail of the services provided to them, raising
the problem of awareness and participation.
On their flipside, Vietnamese public services unveil their shortcomings that risk to weakening
the foundation of the socio-economic development. There is a major concern on the quality of
public services that is still afar from consumers’ expectation. For example, despite pronounced
reform efforts by the Government, the quality of the Vietnamese education is still regarded as
poorest in Southeast Asia (CIEM, 2007: 31). There is an extreme lack of adequate access to basic
health care services, as reflected in terms of insufficient number of doctors and nurses, patient
beds and clinics. In its current condition, Vietnamese hospital service is not well prepared to
respond effectively to emergencies such as a large-scale outbreak of tropical epidemic such as
diarrheal, tuberculosis, and malaria. While the need for making public services work for poor
people is immense, there is also a question over not only the shortage but also the outreach of
public services to the poor and marginalized people. So far, despite large propagation campaigns
by the government, the ideas of “public administrative services” and “civil servants” have failed
to penetrate into the Vietnamese society and bureaucratic system. Administrative procedures are
still complicated and time-consuming; and administrative staffs often act as service grantors
rather than service workers. While have made a big step forward over the past years, Vietnamese
public services still have a long way to go to meet the Vietnamese society’s demand and
expectation.
At the same time, major transformations are taking place within the public services in terms of
providers, service structure, supply mode, governance, and regulations toward greater
372
liberalization. Over the past few years, the government calls for socialization (xã hội hóa) in the
delivery of public services, accepting the provision of a number of public services by private
sector and NGOs to reduce the burden of public finance. New forms of state – non state
coordination in public services delivery such as public-private partnership (PPP) have been
experimented under the assistance of international NGOs and development agencies.
Liberalization process has made the understanding of public services as the realm of non-profit
public activities become less relevant. The opening of domestic service market presses the
providers of services such as education, healthcare, sport and culture and publication to feel the
need of commercialization to sustain. Meanwhile, some service providers can still exploit their
monopoly and oligopoly status granted by the state during the transitional process to earn profit
at the expense of society.
5.2 Cur r ent State and Development Issues of the public ser vices in Viet Nam
5.2.1. The size of public sector is decreasing in the transition process, and it has fallen
down to a miniscule level
Numerous studies often look at the dichotomy between the “welfare state” and “welfare society”
to categorize the size of the public sector. Public sector tends to have large size in a welfare state
which relies on the central and local governments in the delivery of public services, whereas it
has a small size in a welfare society which put more weigh on local communities and non-profit
organizations. The current size of Vietnamese public sector is miniscule comparing with all
above thresholds for categorization. The share of government consumption in GDP in 2007 is
merely 6.07 percent (Statistical Yearbook 2007). These shares of OECD countries in 2006 are
20.5 percent on average (Appendices, Table 1). This share of East Asian developmental states
such as Singapore is 14.2 percent in 2006 (APEC, 2007). In transitional economies of Eastern
Europe, for example, while on a steady decline, the share of government consumption in GDP
still stood at 14 percent for Bulgaria and 23 percent for Croatia in 2001 (Gunalp and Dincer,
2005: 4). In fact, although government consumption in Viet Nam has increased over the past
years together with economic growth, its share of GDP is on a declining trend, showing that this
increase is not on par with the growth speed of the economy and expansion of other economic
sectors.
Table 4: Growth of Government consumption and share of government consumption in GDP
Year
2003
2004
2005
Growth
of
Government 7.19
7.77
8.2
consumption
share
of
government 6.32
6.39
6.15
consumption in GDP
Source: GSO. 2008. Statistical Yearbook 2007: 82, 83.
373
2006
8.5
2007
8.9
6.03
6.07
By government expenditure, the size of Vietnamese public sector is close to the level of
developed welfare society. The average share of government expenditure in GDP of OECD
countries is 44 percent in 2006, within the range from highest share of Sweden (55.5 percent) to
the lowest share of Australia and Ireland (34.4 percent). In 2006, this share of Viet Nam stood at
31.6 percent. While government services are the largest component of government expenditure
in OECD countries, government expenditure for public socio-economic services in Viet Nam
account for around 52.5 percent of total government expenditure or merely 10.4 percent of GDP
(Statistical Yearbook 2007). However, it is important to note that over the past years, there is a
clear emphasis on the education and health services in the government budget. During 20002006 period, the already largest shares of education and healthcare sectors in total government
expenditure on social and economic services increased 5.26 percentage points and 2.66
percentage points respectively while the share of the other sectors experienced a decline (Table
5).
Table 5: State Budget Expenditure on Social and economic services (current prices)
2000
VND
Service sectors
billions
%
Education and Training
12677
28.44
Healthcare
3453
7.75
Population and family planning 559
1.25
Science,
technology
and
environment
1243
2.79
Culture and information
919
2.06
Broadcasting and television
717
1.61
Sports
387
0.87
Pension and social relief
10739
24.09
Economic services
5796
13.00
General public administration
8089
18.15
Total
44579
100.00
Source: GSO. 2008. Statistical Yearbook 2007.
2006
VND
billions
37332
11528
489
%
33.70
10.41
0.44
2540
1874
1184
956
22157
14212
18515
110787
2.29
1.69
1.07
0.86
20.00
12.83
16.71
100.00
% Change in
2006-2000
5.26
2.66
-0.81
-0.50
-0.37
-0.54
-0.01
-4.09
-0.17
-1.43
In terms of labor, public sector in Viet Nam employed 9 percent of the total workers of the
economy in 2007 whereas the share of seven key public services is 8.97 percent (Table 6). The
latter share has made a big jump of 2.67 percent in the 2000 to 2007 period. In a comparison,
among OECD countries, Japan has the lowest public employment share at 8.1 percent in 2002
whereas Sweden and Denmark have highest shares at 30 percent and 29 percent respectively.
However, there is no employment benchmark for the efficiency of the public sector. In
Singapore, government employees represent only 2.7 percent of the total employees in 2005
(APEC, 2007).
Table 6: Number of Workers in Some Key Public Services
374
2000
2007
Thousands
(%)
Thousands
(%)
Entire economy
Entire Service sector
37609.6
8199.8
100.00
21.80
44171.9
11535.8
100.00
26.10
Change
of
quantity in
2000-2007
(%)
17.5
40.7
State Management
Education and Training
Health and social works
Recreation, Sport and Culture
Party, mass and associations
376.1
995.1
225.6
132.0
63.9
1.00
2.65
0.60
0.35
0.17
793.2
1356.6
384.3
136.4
192.9
1.80
3.07
0.87
0.31
0.44
110.9
36.3
70.4
3.3
201.9
Community and personal services(*)
492.7
1.31
896.7
2.03
82.0
Total of public service workers
2285.4
(*)
Note:
Including
activities
Source: GSO. 2008. Statistical Yearbook 2007.
6.08
of
3760.1
8.52
hired
household
64.5
workers
5.2.2. Education and state management are two largest sectors and the size of education
and health services is still modest.
Six key public services (state management; education and training; health and social works;
recreation; sport and culture; party, mass and associations; community and personal services)
account for 9.1 percent of the GDP. Education and training, and state management are two
largest sectors, representing 5.37 percent of GDP. While utilities supply sector still increases in
its GDP share to match with economic growth, there is an emerging concern on the declining
trend of other sectors. The share of education sector in GDP has fell from 3.21 percent to 2.6
percent in the 2005-2008 period. Similarly, the GDP share of healthcare and social works sector
fell from 1.48 percent to 1.25 percent (Table 7). Part of it is due to the more rapid expansion of
non-public services area. Part of it may be due to the complacency in the early accomplishment
of some MDGs in the end of the 2001-2005 period, leading to the shift of resource allocation
from development to growth purposes. This becomes an alarming trend when all key public
service sectors experienced a slowdown in 2008 (Table 8) due to general economic difficulty and
when maintaining growth of the economy becomes the top priority agenda.
Table 7: GDP Ratio of Some Key Public Services (% at current price)
Services
State Management
Education and Training
Health and social works
Recreation, Sport and Culture
1986
1990
1995
2000
2005
2006 2007
3.34
2.50
1.34
0.50
3.32
2.72
1.56
0.46
3.62
2.62
1.59
0.55
2.73
3.36
1.36
0.58
2.75
3.21
1.48
0.50
2.74
3.15
1.45
0.47
375
2.74
3.04
1.41
0.45
Prel
2008
2.77
2.60
1.25
0.41
Party, mass and associations
0.17 0.10
0.10
0.14
0.13
0.12 0.12
0.13
Community and
personal
services
2.17 1.86
2.18
2.23
1.94
1.93 1.92
1.94
Sources: Year 1985: GSO. 2004. Statistical Figures of Viet Nam in the 20th Century
(Hanoi: Statistical Publishing House). Period 1986 – 1999: GSO. 2000. Socio-economic
Development Figures of Viet Nam 1975-2000 (Hanoi: Statistical Publishing House) and GSO.
2006. Viet Nam: 20 Years of Reforms and Development. Hanoi: Statistical Publishing House).
Years 2000, 2005, 2006, 2007: GSO. 2008. Statistical Yearbook 2007. (Hanoi: Statistical
Publishing House). Year 2008: GSO. 2009. Quarterly Report I. Hanoi.
Table 8: Growth of GDP of Some Key Public Services (% at constant 1994 price)
Services
Period
19962000
2.58
5.63
5.57
7.80
12.49
20012005
5.49
7.46
7.40
6.20
5.94
2006
2007
2008
1996-2008
State Management
7.57
8.22
6.38
4.79
Education and Training
8.42
8.68
8.04
6.96
Health and social works
7.84
7.99
7.67
6.79
Recreation, Sport and Culture
7.68
7.98
7.83
7.19
Party, mass and associations
7.42
8.05
6.92
8.77
Community
and
personal
services
8.02
5.95
7.25
7.91
6.31
7.02
*
Data from CIEM, 2009: 11. Viet Nam’s economy 2008. Financial Publishing House.
Source: Year 1985: GSO. 2004. Statistical Figures of Viet Nam in the 20th Century
(Hanoi: Statistical Publishing House). Period 1986 – 1999: GSO. 2000. Socio-economic
Development Figures of Viet Nam 1975-2000 (Hanoi: Statistical Publishing House) and GSO.
2006. Viet Nam: 20 Years of Reforms and Development. Hanoi: Statistical Publishing House).
Years 2000, 2005, 2006, 2007: GSO. 2008. Statistical Yearbook 2007. (Hanoi: Statistical
Publishing House). Year 2008: GSO. 2009. Quarterly Report I. Hanoi.
A major concern for the development cause is a modest size of the education and healthcare
sectors even though total public and private spending on education and health is not small
relative to the economy. The GDP share of education and health services is 4.45 percent in 2007
before falling to 3.85 percent in 2008. The average education and health spending respectively as
share of government expenditure and as share of GDP is 27 percent and 6 percent for AsiaPacific, 25 percent and 6 percent for low-income countries, and 29 percent and 8 percent for
middle-income countries in 2000 (WDR 2004: 33). Share of public education and health
spending is equivalent to 15.86 percent of total government spending and 5 percent of GDP for
Viet Nam in 2006 (Statistical Yearbook 2007), but fortunately this small share is currently offset
by private spending.
376
5.2.3. State organizations are still dominant players in the delivery of public services but
the number of non-state service providers has increased significantly
State organizations including hospitals, schools, administrative organizations and other agencies
are the main providers of public services in Viet Nam. However, there is a marked trend showing
an increase in the number of providers, including non-state providers, of public services. Newly
emerged private companies contributed a large part to this increase. At the same time, private
investment, including foreign investment, on public services has increased considerably. Private
investment in key sectors such as education and training, and healthcare and social works, has
increased 6.8 and 2.2 folds respectively in the 2000-2007 period (Table 10).
Table 9: Number of Enterprise Providers in Some Key Public Services
2000
2006
2006/2000 (%)
2006 (%)
Service Sector
24085 82904
344.2
100
Education and Training
77
785
1019.5
0.95
Health and social works
25
256
1024
0.31
Recreation, Sport and Culture
120
491
409.2
0.59
Community and personal services
173
670
387.3
0.81
(*)
Note: Service sector includes production and distribution of electricity, gas and water
(*)
Source: GSO. 2008. Statistical Yearbook 2007.
Table 10: Investment on some Key Public Services (1994 constant price) VND billions
2000
Total
(1)
(1) – (2)
2007
Total
(3)
0
Service
State Management
2980
Public
sector
(2)
2980
Education and Training
4633
4347
286
9584
7628
1956
Health and social works
1769
1652
117
4609
4348
261
Recreation, Sport and Culture
2141
1187
954
4230
3609
621
Party, mass and associations
605
568
37
1005
573
432
12134
44863 9006
Community and personal services 15531 3397
Source: GSO. 2008. Statistical Yearbook 2007.
(3)- (4)
9320
Public
sector
(4)
9320
0
35857
5.2.4. Labor productivity in key public services changes unevenly, showing a strong
impact of capital investment rather than technological improvement
Productivity of the entire economy and the service sector increased dramatically in the 20002007 period. However, productivity in six key public services changed unevenly. Productivity of
377
education and recreation, sport and culture sectors has experienced a big jump with 26.3 percent
and 52.1 percent increase respectively whereas productivity in other sectors fell down. Among
the sectors in which there is a productivity decline, health and social works experienced a
smallest change of -2.3 percent whereas largest fall happened in the activities of party, mass and
associations (-48.7 percent).
Table 11: Labor Productivity in Some Key Public Services (1994 Price, VND thousand per
capita)
Sector
2000
2007
Entire economy
7,276
Entire Service sector
13,785
State Management
21,326
Education and Training
9,027
Health and social works
17,491
Recreation, Sport and Culture
12,129
Party, mass and associations
4,960
(*)
Community and personal services
12,789
(*)
Note:
Including
activities
Source: GSO. 2008. Statistical Yearbook 2007.
of
10,477
16,147
15,376
11,401
17,091
18,438
2,545
10,752
hired
Change
in
2000-2007 (%)
43.6
17.1
-27.9
26.3
-2.3
52.1
-48.7
-15.9
household
workers
The magnitude of productivity change in Viet Nam is big comparing with the world average
productivity changes in public services and with the common understanding of stagnant
productivity change in the public services. For example, during 1990-1995 and 1995-2003
periods, productivity of the government services in the US decreased slightly by 0.8 and 0.4
percent (Bosworth, 2009). During the 1990-2001, productivity of the education, healthcare and
social and community services in OECD countries experienced a change of 0.1 percent, 0.1
percent, and -0.2 percent respectively (Wolfi, 2005). While a stagnant productivity change in
public services of the developed country can be blamed for little change in technological
application, a large change in productivity of key public services in Viet Nam is produced by
change in capital investment on the corresponding sectors.
5.2.5. Although public services have reached certain input objectives, their outcome
impacts are still very poor
Public administrative institutions in Viet Nam often have reports on the numbers of documents
received from the citizens vs. the number of documents that get the reply, and the result is little
surprised: almost one hundred percent of documents submitted have been answered. Yet, there is
few statistics on how helpful these answers are, if citizens are well instructed to re-submit their
documents to get approval, let alone how much money and how many people are needed in order
to have these answers. In community services, almost all households in the community signs in
378
the commitment to build a “cultural family” (gia đình văn hóa ) and this has little effects on the
cultural environment of each committed family and the community.
In other words, although public services in Viet Nam have recorded a marked output
achievement, they perform poorly in terms of outcomes. Short of outcome impacts, the quality
and importance of public services in socio-economic development are questionable. According
to the surveys on citizen satisfaction of public services in Ho Chi Minh City, the number of
people who said to be satisfied with eight surveyed service sectors has fell down by almost 19.5
percent on average in 2008 comparing with 2006 (Table 12). For example, respondents claimed
the prolongation in administrative procedure in the issuance of land entitlement, and construction
permit, inattentive explanations by doctors and the red-tape of the civil servants in general. There
is also often-said problem of lack of service providers, technology and facilities, typically in
public administration, education and healthcare services, and the dysfunction of service delivery
in such sectors as electricity, urban sewage and urban public transportation. In addition to poor
outcome impacts, quality of public services in Viet Nam is also a target for improvement.
Another issue is high “leakage” in the public sectors. Leakage occurs in all stages, from
investment on public projects and programs because of corruption and embezzlement, and in fee
collection due to fraud by both consumers and collectors.
Table 12: Citizen Satisfaction of Public Services in Ho Chi Minh City
Services
1
2
Satisfaction (%)
No answer (%)
Non-satisfaction (%)
2006
2006
2006
2008
74,8
Primary education
2008
23,2
2008
2,0
84,7
60,2
8,3
36,9
7,1
2,9
78,2
68,9
14,0
25,3
7,8
5,8
78,9
49,5
13,6
44,6
7,5
5,9
78,2
58,5
10,6
36,9
11,1
4,6
6 Issuance
of 74,1
construction permit
7
59,3
Issuance of land title
57,4
9,4
34,3
16,6
8,3
39,2
7,8
41,4
32,9
19,4
8
49,5
17,7
44,6
27,7
5,9
3
4
5
Garbage collection
Health
Bus services
Notary
Tax collection
54,5
http://www.tuoitre.com.vn/Tianyon/Index.aspx?ArticleID=289895&ChannelID=3
Updated on 27/11/2008. Public services in Ho Chi Minh City: People are less satisfied
379
5.3 The pr er equisites for stimulating the development of public ser vices in Viet Nam
5.3.1. Government should make public services work for the people
The 2004 WDR “Making services work for the poor people” points to the essential role of
government in public services, especially in the developing world. Government is important in
the delivery of public services for two reasons. First, government intervention is necessary to
overcome market failures that lead to the sub-optimal amount of public services, sort of “public
goods,” produced and consumed from society’s standpoint. Second, government intervention is
justified for the reason of equity. In other words, assuring equal access to basic public services
such as health, education and utilities and reducing the gaps in outcomes between poor people
and those who are wealthier, are a responsibility of government. The responsibility of the
governments to provide better public services can be discharged in many ways, for example,
fostering economic growth, increasing public spending, applying technical interventions, and
regulating the services. In concrete actions, governments demonstrate their responsibility by
building and staffing schools, subsidizing hospitals, regulating water and electrical utility
companies, building roads, operating pension fund, and providing cash transfers to individuals
and households etc (WDR, 2004: 32, 33).
The Vietnamese government has not made full use of its role in the delivery of good public
services because of a limited size of the government as measured in aspects highlighted above
such as pubic spending, government consumption, public sector’s investment, and labor
absorption. Resource constraints are often cited as a major cause among others and limited
resource makes the governments use it for purposes that they think politically wise. In that case,
quite often, the governments tend to focus on their close allies – that is urban areas will be
prioritized over the countryside, and wealthier and middle class will receive the benefits before
the poor and indigenous people. This will certainly result in a relative degradation of the quality
of life of citizens at the bottom rang of the society in the course of economic growth, and become
a long-run potential cause of social unrests.
Of course, while economic growth alone is not enough, it is crucial for the development of public
services. For one simple reason, economic growth will generate more wealth for the state and
society to invest in public sectors. The association between income and basic public services
such as health and education outcomes works both ways: more income leads to lower mortality
and more children completing primary school; better health and education can lead to higher
productivity and incomes. The 2004 WDR points that among low-income countries, 10 percent
more income per capita is associated, on average, with a 6.6 percent lower child mortality rate
and a 4.8 percent higher primary school completion rate. At low income levels, a relatively small
difference in per capita income can produce large differences in outcomes. But it is important to
reiterate that income is not the whole story: at any given income there are wide variations in
achievement. With average incomes of just under $300 per capita in the 1990s, Viet Nam had a
380
child mortality rate of about 40 per 1,000 in 2000 and Cambodia of 120 (WDR, 2004: 35).
Government policy thus has a stronger influence on the improvement of incomes than the
distribution under the market forces.
5.3.2. A clean and effective state system is essential for delivery of public services
Increased public spending may make improvements of public services possible, but
improvements will fall short if spending is made unwisely – that is, as said above, the
government misallocates resources, or the resources do not reach the frontline beneficiaries.
Similar situations can happen with other kinds of service-supported government activities such
as regulations and technical interventions. The government intervention is just necessary
condition on the one hand, but the government quality is sufficient condition on the other hand to
affect public service improvements.
Like other developing countries, in Viet Nam, red-tape, corruption, rent-seeking, favouritism,
non-transparency, cumbersome bureaucratic system, low technology and unskilled staffs are
often said to affect the quality of public services delivered by the government, putting barriers to
citizens’ consumption of public services and causing misallocation of government resources. In
2008, Transparency International Corruption Index ranked Viet Nam 121st within 180 countries
for 2.7 points out of ten points for having least corruption (Transparency International, 2008
corruption perception index). 69
Yet, major efforts have been made to fight against corruption within the state system. The
Vietnamese government has also made other great attempts to improve the efficiency and to
strengthen the effectiveness of the public administrative system through the reforms. The
Comprehensive Public Administrative Reforms in 2001-2010 has identified four areas of reforms
which are institutional reforms, reforms of administrative organizational structure, development
of civil servants, and reform of public finance. The results of current public administrative
reforms (PAR) are encouraging. For example, at the central level, the organizational structure of
the government has been streamlined and the tasks of ministries have been oriented better toward
macro management, instruction and supervision. There is an ongoing process of decentralization
that provides local provinces with greater autonomy in the fiscal matters and in the design of the
form and focus for public services to fit the demand of local people. The oversight roles of
national assembly and people’s council have been strengthened to increase the accountability and
reliability of government policies. There is also a so-called “One stop shop” mechanism to
reduce waiting time for citizens. In a recent move, the Prime Minister has signed Decision
48/2009/QD-TTg announcing Plan for application of technology information in state
organizations during the 2009 to 2010 period. According to this plan, a number of public
administrative services such as issuance of business license and investment license, issuance of
69
Vietnam ranks below China PR (72nd and 3.6 point) but higher than Indonesia (126th and 2.6 point), the
Philippines (141st and 2.3 point), Laos (151st and 2.0) and Cambodia (166th and 1.8 points) in Southeast Asia.
381
permits for the establishment of branches, representative offices, construction, land entitlement,
vehicle registration, and submission of petition and complaint etc… will be made available
online.
5.3.3. High salary gives civil servants incentive to provide better public services
Since the beginning of the Doi Moi, the average salary of Vietnamese government officials and
civil servants has not increased on par with the rise in the average income of the society and not
been able to catch up with the rise of price index. In Viet Nam, there is a sharp difference
between a decent salary and a much higher income of civil servants and government officials.
Low salary is one of the main causes to the lack of incentive from civil servants to serve their
customer citizens. From human resources side, low salary creates a “brain drain” in the public
sector. Low salary plus less severe punishment may instigate civil servants and government
officials to create red-tape and harassment in order to get under-the-table money. It also affects
the exercise of duties by civil servants, let alone their ethics. In the remote and mountainous
areas, low salary is a major discouragement of work decisions and absenteeism of nurses and
doctors in the hospitals, and teachers at schools can seriously disrupt the delivery of basic public
services to already marginalized people. Low salary in the public sector of Viet Nam is often
attributed to main sources. First, there are a large number of salary earners. According to an
article published two years ago, around 10 percent of the Vietnamese population is paid from
state budget and this proportion is remarkably high comparing with other countries. Second,
there is a constraint in government budget. The above article pointed out that if the average
monthly salary in the public sector increases by 450,000 VND, the increase amount is equivalent
to 95 percent of total state budget (vietbao 25/12/2007).
Table 13: Monthly Average Income in state sectors (current price)
Sector
2007 (thousand VND)
State Management
1561.3
Education and Training
1832.9
Health and social works
1899.6
Recreation, Sport and Culture
2098.4
Party, mass and associations
1344.1
Community and personal services
1987.8
Source: GSO. 2008. Statistical Yearbook 2007: 628
In Singapore, high salary plus strict punishment are important factors to reduce corruption in the
state system. In Viet Nam, increase in salary may also help to break up the string that connects
low income, corruption and low development level all together. It will help the government
function more effectively and improve the quality and efficiency of government services. These
are the bigger payoff not only for the government but also for the majority of tax payers. For
example, higher salary may motivate inspectors in public utilities sectors such as water and
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electricity to work better to reduce the “leakage” that cost the government billions VND each
year. Similarly, higher salary may increase the responsibility in the doctors in public hospital and
make people feel secure when they use cheaper public health services.
5.3.4. A healthy public finance system is essential to government expenditures and
investment on public services
Public finance system underpins the development of public services. Before the Doi Moi, under
the classical socialist system, the overwhelming proportion of the economy is state-owned. The
state exercised its control over the economy and society through central planning. Tax was small
and inequality in the distribution of income was relatively slight. The objective of equality was
achieved not by market-oriented mechanism such as differentiated taxation of income or wealth,
but mainly by restricting wage differentiation and allocating certain consumer goods and services
in a relatively egalitarian way. In the course of transition, the spread of private ownership and the
market have produced significant changes. While the squeezing of wage differentials into a
narrow band continues only for public employees, incomes in the private sector have distributed
over a much wider range by the market (Lajos and Dethier, 1998: 31, 32). The state feels more
difficult to sustain a completely free provision of public services, and to expand the public
programs without enriching its coffer. Nor does it have rationale to restrict the consumption of
every citizen within similar limited amount of public goods and services.
The current socialist system in Viet Nam possesses a set of softer techniques for fulfilling the
equality requirement. One of the techniques is to sustain state-owned enterprises and other
organizations that would not have been viable under market conditions to ensure a largely free
universal provision of education, health care, and other welfare services, which have a strong
redistributive effect (Lajos and Dethier, 1998: 31, 32). This is complemented by differentiated
taxation of incomes, to a lesser extent, consumption, and progressive rates for public service
consumption. The ongoing reforms of the public finance system in Viet Nam focus on five
pillars: tax system, state budget, financial status of public service providers, management of
public properties, and management of official development assistances (ODA). Major successes
have been achieved in each area, especially in terms of setting up a modern legal framework. For
example, several important tax laws have been introduced over the past few years such as VAT
law and income law. There are also the adjustments in public services fees to make them closer
to the market prices and to sustain the business of public service providers. At the same time, the
oversight role of the elected bodies such as the National Assembly and People’s Council in the
allocation of government budget has been strengthened together with the activities of the State
Audit Office which performs general financial inspection of bodies spending public funds.
However, the switch away from the old kind of redistributive activity and the old public finance
system has only partly and semi-successfully taken place. On the input side, there are too many
loopholes in the collection of the tax and fees, leading to a large amount of income, wealth, and
383
consumption that evades taxation and fees by fraud. On the output side, there is a serious leakage
in the public expenditures and investments before this money can reach to the targeted
beneficiaries. Three years ago, scholars such as David Dapice already estimated that Viet Nam
lost around 1 billion USD each year because of leakage in public investment (Viet Namnet,
20/10/2006). A strong and healthier public finance system in Viet Nam is thus necessarily a
clean public finance system.
5.3.5. Effective and competitive entrepreneurial sector is the key provider of good public
services
Having said that the government should make public services work for the people does not mean
making the government a direct provider of all public services. At present, state organizations are
still dominant providers of public services in Viet Nam. Currently, there are two ways to
unbundle state monopoly in the production and distribution of public services. The traditional
way is to reform the state public service providers. One of the crucial tasks of the reform is
separating public service delivery function from state administration and management function
in state organizations. Public services are now provided by the “công ty cung ứng dịch vụ công
ích” (my translation is “public service enterprises”) 70 and “tổ chức sự nghiệp nhà nước” (my
translation is “state social service organizations/units”) 71 which are established under the
umbrella of state organizations such as the government, ministries, people’s committee.
According to Decree 10/2002/ND-CP and 43/2006/ND-CP of the Government, there are three
types of state social service units: i) units that have no income and therefore are totally funded by
the state; ii) units that have incomes sufficed to cover all regular operation costs and therefore are
self-financed; and iii) units that have incomes only sufficed to cover partially regular operation
costs and therefore are partially funded by the state. As soon as many state organizations are
allowed to create their “social service units” whose operations spread into various areas, they
unbundle the monopoly of existing service provider at least in the downstream and delivery
activities if not the entire service chain. Social service units especially those self-financed are
often organized and operate in line with the business model, looking for profits from user fees
and competing with one another and with private sectors.
Figure 1: Transformation of public service providers in Viet Nam
70
In such public “economic” services as gas, water, electricity supply, sewage, public transport etc but these sectors
are not dealt within the scope of this report.
71
In such public “social” services as education, health, sport, culture etc
384
Joint stock company
SOE Restructuring
Commercialization
Demonopolization
Unbundling
State
monopoly
Contracting
Transfer of state
management
/socialization
Public private
partnership
State guarantee
or incentive
Service contract
Management contract
Lease contract
Public-private joint venture
BOT agreement
Joint investment
Public private cooperation
Source: Adapted from: International Labor Organization. 1999. Managing the
privatization and restructuring of public utilities (water, gas, and electricity). International
Labor Office: Geneve. p. 4
Another way also closely related is the so-called “xã hội hóa” (socialization) of public services.
The approach of “socialization” of public services has started first with the public health sector,
then spread into education and other sectors such as cultural, sport and recreational services.
Decree 90/1997/ND-CP of the government states that:
Socialization of education, healthcare and cultural activities is to mobilize and organize
the participation of people and society in the development of these social
works…[socialization ]is to build collective responsibility of all social strata to create and
develop a healthy socio-economic environment and to facilitate education, healthcare and
cultural activities…Socialization is the expansion of investment sources and exploitation
of human, material and talent resource of society
Socialization of public services is carried out in three directions:
- transform of public or state social service units (tổ chức sự nghiệp nhà nước) to
people’s social service units and private social service units which have profit or non-profit
nature. State property in the state social service units are transferred to non-state actors through
sale, lease or in management contract.
- encourage the creation of non-state public service providers in forms of cooperative,
private non-business organizations and enterprises. These non-state public service providers can
have profit or non-profit aims; and
385
- encourage the cooperation between state social service units with non-state actors such
as civil society organizations, private business organizations local communities, and individuals
for better delivery of public services.
5.3.6. An engaging civil society is essential to bring public services to the marginalized
people
Numerous studies have highlighted the important role of civil society in the delivery of a wide
range of public services such as social care, health, education, leisure and environmental
management. In the transition period, one method for civil society to grow is by actively
engaging in development when the state’s role is “downsized” and public spending has declined.
Civil society organizations (CSOs) are particularly helpful where the government does not reach
and where the forces of the market produce unwanted results. In the developing world, many
CSOs work closely with the government by forming a substantive partnership in the delivery of
public services. They may contract with public agencies to provide those services, or they may
receive state grants to contribute to their funding for particular public programs and projects to
achieve their aims.
Civil society is a newly emerged sphere of development in Viet Nam. In contrast to Western
views, CSOs in Viet Nam are regarded including not only NGOs and various community-based
organizations (e.g. credit associations, water users) but also a number of state-led professional
associations and mass organizations (e.g. Women’s Union, Veteran Association) (Duong et. al.,
2003; Sinh, 2001; SAG, 2006: 21). The rationale for this conceptualization of civil society relies
on the agreement on the impracticability to view civil society completely independent of the
state, and the practical focus on the “functions” of CSOs rather than their organizational forms
(SAG-Viet Nam, 2006: 31).
According to the report “The Emerging Civil Society: An Initial Assessment of Civil Society in
Viet Nam” by Institute of Social Development (2006) under the CIVICUS civil-society study
program, CSOs in Viet Nam are actively lobbying local authorities to support their involvement
in the provision of services pertaining to the development of rural infrastructure (irrigation, water
resources, road construction), including implementing and monitoring development work in line
with the government policy of “socializing” rural water supply services. Some CSOs also
provide alternative services to groups that have fallen through the cracks of the state services.
The mass organizations and to some extent professional associations may have the largest overall
impact than other CSOs in development because they reach a broader segment of society. The
mass organizations such as Women’s Union and Farmers’ Association have actively participated
in the implementation of poverty reduction plans at the local level and have been particularly
active at the community level.
Table 14: Indicators assessing meeting societal needs
386
1
2
3
Indicators
Lobbying for State service provision
Meeting societal needs directly
Meeting the needs of marginalised groups
Average Score (0-3)
1.5
1.2
1.5
Source: SAG, 2006. Chapter III. Analysis of Civil Society. Section 4.5. Meeting Societal
Needs
Nonetheless, the report also sees that CSOs’ ability to meet the social needs is still limited and
scored below the medium (SAG, 2006: 92). Although CSOs of all types actively participate in
the delivery of public services and contribute to Viet Nam’s reduction of poverty but they are a
driving force of neither public service provision nor poverty reduction in general. Increasingly,
these are the combined efforts of government, donors and CSOs (SAG, 2006: 90). The future
efforts of the Vietnamese CSOs in public service provision should focus on their ability to reach
to the poorest and the most marginalized. They also need to “scale up” their successful activities
to expand their coverage to larger part of the population. In Viet Nam, like in other countries,
there is an inherent weakness of Vietnamese CSOs that they are unable to provide an overall
framework for operation at national or regional levels. A framework to ensure that all people
have adequate access to services is thus provided only by the state. Although the state must take
primary responsibility, useful partnerships can be established between governments and CSOs
for public services provision.
5.3.7. A sound legal and regulatory framework is an enabling environment for public
services
Public services, except defence and security, should have overall aims to create social
development and to support growth of other economic sectors. In many countries, when the
provision of numerous public services has been handed in to the private sector, it is crucial that
the state creates a legal and regulatory environment for the development of public services. State
intervenes into public services delivery by laws and regulations to guarantee the quality of public
services and to certain extent to ensure that there is social equity in public service provision by
the private sector.
There is a “horizontal” legal and regulatory system for public services in general. Examples of
components of the “horizontal” system are Law on Government Organization in 2001, Law on
state budget in 2002, Law on tax management in 2006, Investment Law in 2005, SOE Law in
2003, Law on Enterprises in 2005, Law on Government Officials and Civil Servants in 2008, and
number of Decrees, Decisions and Circulars by the Prime Minister, government and at
ministerial levels regarding general issues such as the autonomy of state public services
providers. Below the “horizontal” system, which is still regarded enabling, there is a more
restrictive “specific” legal and regulatory system for each public service sector such as
electricity, public administration, health and education. For example, the healthcare sector is in
387
addition subjected to number of specific laws and regulations such as Law on protection of
people’s health in 2000, Pharmaceutical Law in 2005, Law on health insurance in 2008, Interagency circular 02/2008/TTLT-BYT-BNV in 2008, Circular 23/2005/TT-BYT Instruction on
Ranking of Public Health Service Providers (e.g. classification of quality, capability and
specialization) and Decision 24/2008/QĐ-BYT on organization and operation of pharmaceutical
shop in public hospitals etc. In some other sectors, recreation, sport and culture services, for
example, specific permits from Ministry of Culture, Information, Sport and Tourism or its local
departments must be obtained to organize public events. Typical regulations for specific public
services in Viet Nam often include regulations on recruitment of employees, on fees and tolls, on
professional licenses, through permission for organization of activities, on establishment, and
through monopoly protection.
Table 15: Dominant Types of Regulations in Specific Public Services
Service sector
Dominant Types of Regulations
1
2
3
4
5
6
State Management
X
(Public
administration)
Education
and X
Training
Health and social
works
X
X
X
X
X
X
Recreation,
Sport X.
and Culture
Party, mass and
associations
Community
and
personal services
X
X
Other
On contracting out, bidding and
procurement of government agencies.
State audition’s regulations
Regulations on curriculum
X
X
X
X
Prohibition of doctors working in
hospital to own private clinics (on
discussions).
Intellectual property rights.
Excluding forbidden activities.
Excluding forbidden activities.
In coordination with local agencies
Note:
1.Regulation on recruitment of employees
2.Regulation on fees and tolls
3.Regulation on professional licenses
4.Regulation through permission for organization of activities
5.Regulation on establishment
388
6.Regulation through monopoly protection
Moreover, the current legal and regulatory systems focus more on input requirements and output
delivery than outcome delivery of public services. That is, for example, a healthcare center must
meet all requirements on license, personnel, facilities, capital, and registration, but there is little
inspection on their post-establishment activities. A civil servant must possess all kinds of
certificates to be promoted or assigned into certain position rather than acquire only a few but
enough important knowledge and skills. Cross-checking among the government agencies is not
regularly conducted and in most cases the consumers are those who discover and file out the
complaints about the quality of public services.
According to Law on State Budget in 2002, the National Assembly approves the size of annual
government budget and its allocation to each specific public sector. The cross-sectoral
(functional) ministries and agencies including their local departments are in charge of monitoring
the implementation of horizontal regulations. For example, Ministry of Planning and Investment
is responsible for granting investment licenses, and approving investments on public projects and
programs. Ministry of Finance is responsible for determining fees rates and tax in consultation
with major public service providers and relevant sectoral ministry. Ministry of Home Affairs is
in charge of personnel regulation in public sector. Sectoral ministries and agencies and their local
departments are in charge of monitoring the implementation of specific regulations. Ministry of
Health is in charge in the management of health service. Because public services are considered
strategic to socio-economic development, top party organizations often have issued development
guidelines and orientations for some sectors such as public administration, culture, education,
healthcare etc. In the current context of Viet Nam, as the public sector is still the primary
provider of public services, the legal and regulatory framework needs to aim at increasing the
accountability of state-owned public service providers. Furthermore, to deviate from the past
centrally-planned target system, a new legal and regulatory framework needs to aim at enabling
outcome improvement rather than merely enabling the increase in output of public services.
Table 16: Main Regulatory Organizations of Public Services
Service sector
State Management
(Public administration)
Education and Training
Health and social works
Major Regulatory Organizations
Ministry of Home Affairs, Party organization (on
employment);
Ministry of Education and Training
Ministry of Health, Ministry of Labor, Invalid and Social
Affairs,
Recreation, Sport and Culture
Ministry of Information and Communication, Ministry of
Culture, Sport and Tourism; Central Board for Ideology and
Culture of CPV; Viet Nam Television, Radio the Voice of
Viet Nam;
Party, mass and associations
Party organization, Fatherland Front, Umbrella associations,
Community and personal Local authorities (local people’s committees) and relevant
389
services
ministries (local departments)
Yet, the above role as an “enabling player” of the government may be cut down to “enabling
regulator” in the context of Viet Nam’s international integration. Four marked international
commitments that define the opening and liberalization of public services in Viet Nam are:
-
VN-US BTA, which was signed on July 13th 2000 and entered into force on December
11th 2001
-
Sections related to public services in the WTO commitments on services (GATS), which
were concluded 26/10/2006 and entered into force on January 11th 2007
-
Service section of Viet Nam’s commitment in ASEAN-China Free Trade Agreement
which was signed and entered into force 1/7/2007
-
Viet Nam’s 7th AFAS package which was signed on 26/2/2009, and entered into force 90
days after (May 2009). 72
International integration plus domestic reforms have produced major transformations in the
public services, such as monopolies have been weakened by markets in many key sectors;
private ownership and providers emerge and coexist with government ownership and providers;
the role of the government as the owner and provider of services has diminished and been cut
back to a more regulatory role; and free public service system of the past has been replaced by a
user-fee system in most public services. The impetus for these changes has been an increased
belief that free markets operated by private companies can at large alter the state or at least work
in tandem with the state to bring public services to citizens. If the market can deliver better prices
and better services, then the state will only have to step in to provide support as a last resort.
Although there is a “WTO obsession” in various sectors of the economy over the past few years,
the impacts of WTO accession on the public services so far have not been much because of many
government’s preservations. Biggest changes expected in education and health sectors which fall
under the scope of the GATS have not yet occurred. In fact, the current stage of liberalization of
the public services in Viet Nam is still on restructuring of the public sector but short of
privatization. In the latter form, state still retain ownership and operation of the public service
facilities but introduce modification to the structure, work organization and human resources
often taken from private company model. This is accompanied with the decentralization of
operation from central to local and community level, separation between upstream and
downstream activities, and separation among production, transportation and distribution. Thus,
many public service facilities and organizations at the central level such as economic groups and
general state corporations, and upstream service distribution and production of such key public
72
Vietnam’s commitment in ACFTA and 7th AFAS package are based on the previous WTO commitments with a
slight difference in the healthcare service under the 7th AFAS package (see appendix).
390
utilities services as water, gas and electricity production are still operated and managed by the
state. At the same time, downstream activities at the community level and distribution of public
services to individual consumers can be assumed or delegated to private sector. The whole above
process is taken on the voluntary initiative of the government and the domestic private sector
rather than on the implementation of the international commitments with outsiders.
391
Table 17: Comparison of WTO commitments of China, India, Mexico and Viet Nam in educational and health services
WTO
Member
China
Commitment
PE HE M
S
X
X
India
-
-
Mexico
X
X
Sector Limitation (Modes 1 – 3)
Horizontal Limitation (Modes Modification of
1 – 3)*
Sector Coverage
MA&NT (1) Unbound.
(2) None.
MA (3) Joint schools with foreign majority
ownership.
NT (3) Unbound.
MA&NT (1)-(2) None.
MA (3) Joint venture requirement, ENT.
NT (3) Majority of doctors & medical staff must be
nationals.
MA&NT (1)-(2) Unbound.
MA (3) Foreign equity share limited to 51 per cent.
NT (3) None.
MA&NT (1)-(2) None.
MA (3) Foreign capital participation limited to
49 per cent; prior authorization requirement.
NT (3) None.
MA&NT (1)-(3) None.
MA&NT (1) Unbound.
(2) None.
MA (3) Foreign capital participation limited to
49 per cent.
Not relevant.
HS
X
-
-
X
X
X
Primary
Education:
Excluding
national
compulsory
education.
Not relevant.
Private education
services.
Private hospital
services.
392
Note:
Sectors: PE = Primary Education; HE = Higher Education;
MS = Medical Services; HS = Hospital Services
Commitments: MA = Market Access; NT = National Treatment;
none = full commitment (no limitation); unbound = no commitments (full
policy discretion)
* Only limitations that may have a significant impact on supplies in the four sectors
concerned
ENT: Economic needs tests and similar provisions.
Source: adapted from Rolf Adlung. Economic Research and Statistics Division (WTO).
2005. Public Services and the GATS. Working Paper ERSD-2005-03. July 2005. pp. 21
5.4 Key public ser vices to pr omote socio-economic development
5.4.1. Education and health for growth, human development, and competitiveness of the
economy
Numerous theoretical and empirical studies have indicated a strong positive effect of health and
education on economic growth of a nation (Grossman, 1972; Mankiw, Romer and Weil, 1992;
World Bank, 1993; Barro and Lee, 1993; Barro, 1996; 1997; Bloom, Canning and Sevilla, 2001).
Health and education are regarded as essential components of human capital - a capital
productive asset - and an engine of economic growth. From the social perspective, education and
health are among the most important assets a human being has and can acquire. It permits us to
fully develop our capacities. Health improvement and education attainment are crucial for the
accomplishment of the MDGs. Nowadays, most countries in the world have appealed health and
education to the basic human rights.
But most often, education and health services fail to meet the need of the people, especially in
the developing countries. As the World Bank Development Report in 2004 has pointed out, these
services are failing because they are falling short of their potential to improve outcomes. They
are inaccessible or prohibitively expensive. Even when accessible, they are often dysfunctional,
extremely low in technical quality, and unresponsive to the needs of a diverse clientele (WB,
2004: 19). There are also particular reasons to give priority to the development of education and
health services in Viet Nam because of its ongoing transition, socialist orientation and the need
to revive the competitiveness of the economy. The Government of Viet Nam has traditionally
accorded highest priority to education and health sectors as this is enshrined in the constitution,
and in the spirit of important party guidelines and state documents. This priority is even
increasingly emphasized as education and health represent the rapidly changing sectors over the
past years in the process of liberalization and the so-called “socialization” of public services.
393
Changes in education services are the tests for the transition of Viet Nam toward market
economy with socialist orientation.
Yet, it is puzzling that despite special attention of the government and the pronounced success of
these two sectors, education and health services have not been able to make their full use in
improving the competitiveness of the economy. At the current stage, the need to enhance the
competitiveness of the Vietnamese economy is urging as its rank in the World Economic Forum
“Global Competitiveness Reports” falls from 64 in 2006 (out of 122 countries) to 68 in 2007 (out
of 131 countries) and 70 in 2008 (out of 134 countries). According to “Global Competitiveness
Reports 2008,” there is deterioration of the fourth pillar (health and primary education) as the
basic requirement and of the fifth pillar (higher education and training) as efficiency enhancers
for the economic competitiveness. Viet Nam ranks 84 for its “health and primary education”
pillar, and 98 for its “higher education and training” pillar out of 134 countries in 2008 (WEF,
2008: 346). The report also lists inadequate educated workforce and poor public health among
the most problematic factor for doing business in Viet Nam.
394
Figure 2: Competitiveness Index for Viet Nam
Figure 3: The most problematic factor for doing business in Viet Nam
Source: World Economic Forum. 2009. Global competitiveness report 2008. pp. 346
5.4.2. Development of education and training services
395
Viet Nam has outperformed many countries with similar to or even higher average per capita
income in terms of education. According to the recently published report “Viet Nam Continues
to Achieve the Millennium Development Goals 2008,” in 2008, the literacy rate at the age of ten
and above is 93.9 percent. This rate is 96 percent in the urban areas and 92 percent in the
countryside. Literacy rate within age of 15-24 is 93.9 percent nationwide. Viet Nam already
accomplished the goal of universalization of primary education in 2000 or 15 years before the
2015 deadline. In 2006-2007, the enrolment rate at the primary level is 95.96 percent nationwide.
As the end of 2007, 42 out of 64 province and cities reached the national standard for
universalization of lower secondary education. This is a marked success for a relatively poor
country with limited resources and large population.
Box 1: Viet Nam’s Social Development and Poverty Reduction Goals (VDGs) until 2010:
Goal 2 Universalize education and improve education quality
1) Increase net enrolment in primary education to 97% by 2005 and to 99% by 2010.
2) By 2010 have improved the quality of education and increase full-day schooling at
primary level.
3) Increase net enrolment rate in junior secondary school to 90% by 2010.
4) Increase net enrolment rate in upper secondary school to 50% by 2010.
5) Eliminate illiteracy for 100% of illiterate under-40-year-old women by 2010.
The Education System in Viet Nam consists of five-year primary, four-year lower secondary,
three-year upper secondary, two to three-year technical and four-year higher education.
“Compulsory” education starts for children at 6 years old and continues through five years of
primary schooling (Figure 2). Table 18 below provides basic development indicators of the
Vietnamese educational services at all level, from kindergarten to university and college. The
progress of the educational service can be assessed based on some following criteria:
-
Infrastructure: in general, the number of schools and classes has increased rapidly at all
levels. Exceptions include a decline in the number of primary-secondary schools and
lower-upper secondary schools due to the re-organization of these two old types of
schools, and a decline in a number of classes at the primary and lower secondary levels
corresponding to the decline to the number of primary and lower secondary pupils.
-
Pupil/Teacher (P/T) ratio: P/T ratio has constantly declined in the kindergarten, primary
and secondary levels, showing an improvement in quality. In contrast, P/T ratio increases
at the higher levels (i.e. Professional secondary and vocational training, university and
college), indicating a shortage of lecturers. The UNESCO Global Monitoring Report
396
2009 “Education for All” alarms that the decline of P/T ratio was particularly marked in
Viet Nam (UNESCO, 2008).
-
The proportion of pupils reaching grade 5 in 2006 is above 90 percent, which is at the
medium level in the Asia-pacific region, and higher than some countries in Southeast
Asia such as Indonesia, and the Philippines. However, the proportion of pupils finishing
lower secondary level (grade 9) is 76.59 percent in 2006-2007. The proportion of pupils
who passed the upper secondary accomplishment exams fell from 93.7 percent in 20052006 to 80.42 in 2006-2007 but reached 83.8 percent in 2008-2009. In addition, despite
the pronounced successes in many basic targets for educational universalization, there is a
puzzling decline in the number of primary and lower secondary pupils while the
population still increases recently.
-
Available statistical data indicate a remarkable increase in the number of lecturers having
higher professional qualification. For example, the number of lecturers in professional
secondary and vocational training schools holding postgraduate diploma increased from
1335 in 2003 to 2611 in 2007. There has been an increase from 17628 to 30181 for
lecturers at the universities and colleges in the same period (GSO, 2008: 556, 561).
397
Table 18: Key Education Indicators in Viet Nam, 2003-2007
Schools
Kindergarten Schools
Primary Schools
Primary and lower secondary
schools
Lower and upper secondary
schools
Lower secondary Schools
Upper secondary Schools
Kindergarten education
Pupils (thousands)
Teachers (thousands)
Pupil/teacher ratio
Elementary School
Classes (thousands)
Pupils (thousands)
Teachers (thousands)
Pupil/teacher ratio
Secondary School
Lower secondary
Classes (thousands)
Pupils (thousands)
Teachers (thousands)
Pupil/teacher ratio
Upper secondary
Classes (thousands)
Pupils (thousands)
Teachers (thousands)
Pupil/teacher ratio
20032004
20042005
20052006
20062007
2007-2008
9975
14346
1143
10376
14518
1034
10927
14688
889
11582
14834
773
11696
14933
727
454
396
315
307
308
8745
1664
9041
1828
9383
1952
9635
2044
9781
2149
2172.9
106.7
20.4
2329.8
112.8
20.6
2426.9
117.2
20.7
2524.3
122.9
20.5
2593.3
130.4
19.9
299.4
8346.0
366.2
22.79
288.9
7744.8
362.4
21.37
276.6
7304.0
354.8
20.59
270.2
7029.4
349.5
20.11
266.4
6860.3
348.7
19.67
165.7
6569.8
290.4
22.62
170.9
6616.7
302.5
21.87
167.5
6371.3
310.2
20.54
163.8
6152.0
314.9
19.54
160.2
5803.3
317.5
18.28
55.8
2589.6
98.8
26.21
59.9
2761.1
106.1
26.02
64.6
2975.3
115.5
25.76
67.2
3075.2
125.2
24.56
68.6
3021.6
134.4
22.48
Professional secondary and
vocational training
2003
2004
2005
2006
2007
Pupils (thousands)
360.4
466.5
500.3
515.7
621.1
Full time
298.2
393.3
422.7
421.7
538.3
Other
62.2
73.2
77.6
94.0
82.8
Lecturers (thousands)
11.1
13.9
14.2
14.5
15.4
398
Public
Non-public
P/T Ratio
Schools
Public
Non-public
10.0
1.1
32.47
268
238
30
11.5
2.4
33.56
285
239
46
11.3
2.9
35.23
284
227
57
12.4
2.1
35.56
269
205
64
13.2
2.2
40.33
273
234
39
Students (thousands)
1131.0
1319.8
1387.1 1666.2
1928.4
Public
993.9
1182.0
1226.7 1456.7
1662.5
Non-public
137.1
137.8
160.4
209.5
265.9
Lecturers (thousands)
Public
Non-public
P/T ratio
University & Colleges
Public
Non-public
40.0
34.9
5.1
28.27
214
187
27
47.6
40.0
7.6
27.73
230
201
29
48.6
42.0
6.6
28.54
277
243
34
53.4
45.7
7.7
31.20
322
275
47
61.3
54.4
6.9
31.46
345
288
57
University and college
Source: GSO. 2008: Statistical Yearbook 2007. Education section, and author
calculation.
Recent discussions have been attracted to the issue of financing for education. In a series of
articles on Vietnamese education, Vu Quang Viet (2006, 2007, 2008) has pointed out that
spending on education in Viet Nam is too high, even in comparison with the developed
countries. The ratio of total spending on education per GDP was about 8.3 percent in 2005, 8.4
percent in 2006 and 9.2 percent in 2007 according to Ministry of Education and Training.
However, the data of the General Statistics Office even indicate higher total spending on
education. Meanwhile, spending on education is about 7.2 percent of GDP in the U.S on average
and 6.1 percent of GDP in the OECD countries. According to Viet (2006), in the developed
countries, 20 percent of finance for education comes from the society but in Viet Nam this
proportion is as high as 40 percent.
Table 19: Total Spending on education
Education spending/GDP (%)
From state budget
Viet Nam USA
France Japan
8.3
5
6.1
5.7
7.2
5,3
399
4.7
3.5
Korea
OCDE
Republic
7.1
6.1
4.2
4.9
From society and other sources 3,3
Share in education spending (%)
From state budget
60
From society and other sources 40
1,9
0.4
1.2
2.9
1.2
74
26
93
7
74
26
59
41
80
20
Source:Vu Quang Viet. 2006. Viet Nam’s Education : Startling Figures. http://Viet
Namnet.vn/service/printversion.vnn?article_id=763868
Non-tuition contribution to school accounts for a large portion of spending on education by
Vietnamese households, and this part is mounting to at an almost unaffordable level for many
poor people. A survey by The Saigon Time in 2007 listed up to 64 kinds of non-tuition fees and
contributions to schools. Many poor parents admit that they have to borrow money so that their
children can continue the schooling. There is indeed a big gap between educational spending
among income/expenditure groups. According to the above survey, average annual educational
spending of a household in the poorest quintile group (group 1) and the second poorest quintile
group are equivalent to 15 percent and 29 percent of educational spending by the wealthiest
quintile group (group 5). Hence, the dropout rates among children at the age of 15-17 are 46
percent and 33 percent for group 1 and group 2 respectively, whereas these rates are 23 percent
for group 4 and 10 percent for group 5. The survey concludes that non-tuition contributions and
fees are the main cause to this inequality that exists from the primary to the upper secondary
level and this is the biggest barrier to the poor to the educational services.
Table 20: Share of spending for schooling in total spending of household in some
Southern provinces (%)
Expenditure Group
Trà Vinh
Vĩnh Long
An Giang
Group 1
3.96
6.83
4.57
Group 2
3.72
6.39
4.20
Group 3
4.19
6.80
4.85
Group 4
3.58
5.46
4.62
Group 5
2.01
3.03
3.24
Average
3.60
5.66
4.33
Source: Burden of Educational Spending. 2/5/2008
Note:
Group
1:
most
poor,
group
http://www.thesaigontimes.vn/Home/thoisu/doisong/5335/
Daklak
8.02
11.72
8.93
7.74
6.73
7.41
5
:
HCM
5.33
12.45
12.13
9.72
8.42
8.99
most
wealthy
There is a renewed concern over the release in 2008 of the UNESCO 2008 Global Monitoring
Report “Education for All” which put the Education Development Index of Viet Nam (based on
universalization of primary education, adult literacy rate, gender equality in education and
quality of education) down the 9th grade below the last report in 2007, ranking Viet Nam at 79th
out of 129 countries with data. This is the alarm for the development of educational service in
Viet Nam since the EDI has kept falling over the past 5 years.
400
Figure 4: UNESCO Education Development Index for Viet Nam
Source: UNESCO, Global Monitoring Report – Educational for All, 2008. Quoted by
Educational sector owes an explanation. (Ngành giáo
ục đang
d
nợ
một lời giải thích).
05/11/2008; http://Viet Namnet.vn/giaoduc/2008/11/811959/
The debates and discussions on the reforms of the Vietnamese educational service also look at
many other problems. For example, low salary of teachers may affect the quality of educational
services by reducing productivity and increasing absenteeism and corruption at schools. The
current educational system is output-oriented – that is to put emphasis on the number of pupils
and students without the quality of the trainees. The existing curriculum is both out of date and
too heavy for the children and need to be reformed. There is also the gradual reform of the
current exam system, which put too much weight on specific knowledge and skills of students.
5.4.3. Development of Health Services
Since the beginning of the Doi Moi, Vietnamese health care service is said to record major
achievements. The healthcare system is evaluated as better than those of many countries with the
same income per capita. Poliomyelitis and tetanus among infants were eliminated in 2000 and
leprosy in 2005. The mortality rate of children under 5 years old decreases from 58 percent in
1990 to 31.4 percent in 2004 whilst children under 1 year old from 44.4 percent to 18 percent
(VDGs, 2005: 17). In 2003, 29.28 percent of poor households were granted free health insurance
and 57.88 percent of poor households were entitled to the exemption or reduction of hospital
fees. The average life expectancy in Viet Nam is 71.8 years in 2008, longer than that in many
countries with the same income per capita. In 2007, Viet Nam had totally 13,438 healthcare
service institutions with 210,800 patient beds. The number of doctors per one thousand people is
6.4 in 2007 (Statistical Yearbook 2007: 575, 580, 585). The reforms over the past two decades
have created two important changes in the health service sector by introducing the hospital-user
fee system and enabling the emergence of the private healthcare system.
401
The current healthcare system in Viet Nam consists of three levels: i) Basic healthcare network
includes medical service units in communes and within productive organizations which take care
for simple medical treatment and temporary accident rescues, ii) Provincial or regional health
institutions include regional clinics and healthcare centers, which can receive patients in the
region where they are located; and iii) Central health institutions include the so-called “central
hospitals” which are under the direct administrative management of the Ministry of Health.
402
Figure 5: Healthcare System in Viet Nam
MOH
Hospitals, Central
sanatorium and
rehabilitation hospitals
Regional polyclinics, district
clinics, provisional health centers,
regional specialized health center
Medical service units in communes and
precincts, medical units in offices and
enterprises
According to WHO data (WHO, 2009: 102-105), during the 2000-2007, the average physicians
per 10,000 inhabitants ratio is 6, whereas the nursing and midwifery personnel per 10,000
inhabitants is 8 for. These ratios are 5 and 12 for Southeast Asian; 10 and 15 for the lower
middle income countries; and 22 and 42 for the upper middle income countries on average.
During 2000-2008, Viet Nam has 27 hospital beds per 10,000 inhabitants on average. This ratio
is significantly higher that the one Southeast Asian region (9), and the lower middle income
countries (16) but still lower than the ratio of the upper middle income countries (42).
Box
2:
Viet
Nam’s
Social
Poverty Reduction Goals (VDGs) until 2010: Goals 4, 5, 6
Development
and
4. Reduce birth rate, child mortality and child malnutrition
Reduce birth rate to achieve the natural average substitution rate in the whole country no later than
2005; and in remote, isolated and poor areas no later than 2010.
Reduce the infant mortality rate to 20 per 1,000 live births by 2010.
Reduce the under – five mortality rate to 27 per 1,000 live births by 2010.
Reduce the under – five malnutrition rate to less than 20% by 2010.
Reduce the underweight (under 2.5 kg) birth rate to 5% by 2010.
403
5.5 Impr ove mater nal health
Reduce, by 2010, the maternal mortality rate to 70 per 10,000 live births with special attention to
disadvantaged areas.
Improve mother’s health condition after giving birth.
5.6 Reduce HIV/AIDS infection and er adicate other major diseases
Slow the increase in the spread of HIV/AIDS by 2005 and have the rate of increase by 2010.
Maintain the achievement of polio eradication; minimize the incidence and death of cholera, typhoid,
petechial fever, malaria, and plague, etc.
Extend prevention of accidents, injury and harm reduction of smoking.
WHO data (WHO, 2009: 95) also indicate that globally, there are 13 physicians per 10,000
population and 28 nurses and midwives per 10,000 populations although there are with large
variations between countries and regions. WHO estimates that countries with fewer than 23
health-care professionals (counting only physicians, nurses and midwives) per 10,000
populations will be unlikely to achieve adequate coverage rates for the key primary health-care
interventions prioritized by the Millennium Development Goals? With this regard, Viet Nam has
only 14 healthcare professionals per 10,000 inhabitants. Globally, there are 25 hospital beds for
10,000 people, and this ratio is still lower than the one of Viet Nam. Data provided in Table 21
by the General Statistics Office below also indicate relatively dismal outcomes for the health
services. Both the patient bed per 10,000 population and doctor per 10,000 population ratios
increased too slowly since 2003, and this stagnancy show that the increase in the number of beds
and doctors were not able to exceed the increase in the population to make a significant
improvement. However, during the 2003-2007 periods, the number of hospitals and medical
service units in communes increased to offset the decline in the number of non-hospital units
(regional polyclinics, sanatorium and rehabilitation hospitals, medical service units in
administrative and economic sectors) due to the restructure of these healthcare institutions.
Table 21: Key Indicators of Health Service Sector in Viet Nam, 2003-2007
2003
Total healthcare units
13162
Hospital
842
Regional polyclinic
930
Sanatorium and rehabilitation hospital
77
Medical service units in communes, 10448
precincts
Medical service units in office, 810
enterprises
Others
55
Patient beds (thousands)
192.9
404
2004
13149
856
881
53
10516
2005
13243
878
880
53
10613
2006
13232
903
847
51
10672
2007
13438
956
829
51
10851
789
769
710
710
54
196.3
50
197.2
49
198.4
41
210.8
Patient bed per 10,000 inhabitants
23.8
23.9
23.7
Doctor (thousands)
47.2
50.1
51.5
Physician (thousands)
48.7
49.2
49.7
Nurse
47.8
49.2
51.6
Midwife
16.2
17.5
18.1
Doctor per 10,000 inhabitants
5.8
6.1
6.2
Source: GSO. 2008. Statistical Yearbook 2007: 575, 580, 585
23.6
52.8
48.8
55.4
19.0
6.3
24.8
54.8
48.8
60.3
20.8
6.4
Table 23 indicates that Viet Nam is located in the Southeast Asian region where little attention is
given to the expenditure on health sector. Southeast Asia scores poorly in all four aspects (total
expenditure on health as % of GDP, general government expenditure on health as % of total
expenditure on health, general government expenditure on health as % of total government
expenditure, and per capital total expenditure on health in terms of PPP $. Nonetheless, Viet
Nam has performed much better comparing with the regional average. Viet Nam’s total
expenditure on health/GDP ratio is even higher than both lower and upper middle income
country groups in 2006. Although this is an encouraging investment trend, in the absolute dollar
terms, health spending in Viet Nam is still much smaller than the ones of these two groups. Viet
Nam’s per capital total expenditure on health in PPP was $US 151 in 2006 but that of lower
middle income countries and upper middle income countries were $US 181 and 707 respectively.
In addition, Viet Nam’s share of general government expenditure on health in total government
expenditure is considerably lower than those in the lower and upper middle countries (6.4
percent comparing with 8.2 percent and 9.8 percent), let alone the higher income groups. This
evidences the fact that health spending is still overlooked in the Vietnamese government’s
spending structure.
Similar to the educational services, one major concern over financing for health sector in Viet
Nam is a low proportion of government expenditure in total expenditure on health. This share is
32.3 percent for Viet Nam in 2006 whereas they are 43.2 percent and 55.1 percent for lower and
upper middle income countries. For the US, where the private healthcare system is much
developed, this share is still as high as 45.8 percent. Low share of government spending in Viet
Nam may mean that people have to spend too much of their pockets on healthcare.
A survey in 2006 has found out an increased situation of the so-called “catastrophic health
expenditure” (CATA). This survey points to the fact that in 2004, out of 100 household with
member(s) receiving hospital treatment, 8 households experienced a CATA and 5 households
then fell below the poverty threshold (Even Document, 2007). Besides the government budget,
incomes of the hospitals now come from two other sources: user fees and health insurance.
However, user fees are the most important sources. According to a recently published article,
patients have to pay 73 percent of the cost for hospital treatment and medicines (Phapluat
17/7/2009). Of total healthcare spending by a household, 30 percent are for formal and informal
hospital fees, and 70 percent (48 percent for house patients) are for purchase of medicine and
405
medical instrument. The coverage of the distribution program of free healthcare card to the poor
and marginalized people is limited because the demand for healthcare is too high. In 2004, WHO
ranked Viet Nam 183 out of 194 countries in terms of inequality in healthcare service. Many
experts is currently still warning that Viet Nam continues experiencing inequality in hospital and
medical treatment (laodong, No.88, 19/4/2008).
Ther e is also a concer n over the deter ior ation of people’s health because of the degr adation
of envir onmental quality. A sur vey in 2007 indicates that ther e ar e 4200 pr oductive bases
which ar e ser ious envir onmental polluter s. Ther e ar e also 1500 industr ial handcr aft
villages with high r isks of envir onmental pollution and these villager s ar e exposed to
danger ous diseases fr om two to thr ee times higher than those who ar e engaged with
agr icultur al pr oductions. This sur vey also pr ovides a star tling figur e that ther e ar e 51 socalled “cancer ” villages near by industr ial zones, dumping sites and chemical stor es
(vietbao, 25/12/2007).
406
Table 22: Key indicators of expenditure on health in 2006
Total
General
expenditure on government
health as % of expenditure on
GDP
health as % of
total expenditure
on health
6.6
32.3
15.3
45.8
11.0
79.7
of 6.4
55.7
Viet Nam
USA
France
Republic
Korea
Southeast Asia
3.4
Lower
middle 4.5
income countries
Upper
middle 6.3
income countries
General
government
expenditure on
health as % of
total government
expenditure
6.4
19.3
16.7
11.7
Per capital total
expenditure on
health (PPP int’l
$)
33.6
43.2
4.7
8.2
85
181
55.1
9.8
707
151
6719
3420
1467
Source: WHO, 2009: Table 7.
5.7 Recommendations for Goals and Vision for the Development of Public Ser vices in Viet
Nam to the year 2020 and 2025
5.7.1. Building the first class public services for all people
Viet Nam strives to become a medium middle-level income country to the year 2020. The
development goals and visions of the public services must be supportive to this overall objective.
They should also be compatible with the socialist orientation. Long-term development vision for
public services of Viet Nam should aim at building the first class public services for all people.
That means:
Building the development-oriented and people-centered public services
Just as public sector is different from private sector, public services are different from
private services in that the former cannot choose their customers. Nor can public service
providers serve customers depending upon their income and what they can afford. Likewise,
people make use of public services not so much out of choice just as society makes use of the
state. In any circumstances, public services however must strive to meet people’s demand with
excellence. A people-centered public service means that people are centered in the interest of the
service providers whether these are the government, private sector or civil society. Public
services must also fill in the gap between economic growth and social development – that is to
promote social development and to ensure that it does not lag behind economic growth. Among
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the main goals that Vietnamese public services contribute to achieve are the MDGs by 2015.
Because public services providers are not often profit-making enterprises, to sustain
development-oriented goals, public services need the support and intervention of the
government.
Building the state-of-the-art public services
There are still many complaints on the backwardness and simplicity of Viet Nam’s public
services. The state-of-the-art should be the norms of key public services in Viet Nam in the near
future. This includes:
+ state-of-the-art public administrative services, as indicated, for example, by the level of
e-government
+ state-of-the-art educational services, as indicated, for example, by modern educational
facilities, curriculum, teaching methods, density of study works at the university and college
level, and school management.
+ state-of-the-art healthcare services, as indicated, for example, by modern grassroots
healthcare networks, medical facilities, and the ability of hospitals and clinics to take over
treatment of diseases, and emergencies.
+ state-of-the-art recreation, sport and culture, as indicated, for example, by a modern
public media (e.g. the level of information technology application), broadcasting system,
delivery system such as cable network, and event organization technology.
Building 3Es public services
So far, despite major achievements, Viet Nam’s public services still fall short of 3E
criteria. That means desirable public services must ensure: equity, efficiency and effectiveness.
+ Equity criterion means public services are able to meet the needs of all groups in the
society. It also means guaranteeing equal access of all people to the services they need and
ensuring equal outcomes of using those services.
+ Effectiveness criterion means three aspects of public services: i) effective access – or
easiness to obtain a service; ii) appropriateness – or services should meet well people’s needs;
and iii) quality – or services must conform to high standards.
+ Efficiency criterion means three aspects: i) technical efficiency or public services are
produced at the lowest possible cost; ii) allocative efficiency or producing the services that
people value most given resource constraint; and iii) dynamic efficiency or sustaining the
delivery of new and better products, and existing products at lower cost.
Building growth-supported public services
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Although growth alone is not enough it does have “trickle down” effects on social
development. Numerous studies have found that there is a positive causality relationship between
public services development and economic growth. Viet Nam’s public services are not growthsupportive enough. Public services such as health, education and administrative services will
have to play better role as “soft infrastructure” of the economy. At the same time, these services
will strive to become stronger growth engines by themselves. The development of these public
services will certainly bring in social development.
5.7.2. Building an advanced educational service, imbued with national identity, and
meeting the need of industrialization and modernization in the context of international
integration 73
The 14th Draft of the Development Strategy of Education 2009-2020 has identified key
development concepts for Vietnamese education services. These are:
1.
Holding the mission to create overall development of Vietnamese people, contribute to
the building of modern national culture, and lay the ground and play the engine for
industrialization and modernization
2.
Developing the educational services of people, by the people and for the people
3.
Meeting the need of the society, and development demand of its members, and
producing joyfulness in the studies, and creating an educated society.
4.
Pushing forward international integration of educational sector at the same time
preserving and making use of national culture to build an educational service which
values humanity, progressiveness and modernity.
5.
Increasing competitiveness in educational service as to motivate educational
development.
6.
Ensuring best quality possible of educational services despite resource constraint.
In the next 20 years, the overall goals of Viet Nam’s educational services are to build a
modern, science-based, and national education which serves the cause of industrialization and
modernization in line with market economy with socialist orientation, and looking forward to an
educated society. The education of Viet Nam must produce the people who have independent and
creative thought, context compliance and problem solving capability, knowledge and
professional skills, self-control capability and citizen responsibility, and attached to national
independence and socialist cause.
73
Conclusion 242-TB-TU on April 15th 2009 by the Politburo regarding development orientation of education.
409
The 14th Draft of the Development Strategy of Education also lay down three specific
objectives to be achieved by Viet Nam’s educational services by the year 2020, including:
 The educational services reach an adequate scale to ensure sufficient human resources
for industrialization and modernization, and to provide people with life-learning
opportunities
 Improving quality and effectiveness of education approaching regional and
international standard.
 Resources for education development are sufficed, efficiently allocated and
effectively used.
The 14th Draft suggests a set of 11 important measures to be implemented. These are:
reforming educational management; developing educational staffs; re-structuring national
educational system and expanding educational network; renovating education programs;
renovating teaching methods, student evaluations, and inspection mechanism for educational
institutions; socializing educational services, increasing investment on education, attaching
education and training to demand of the society; supporting education for marginalized regions
and communities; improving effectiveness of science and technology activities in education and
research organizations; and building advanced educational institutions.
Development Strategy of Education will be implemented in three phases.
Phase 1 (2009 – 2010)
- Adjusting key targets and continuing the implementation of Development strategy for the
2001-2010 period.
- Focusing on key objectives: pushing forward the pedagogical renovation; consolidating
rules and regulations in educational services; reforming administrative system.
- Initializing programs of the period 2009 – 2020.
Phase 2 (2011 - 2015)
- Implementing new kindergarten education program; preparing to implement new
secondary curriculum; increasing application of new international educational programs;
starting new foreign language program.
- Organizing national evaluation program, and participating international evaluation
program regarding educational achievement of students
- Reforming structure and state management in national educational system
- Pushing forward the reforms in the training of educational staffs
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Phase 3 (2016 - 2020)
- Building university at international standards
- Conducting necessary adjustments on goals and targets and evaluating results of the
strategy.
5.7.3. Building a comprehensive health service of the people, by the people and for the
people
This vision can be inferred from the spirits of many highest documents regarding the
health service sectors such as the Constitution in 1992, the Resolution of the 9th National Party
Congress, Direction 06/CT-TW of CPV central committee (9th congress) in 2002 on
strengthening and perfection of grassroots health system, Decree 46/NQ-TW in 2005 of the
Politburo (9th Congress) on “The healthcare work for the people in the new context,” Decree
47/NQ-TW in 2005 of the Politburo (9th Congress) on “Continue advancing the implementation
of demographic and family planning policy,” Decision 42/ KL-TW in 2009 by the politburo on
the reforms of operating mechanism (including salary and user fees) of public healthcare
providers; Law on protection of people’s health in 2000, Pharmaceutical Law in 2005, and Law
on health insurance in 2008; Comprehensive development plan for health system of Viet Nam to
the year 2010 with a vision to 2020 (in 2006); Development plan for healthcare network by 2010
with a vision to 2020 (in 2008); the Draft of Demographic and maternal health strategy 20112020 etc
The development strategy for health service up to 2020 should be inferred from The
Comprehensive development plan for health system of Viet Nam to the year 2010 with a vision
to 2020 and the Development plan for healthcare network by 2010 with a vision to 2020. The
Comprehensive development plan for health system have identified the overall development
goals of the health service as: building the healthcare system of Viet Nam toward modernization
and perfection, looking forward equity, effectiveness and development; meeting increased and
diverse needs of the people for health protection, caring and enhancement; reducing the disease
and mortality rate, increasing life expectancy, improving life quality, match and exceed targets
set out in the 2001–2010 period. In addition, the Development plan for healthcare network states
the goal: Building and developing healthcare network compatible with socio-economic
development condition of the country, leveling quality of healthcare services to be equal with
more advanced countries in the region, meeting health demand of people and achieving equity,
effectiveness and development goals.
The Comprehensive development plan for health system points out four specific
objectives:

Develop preventive healthcare network capable of predicting, supervising and
detecting and controlling epidemics to reduce the infection and mortality rates du
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
Invest on and re-arrange clinics and rehabilitation hospital network

Strengthen and perfect grassroots healthcare network, increase the access of the
people to basic medical and healthcare services

Develop the pharmacy into pioneer technological and economic sector
To implement the strategy, it then suggests six classes of measures, including financial
measures, human resources measures, science and technology measure, medical equipment
measures, international cooperation measures, and management measures. The implementation
of both development strategies for health system and healthcare network is in two phases.
Phase 1: 2008 – 2010:
-
upgrade hospitals at the district level and regional polyclinics; increase capability of
commune clinics. Advance the investment and development of regional and provincial
hospital
-
upgrade provincial polyclinics in the Central Highlands, Northern mountainous areas,
Mekong river delta
-
develop hospitals in the specialized areas: Hanoi, Hue-Da Nang and Ho Chi Minh City
-
upgrade hospitals in regions where there are low patient bed per population ratio
-
pushing up the training of medical staffs to meet the demand of the healthcare service.
Phase 2: 2011 - 2020
-
continue to complete and increase technological level in specialized areas, polyclinics,
and specialized clinics at the central level and at the regional level to meet the diverse
demand for health services
-
increase the capability of polyclinics in Can Tho in order to assume the role of
specialized center in the Mekong river delta
5.8 Recommendation for Guidelines and Measur es to develop public ser vices in Viet Nam
Enabling the government to make public services work for the people
Government intervention is crucial to guarantee public services to bring equal benefits to
all people. The transition toward market economy has significantly and rapidly reduced the share
of public sector in Viet Nam and this may be a constraint for effective government intervention
measures. Quite often, the issue of government or public sector size leads to the debate on the
government size between two schools of thought. One sees that a large government has a
detrimental effect on economic growth since it drives resource allocation under political more
than market forces (e.g. Baro, 1989, 1990, 1997; Romer, 1989). Another contends that
government has a growth enhancing role since it can provide such public goods and has authority
412
to reduce negative externalities (e.g. Levine and Renelt, 1992; Karras, 1993, 1996, 1997). Yet,
the current size of the government in Viet Nam is below any of the thresholds set by two schools
of thought.
Having said that the government should intervene does not mean making the government
the providers of all public services. Some recent studies have pointed to two characteristics of
Vietnamese public services (CIEM, 2007; Mai, 2008):
(1) Services which are provided by the public authorities or under the mandate of public
authorities. Public services can be provided by public agencies or private organizations. The
nature of service providers does not determine if a service is public or not. Rather, it is the nature
of the bearer of final responsibility for the supply of a service. In the case of public service
supply, this bearer is always the government. And,
(2) Public services are provided and purchased according to the market relationship with
only a few exceptions. Consumers pay for public services fully through service fees, either
partially or fully, or indirectly through tax. In the former case, state guarantees that the supply of
public services is not for profit purpose, and all citizens are equal beneficiaries of public services
regardless of their status in tax contribution.
The implication of the above concept is clear: the government should be an “enabling
regulator” rather than “enabling” provider. In other words, the government must intervene either
by laws and regulations or by market measures to ensure safe, secure, and reliable access to
public services at just and reasonable rates.
Creating good governance for public services
Better delivery of public services needs the effective participation of three actors: the
state, the civil society and the private sector. Clean state, engaging civil society and responsible
private sector are enabled under a system of good governance which exist at all three levels: at
the macro-level of the macro environment that state creates and operate in, at the mezzo level of
service sectors and service companies, and at the micro-level of specific local communities and
units.
This system of governance in Viet Nam needs to be improved. In their recent research,
Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi (2009) have ranked Viet Nam within of
25th-50th percentile for four out of six components of governance indicator (government
effectiveness, regulatory quality, rule of law and control of corruption). Except control of
corruption, none of these four components have been significantly improved over the past three
years.
Figure 6: Governance Indicator of Viet Nam
413
Source: Daniel Kaufmann, Aart Kraay and Massimo Mastruzzi (2009). "Governance
Matters VIII: Governance Indicators for 1996-2008". World Bank Policy Research June 2009.
Note: Confidence level at 95 percent
90th-100th Percentile
50th-75th Percentile
10th-25th Percentile
75th-90th Percentile
25th-50th Percentile
0th-10th Percentile
An important aspect in the reforms of the system of governance for the sake of public
services development is to improve the governance at local level. Local level, not only within the
local state system but also within local civil society and community, is often the place where the
weaknesses of the governance concentrate, for example, lack democracy, corruption,
incapability, red tape, resource constraint. Local government officials and street-level
bureaucrats are not only those who are providers of public services, communicator with public
service consumers to get their feedback, and direct supervisor of private sector but in many
distant places, they also are those who raise the awareness and demands for public services
among the local people. For example, in the mountainous areas, doctors and school teachers or
even border guard troops are often the raisers of awareness of the importance of health and
education in the indigenous communities. In many situations of resource constraint, the head of
the hamlet often take the lead in mobilizing contribution from local community for public
development purposes such as construction of local roads, schools, clinics, clean water supply
and electricity lines.
Pushing up the “public finance” reform, “salary” reform, and socialization
Viet Nam needs a number of reforms in order to address its many problems in the public
services. This paper recommends focusing on three essential measures which are the reform of
414
public finance, the reform of civil servant salary and the advancement of socialization of public
services.
+ “Public finance” reforms
Public finance reform is vital to sustain good performance of public services. This is a
complicated reform since it touches many aspects of the economy, ranging from salary of civil
servants and government officials, and user fee of public services to tax structure and corporate
sector. Public finance reform in Viet Nam should target at:
- Reducing the “leakage” problem, whether it occurs in public investments, tax and fee
collections, corruption, and embezzlement or inappropriate use of government properties. This
task is necessarily accompanied with the increased fiscal discipline and oversight of elected
bodies and inspection organizations;
- Getting the public expenditures and investment to the right beneficiaries. In other
words, the government should spend wisely in the condition of resource constraint. Unwise
spending results in part from fiscal decentralization, lack of oversight and too many spending
items. To address this issue, the spending process needs greater transparency and participation of
stakeholders; and
- Determining the appropriate fee and tax rates for appropriate people. That is to
eliminate the so-called “catastrophic user fees” of public services for the poor, at the same time
ensuring sustainable provision of the best quality services to the society or making sure that
taxpayers receive values for their contribution.
+ “Civil servant salary” reforms
Low salary is said to be the major cause to the lack of incentive among civil servants in
the delivery of public services. More seriously, it is also seen as the source of corruption in the
public sector. Over the past years, the Vietnamese government has carried out a number of
adjustments with an aim to increase the salary in the public sector. After the latest adjustment in
May 2009 under Decree 33/2009/ND-CP, minimum salary of civil servant is brought up to
650,000 VND per month, and there is also a cash transfer program to those who have monthly
salary below 1,600,000 VND. According to Decree 33/2009/ND-CP, the increase in salary will
be paid from the savings of 10 percent of regular expenditures of the organization, or from the
income of public service provider units which collect, or from the increase in the organization
budget. Although this move should be welcome, the increase is still small comparing with the
average living standard in the society. Of course, raising the salary of civil servants is just the
beginning step, it must be accompanied with the strengthening of the sanction system, and
measures to nourish the “working ethics” of the civil servants.
+ Socialization
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Socialization is now recognized as a key solution to improve the quality and increase the
availability of public services when the government resources are limited. At present, the priority
targets of socialization are education, health, culture and sports services. However, many other
public services will also be considered for socialization in the coming years. In the socialization
process, the government should open up these services for the private sector to establish new
service providers or to take part in the existing state service providers, at the same time ensure
the non-discrimination between state and private service providers. In addition, just like the
reforms of the SOE sector, a careful and effective socialization of public services needs thorough
roadmaps and schemes for the socialization of each public service sector.
Establishing performance management mechanism for better outcomes of public services
So far, the government’s public service development measures focus more on the
suppliers (e.g. hospitals, universities, transport operators) than consumers (patients, students,
train or bus passengers). As a result, although Vietnamese public services have recorded major
output achievements, their success in outcome achievement is still limited. Consumers,
especially the poor, still face a lot of difficulties when engaging with a market. Low income
households become commercially unattractive, meaning competing companies will not be
motivated to try to win their customs among the poor people. Low incomers may also encounter
the catastrophic user fees, even for using services which were provided free in the pre-reform
period such as primary education and healthcare.
A performance management mechanism is necessary to increase the government
accountability for outcomes of public services. It is supportive to the goal of creating a 3E public
service by having evaluations of equity, effectiveness and efficiency criteria. More importantly,
it is to make sure the fulfilment of not only output objectives but also outcome objectives of
public services, and to serve as the ground for benchmarking service delivery.
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CHAPTER 6: TRANSPORT SERVICES
6.1 Executive summar y
The transport services play an extremely important role in Viet Nam’s economy in
general and in international trade in particular. The transport services has contributed positively
to high economic growth of Viet Nam over the past decades and has helped reduce poverty
through better linkages to markets, education and health facilities. Transport services are input
factor of many other manufacturing and services industry. Due to geographical characteristics,
transport services in Viet Nam consists of all modes of transport, including road transport,
railways transport, maritime transport, air transport and inland waterways transport. Each mode
of transport has different role in transport system and differences in current status and
development issues. The volume of goods to be transported by all modes of transport increased
from 140.7 million tons in 1995 to about 570 million tons in 2007 (Table 1); and the number of
passengers increased from 564.4 million in 1995 to 1,628.9 million in 2007 (Table 2).
Table1. Volumes of cargo transported by modes of transport
Thousand tons
Total
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
140709.9
157201.9
176258.8
189184.0
203112.7
223823.0
252146.0
292869.2
347232.7
403002.2
460146.3
513575.1
569534.8
Rail
Road
4515.0
4041.5
4752.0
4977.6
5146.0
6258.2
6456.3
7051.9
8385.0
8873.6
8786.6
9153.2
9098.2
91202.3
103058.7
114395.1
121716.4
130480.0
144571.8
164013.7
192322.0
225296.7
264761.6
298051.3
338623.3
369776.6
Inland
waterways
37653.7
40270.3
46286.2
50632.4
54538.1
57395.3
64793.5
74931.5
86012.7
97936.8
111145.9
122984.4
190529.6
Maritime
Air
7306.9
9783.7
10775.4
11793.0
13006.1
15552.5
16815.3
18498.4
27448.6
31332.0
42051.5
42693.4
32.0
47.7
50.1
64.6
42.5
45.2
66.8
72.0
89.7
98.2
111.0
120.8
130.4
Viet Nam’s strategy is to be an industrial country in the year 2020; the trade relationship
between Viet Nam and other countries developed very fast after Viet Nam accessed to WTO, so
that transport services become much more important for the Viet Nam economy as the whole.
This study under SERV-2 A analyse current status and development issues of transport services
in Viet Nam; the prerequisite for stimulating transport services growth; key drivers of growth
417
and supporting infrastructure for development of the transport services. Then the study will give
out the overall goals and strategic recommendations for comprehensive development of transport
services; policy orientation recommendations and action plan for transport services in Viet Nam.
Number of passengers transport by modes of transport
Million Passengers
Total
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
564.4
608.9
654.3
693.0
729.2
763.6
821.8
878.5
1076.0
1202.9
1349.6
1493.8
1628.9
Rail
Road
8.8
8.5
9.3
9.7
9.3
9.8
10.6
10.8
11.6
12.9
12.8
11.6
11.5
441.3
478.2
514.6
549.9
587.8
620.7
677.3
727.7
931.3
1041.9
1173.4
1331.6
1464.8
Inland
waterways
111.9
119.4
127.8
130.8
129.4
130.3
130.0
135.6
128.6
142.6
156.9
143.2
143.9
Air
2.4
2.8
2.6
2.6
2.7
2.8
3.9
4.4
4.5
5.5
6.5
7.4
8.7
--------------------------------------(Source of data: GDOS)
6.2 Cur r ent status and development issues of the tr anspor t ser vices in Viet Nam
6.2.1. Road transport services
Services suppliers and quality of services
Since implementation of “Doi moi” policy, especially after the Enterprise Law 1999
approved by the National Assembly and effected from the 01 January 2000, road transport
services has developed rapidly.
The most important changes are the structure of road transport services providers. Almost
of services providers coming from private sector. This is partly a result of policy changes which
support a multi sector economy and encourage private sector development. Currently, companies
that are consisted of many kind of ownership, including households, private company,
Shareholding Company and cooperatives are operating in the road transport services subsector.
At present, there are about 1,050 registered companies involved in the road transportation
industry. Most of them are small and medium scale companies. The privatization of the trucking
418
services has progressed so much that the role of state-owned enterprises (SOEs) has been
reduced to negligible levels, creating a highly competitive trucking market.
The bus services is very competitive and the services are satisfactory with segmentation
of the market, as some companies offer high levels of service at correspondingly higher prices,
while some other companies offer lower quality of services at much lower prices. It is also
notable that the role of the state in supplying of bus services has declined in favour of private
sector operators, reflecting an increasingly more vibrant market-oriented industry.
Road transport accounts for much of interprovincial passenger transport services, i.e.,
85% and 63% in terms of passengers and passenger-kilometres, respectively. In interprovincial
freight transport, the share of road transport is 68% in terms of tonnage and 15% in terms of tonkilometres. From 2000 to 2007, road traffic demand increased by 12% and 17% p.a. (for both
pax-km and ton-km, respectively).
The quality of long-distance passenger transport and freight transport services has been
substandard. Vehicles and on-board amenities require substantial improvements. In addition,
roadside facilities are not adequate. While there are many commercial facilities, such as
restaurants, coffee shops, fuelling stations and hotels, these are scattered along the roads in an
unorganized manner, thereby failing to provide comfort and convenience to both passengers and
drivers. The development of roadside stations as an integral part of road facilities needs to be
considered to enhance safety and comfort of road users, and at the same time promote local
economic development.
While competition is a key factor to enhance responsiveness to the market and to lower
costs, there is a danger that over-competition will stifle the modernization of the truck and bus
fleet. There is also a danger that operators would sacrifice safety, by overworking drivers,
incentivizing reckless driving to keep up with schedules, and cost-cutting in vehicle
maintenance. Mechanical failures could result in fatal accidents. It is therefore timely for the
government of Viet Nam to strengthen safety and environmental standards to foster the
modernization of the road transport industry.
Vehicle fleet
In the 1990s, the number of registered motorized vehicles rapidly increased, with high
annual growth rates of 17.8% for motorcycle and 7.0% for automobile. The number of
motorcycles and automobile increased from 1.2 million and 246 thousand in 1990 to 6.2 million
and 484 thousand in 2000, respectively. This increase accelerated after 2000, the number of
motorcycles and automobile further increased and reached more than 26 million and 1.4 million
in 2008, with higher annual growth rates of 20.1% and 12.3%, respectively. In 2006, the vehicle
ownership rates were 220 motorcycles and 12 automobile per 1,000 persons. In HCMC and Ha
Noi, ownership rates of car and motorcycle per 1,000 persons were calculated at 37 cars and 548
419
motorcycles in HCMC and 41 cars and 349 motorcycles in Ha Noi. Using HCMC and Ha Noi as
benchmarks, the vehicle ownership level of Viet Nam is expected to continue to increase as
average income increases in the future.
Traffic safety
The numbers of vehicle increased very fast, therefore congestion levels have significantly
risen not only in urban areas, especially in Ha Noi and HCMC but also on major inter-city links,
such as National highway N01, N05, N018 and N051… Furthermore, there has been a significant
growth in truck traffic, resulting not only to congestion but also to accelerate destroys of
pavements.
Due to the low quality of infrastructure and rapidly increasing of road transport flows,
road traffic safety has become a very serious challenge. Road traffic accidents increased rapidly
from 1990 to 2002, the peak year of traffic accidents, with an annual increase rate of 13.5%.
during this 12-year period, the number of fatalities increased 5.8 times. The number of accidents,
fatalities, and injuries accidents reached 27,993, 13,186 and 30,999, respectively. After 2003, the
number of traffic accidents and injuries dramatically fell, although the number of fatalities
remained high and relatively constant at around 12,000 per year.
6.2.2. Railway transport services
The supplier
In 2003, the Vietnamese government decided to introduce a separated structure for the
Viet Nam Railway Federation to the Viet Nam Railway Administration (VNRA) under the
Ministry of Transport and the Viet Nam Railways Corporation (VNR) under the Prime Minister.
The progres