The 2023 PCI-PGI Report: Ranking Vietnam’s 65 Provinces on Economic Governance & Competitive Reforms

The 2023 Provincial Competitiveness Index (PCI) and Provincial Governance Index (PGI) report offer practical insights for foreign investors in Vietnam. Drawing from feedback from over 10,000 firms, including both domestic and foreign-invested enterprises, the report tracks provincial efforts to streamline bureaucracy, combat corruption, and foster pro-business environments. Since 2022, the report has expanded its scope to assess and rank provinces on the basis of their environmental policies, aiming to encourage better business practices, including the adoption of innovative green technologies.

The Provincial Competitiveness Index (PCI) report on economic governance areas affecting private sector development has been fundamental for ranking Vietnam’s 63 provinces since 2005.

For the 2023 edition of the report, 8,402 existing domestic private firms and 10,892 newly established enterprises across 63 provinces participated in the business survey.

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In addition, 1,549 foreign-invested enterprises (FIEs) from 54 different countries and territories also took part in the research; the report collected data from 51 provinces, with a focus on 25 provinces and cities with the highest concentration of foreign direct investment (FDI).

The 2023 PCI-PGI Report was released in May by the Vietnam Chamber of Commerce and Industry (VCCI) and US Agency for International Development (USAID). The joint report is expected to guide policymakers in facilitating sustainable growth, as well as provide a reference to investors and other interested parties.

The Signature Provincial Competitiveness Index

The PCI has ranked Vietnam’s 63 provinces based on economic governance areas affecting private sector development since 2005. Overall, the Signature PCI index comprises 10 traditional sub-indices. To generate the PCI index, researchers follow a three-step process known as the “three Cs”:

• Collect business survey data and published data sources;
• Calculate 10 sub-indices and standardize them on a 10-point scale; and
• Calibrate the composite PCI as the weighted mean of 10 sub-indices with a maximum score of 100 points.

According to the report’s authors, the PCI reevaluates its methodologies and recalibrates the index every four years to adapt to Vietnam’s dynamic economy and ongoing reform efforts.

Which Vietnam provinces top the 2023 Provincial Competitiveness Index rankings?

Quang Ninh Province holds the top spot for the sixth consecutive year with 71.25 points. Long An ranks second with 70.94 points. Hai Phong and Bac Giang come in third and fourth, with 70.34 and 69.75 points, respectively. The remaining Top 10 provinces are Dong Thap (69.66 points), Ba Ria–Vung Tau (69.57 points), Ben Tre (69.20 points), Thua Thien Hue (69.19 points), Hau Giang (69.17 points), and Phu Tho (69.10 points).

Source: 2023 PGI-PCI Report

In the 2023 PCI rankings, the Red River Delta is the top-ranking region with 63.6 percent, closely followed by the Mekong Delta at 61.5 percent, the Southeast at 50 percent, the Central Coast at 42.9 percent, and the Central Highlands at 20 percent.

Quang Ninh continues to lead the provincial rankings for six years in a row with a score of 71.25 points. The province is said to have successfully reduced the administrative burden on businesses, effectively implemented business support programs, and alleviated informal costs for businesses.

The Core PCI

This is the second tool of the PCI, constructed from a smaller set of 35 indicators that have remained fixed for 18 years (2006-2023). Unlike the Signature PCI, The Core PCI follows the 2006 PCI methodology and is never recalibrated, so each indicator and sub-index remain comparable over the entire PCI.

The 2023 Core PCI indicates:

• Improvement over time: This is the seventh year in a row that the median province score has improved.
• Key governance trends to watch:
• Positive changes in business support policies;
• Informal charges continue to decline;
• Market entry procedures have become easier to complete; and
• Administrative procedure reforms have achieved positive results.
• Access to land remains a bottleneck, requiring stronger reform efforts in 2024.
• There is room for improvement in creating a more equitable business environment.
• The proactivity of the provincial government officials needs to be revitalized.

Challenges for foreign business operations in Vietnam

The participating enterprises pointed out the top five obstacles to business success in Vietnam are: accessing banks or other forms of credit (57.1 percent), finding customers (49 percent), market downturn (34.5 percent), epidemic (COVID-19) (25.5 percent), and finding business partners (17.1 percent).

PCI Business Thermometer

The PCI survey asked participants about their next-year investment plans and found that business optimism remained low.

The proportions of firms planning to increase their operation’s size over the next two years considerably decreased from 35 percent in 2022 to only 27 percent in 2023, lower than that observed between 2012-2013 when Vietnam bore the dual impact of the global financial crisis and domestic macroeconomic instability.

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The 2023 survey data also recorded a surge in the proportion of firms planning to downsize or shut down their operations – at 16.2 percent in 2023 compared to 10.7 percent in 2022. The figure is nearly as high as the record of 16.6 percent in 2021, during the peak of the COVID-19 pandemic.

However, researchers observed that about a third of larger firms with a capital size of VND 50 billion (US$2 million) and above had planned to expand their operations over the next two years. Private firms in the electronic equipment manufacturing, chemicals, and rubber and plastic sectors remain optimistic.

The Provincial Green Index

After the pilot in 2022, the PGI research team made substantial changes to the initial methodology, including eliminating irrelevant or non-applicable indicators, adding new ones that captured provincial needs and ongoing initiatives, and improving the questionnaire. Administrative data from the Ministry of Finance (MOF) and the General Statistical Office (GSO) also replace data from the Ministry of Natural Resource and Environments (MONRE).

Pollution and disaster resilience

The section attempts to reflect the provincial responsibilities for disaster resilience and climate mitigation that are provided in the 2020 Law on Environmental Protection (LEP) and Decree 08/2022/ND-CP.

The PGI index measures these responsibilities across three dimensions: firms’ assessments of provincial efforts to combat pollution; local government efforts to reduce or mitigate the negative effects of natural disasters; and available hard data on these approaches.

The Red River Delta and Mekong Delta provinces have performed well on the 2023 index, while provinces in the northern mountains and central coast faced more challenges.

Regulatory standards

Indicators in this category present the effectiveness of the government’s regulatory oversight and enforcement to limit the environmental damage of business operations.

The sub-index is broken down into pollution punishments; the quality, thoroughness, and fairness of environmental regulations; wastewater treatment and disposal; and solid waste.

Dong Nai, Quang Nam, and Binh Thuan provinces lead this sub-index.

Leadership and assistance

This category assesses the potential for provincial governments to incorporate environmental goals into general policy-making, procurement of goods and services, and regulatory guidance to assist firms in greening their operations and behavior. The metric comprises three dimensions: green procurement, guidance, and the scale of green upgrades.

According to the 2023 PCI-PGI report, large service sectors, especially tourism, motivate provincial leadership to adopt environmentally friendly changes.

Da Nang emerged as the top performer on this subindex with an average score of 7.07, followed by Quang Ninh, Ho Chi Minh City, and Hung Yen.

Incentives and support services

The category examines government policies encouraging private firms to act in a manner that is sensitive to environmental considerations and beyond the minimum mandates of Vietnamese law or international standards.

The provincial incentives are supported by the 2020 LEP with green credit and green bond regulations, Decree No. 08/2022/ND-CP detailing several articles of the LEP, and the Green Growth Plan.

The provinces of Ha Nam, Hung Yen, and Long An scored the highest on effectiveness of government support.

Read: Funding Vietnam’s Green Growth: The ESG Initiative and Work of Credit Institutions

Advisory for foreign investors: Utilizing the PCI-PGI Report

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The PCI-PGI report is an essential tool for foreign investors looking to enter or expand within the Vietnamese market. Here’s how you can leverage this report to inform your investment decisions:

• Identify high-performing regions: Use the PCI rankings to pinpoint provinces with favorable business environments. Top-ranked regions typically offer better administrative procedures, infrastructure, and investment incentives.
• Understand local challenges: The PGI index highlights areas where improvements are needed, such as taxation, fire safety, import/export regulations, and environmental standards. Being aware of these challenges can help you develop strategies to mitigate risks.
• Assess labor quality: The report provides insights into the quality of the local labor force. Evaluate this information to ensure that your business can access the skilled workers it needs.
• Compliance and regulatory guidance: Stay informed about the latest regulations and compliance requirements. The PCI-PGI report includes updates on provincial policies and national regulations, helping you stay compliant and avoid legal pitfalls.
• Plan for sustainable investment: The report’s focus on green growth and sustainability can guide your company’s environmental and social governance (ESG) strategies, aligning your investment with Vietnam’s green economy initiatives.

Key takeaways

Findings of the PCI-PGI reports are indicative of the extent and effectiveness of the decision-making of local administrations and measure their success in achieving a sustainable business environment.

The 2023 PCI-PGI index indicates that Vietnam needs to improve its taxation, fire safety, import/export, and environmental regulations, as well as the quality of the local labor force.

By utilizing the findings of the PCI-PGI report to tailor their market strategies, foreign investors and enterprises can make more informed decisions, navigate regulatory landscapes more effectively, and enhance the sustainability and profitability of their investments in Vietnam.

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