Vietnam’s Provincial Competitiveness Index 2022: Key Takeaways

Vietnam’s Provincial Competitiveness Index for 2022 has been released. Overall, it reflects a robust and dynamic business environment across the country but the devil is in the details. We discuss the findings of the index, including the performance of foreign firms and persistent challenges amid the global slowdown.

A joint initiative between the Vietnam Chamber of Commerce and Industry and US Aid, the Provincial Competitiveness Index (PCI) is now in its 18th year.

On its surface, the report assesses and ranks Vietnam’s provinces on a number of key indicators. However, underpinning these rankings are surveys of both foreign and domestic businesses which reveal unique insights into what it’s like doing business in Vietnam.

Coupled with Vietnam Briefing’s Doing Business in Vietnam guide, the PCI 2022 report can be a valuable resource for businesses looking to make their mark in this booming Southeast Asian nation. In this light, here are the key takeaways from the report that businesses should be aware of.

The Provincial Competitiveness Index 2022

The PCI 2022 report reveals a number of interesting developments. Broadly, there have been improvements, though some provinces have improved much more than others.

PCI comparison, 2022 to 2021

Source: The Vietnam Provincial Competitiveness Index 2021, The Vietnam Provincial Competitiveness Index 2022

Quang Ninh maintains the top spot

Quang Ninh topped the PCI yet again in 2022. The report found that Quang Ninh has the highest quality of economic governance and that it was “exemplary in establishing and operating public service centers from provincial to district levels”. Its young skilled workforce and high levels of education and training are all contributing to Quang Ninh becoming a dynamic and attractive province for foreign and domestic firms.

Bac Giang jumped a huge 29 places

The biggest mover in the 2022 PCI was the northern province of Bac Giang. Known as an industrial hub, particularly for the manufacture of electronics, this relatively small province’s score jumped a relatively big 8 points. This correlated to a jump of 29 places in the rankings putting Bac Giang at position number two only trailing long-time leader Quang Ninh. Notably, the difference between the two is a minuscule .15 points.

Provinces that dropped out of the top 30

A notable difference between the 2021 PCI and 2022 PCI was that the rankings were reduced to just the top 30 as opposed to Vietnam’s full 58 provinces and five centrally managed municipalities.

“This change is expected to encourage provinces and cities to put in more effort to foster an enabling environment for the private sector and become a top-ranking locality,” the report states.

There were 9 provinces that dropped out of the top 30 in 2022 and for which there are no current rankings. These were: Binh Duong, Hai Duong, An Giang, Tuyen Quang, Ca Mau, Gia Lai, Binh Thuan, Vinh Long, and Nam Dinh. Notably, however, at number 30 in 2022, Ninh Thuan has a score of 65.43. In 2021, however, Ca Mau came in with a score of 64.74 signaling a lift in scores overall.

PCI and foreign-invested enterprises in Vietnam

As part of collating the PCI 2022, 1,282 foreign-invested enterprises (FIEs) were surveyed. These surveys showed a number of key changes and developments in Vietnam’s business environment.

Foreign firms are recovering

The number of foreign firms reporting that they hired new staff in 2022 jumped five points in 2022 to 56 percent, up from 51 percent in 2021. There was also a jump in the number of firms reporting profits. It was 39 percent in 2022, up from 43 percent in 2021.

Notably, the pandemic created several challenges for foreign firms in Vietnam. These PCI findings suggest that the tables may have turned and that foreign firms may be getting closer to where they were before the pandemic. Nevertheless, they are still some way off.

Growth in some traditional industrial hubs is slowing

The report notes that companies in the previously popular provinces of Binh Duong and Dong Nai, are slowing their investments in these regions. As apparel manufacturing hubs, these two provinces may be feeling the impacts of slower growth in key export markets where high inflation is dampening consumer spending.

Alternatively, however, FIEs expressed an interest in increasing their investments in Ba Ria – Vung Tau (BRVT), Hai Duong, and Thai Nguyen – relative to the national average. Notably, Hai Duong and Thai Nguyen are both key electronics manufacturing centers in north Vietnam.

Vietnamese businesses are becoming more important to FIE supply chains

In 2021, 52 percent of FIEs purchased intermediate goods and services from Vietnamese firms. In 2022, however, that number rose by over 10 percent to 63 percent. The report suggests this is a sign of improved performance among Vietnamese enterprises participating in supply chains.

Notably, on this metric in 2021, Vietnamese enterprises recorded a marked slump from a year earlier (from 62 percent in 2020 to 52.4 percent in 2021). Ergo, numbers from 2022 could simply be a return to the pre-pandemic normal. The report, however, suggests that the “reduced role of FIEs’ home-country businesses and third-party suppliers suggests that the domestic sector has indeed consolidated its role as the main provider of intermediate inputs to FIEs.”

FIEs think infrastructure development has slowed

Whereas in previous reports assessments of Vietnam’s infrastructure had been generally positive, in 2022 there was a marked downturn. The report’s authors suggest that this was likely due to delays brought about by the COVID-19 pandemic. They also point out that Vietnam’s infrastructure, in the 2020 PCI report, was not considered a comparative advantage and thus is not as important as other factors in decision making.

See also: Vietnam’s Logistics Sector: Opportunities in Air, Sea, and Land Connectivity

Retaining workers has become more challenging

The report found that though the lion’s share (45 percent) of employees stayed with an organization for 3-5 years, older workers were less inclined to take long-term positions and preferred short-term roles with less commitment.

This is not just a finding of the PCI either. Human resource management in Vietnam has certainly been impacted in the aftermath of the pandemic. Following harsh lockdowns that saw many workers return home and the disease management restrictions that affected public mobility and required working from home, more flexible work models are becoming the norm in organizations where remote work is feasible. Remote work in turn opens the Vietnamese talent base to the global economy, which may affect local hiring.

See also: Vietnam HR Landscape, Compliance, & Recruitment Magazine Out Now

It’s not easy to recruit local staff for management roles

Whereas finding manual labor was considered easy or very easy by 49 percent of respondents in 2022, only 28 percent of firms found it easy or very easy to hire technicians, and 40 percent to hire accountants. The biggest challenge, however, was hiring managers and supervisors, with only 16 percent and 20 percent of firms finding it easy or very easy, respectively.

Parallel to the challenges, the report found that firms looking to hire skilled workers spent a higher amount on in-house training. In 2020, the percentage of total operating costs spent on training was 4.77 percent, increasing to 5.69 percent in 2021, and 5.85 percent in 2022.

However, the share of trained workers who stayed with an enterprise for more than a year dropped in 2022 to 55.9 percent from 60 percent in 2021, and from 66 percent in 2020.

The Provincial Green Index

This year also saw the Provincial Green Index (PGI added to the PCI report. This new index looks at the performance of Vietnam’s provinces in terms of their green credentials. The PGI is broken down into four key sections:

Minimizing the risk of climate hazards

This metric assesses a province’s ability to provide infrastructure services in such a way that it makes it easier for firms to prepare for the challenges that climate change presents. It is broken down into combating pollution, avoiding disaster, and hard data. On these three measures – Bac Ninh, Tra Vinh, and Lang Son took out the top three positions in that order.

Maintaining minimum environmental standards

As the name suggests, this metric measures a province’s ability to police environmental standards and hold polluters accountable. It also measures the quality of a province’s environmental regulations. The four key dimensions of this metric are: enforcement – regulatory satisfaction, hard data – wastewater, and hard data – solid waste.

On this metric Da Nang was found to be the clear leader with several waste management policies in place, as well as a long-term outlook for its sustainable development. It was followed in second place by Can Tho and then in third place by Nghe An.

Environmental leadership

For the PGI, provinces were also ranked by their leadership on environmental issues. This was broken down into three sub-categories: green procurement, green guidance, and hard data.

For this metric, Hai Phong was found to be the most advanced, with Hai Duong, and Bac Kan following close behind.

Environmental incentives and support services

This metric measures the government support and incentives that are aimed at improving the performance of firms in terms of protecting the environment.

Though there are various national policies driving environmental protection – including the Sustainable Development Strategy Of Vietnam, the One Strategic Framework for Sustainable Development Cooperation, and the Vietnam Corporate Sustainability Index – individual provinces also have their own incentives.

In this respect, Lai Chau came out on top, followed closely by Bac Giang and Ninh Thuan.

Moving forward

The PCI 2022 report is an interesting read. The survey results speak volumes about how both domestic and international firms in Vietnam are tracking. It also highlights several key developments that may be critical for firms entering the Vietnamese market.

Moving forward it is expected that the business environment will continue to improve and that scores will continue to rise. That said, for firms considering entering the Vietnamese market, choosing the right location for the right business can be critical. For support in making this crucial decision, contact the experts at Dezan Shira and Associates.

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