July, 2005 — Vietnam’s Enterprise Law of 2000 is widely believed to have facilitated the registration of some 100,000 new businesses and encouraged new investment. But are these “headline” numbers accurate? Some evidence suggests that registration success has been inflated, and private enterprise still faces considerable challenges in Vietnam.
The International Finance Corporation’s Mekong Private Sector Development Facility (IFC-MPDF) recently published a report entitled Beyond the Headline Numbers: Business Registration and Startup in Vietnam, which looks at the challenges that businesses face during and following the registration process. Three hundred randomly selected, recently registered companies in Hanoi and four surrounding provinces participated in the survey.
One major finding of the report is that “headline” numbers on new registrations should be used with caution because the database for business registrations is weak. Researchers found that some businesses never actually begin operations or close down within a short time after registering and records of this information are often not updated. Annual figures from the General Statistics Office indicate that the number of functioning firms is roughly 40% less than the registration figures maintained by the National Business Information Center (NBIC). The report also found that many recently registered firms are not genuinely “new”. In fact, 16% of firms surveyed were already registered prior to the enactment of the Enterprise Law of 2000 and subsequently re-registered after the law was passed, while another 45% had begun operations long before the passing of the Enterprise Law. They simply did not register until after the Enterprise Law made it easy to do so.
Another key finding of the IFC-MPDF study was that although business registration has become easier since the passing of the Enterprise Law of 2000, it continues to be quite challenging. Ms. Trang Nguyen, IFC-MPDF’s Business Enabling Environment Program Manager, explained: “We conducted in-depth interviews with a sub-sample of the 300 enterprises. Among our small sample, it took around 50 days to go through all the steps of registration from applying for a registration certificate, to finally being issued the first invoice book that companies require in order to account for the value added tax they collect. According to the World Bank Group’s Doing Business 2005 report, which compares key indicators of business environment success in 145 countries worldwide, 50 days is a long time to register a company.” The study also identified the main post-registration barriers to growth. Survey respondents listed these as lack of land, lack of capital and ineffective public administration.
Recommendations made in the report include the establishment of a more accurate statistical database in order to correctly count new business registrations, and further streamlining of the registration process. According to Ms. Nguyen, “We undertook this study in order to provide the drafting team of the United Enterprise Law with additional insights on the issues that still need to be addressed. When passed later this year, the new law should make the business registration and startup process even easier.”
Copies of IFC-MPDF’s new study Beyond the Headline Numbers: Business Registration and Startup in Vietnam (PSD Paper #20) are available in printed form from the Facility’s offices in Hanoi and Ho Chi Minh City, and can also be downloaded from www.mpdf.org.
