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Transcript of The PCI-Foreign Invested Enterprises 2011 · PDF filethe agenda of Mr. Nguyen Ba Thanh, ......
The PCI-Foreign Invested Enterprises
2011 Survey American Chamber of Commerce
June 6, 2012, New Saigon World Hotel, HCMC
Jim Winkler, Ph.D. USAID/VNCI Director
Findings taken from the PCI 2011 report, Lead Researcher, Dr. Edmund Malesky
Organization of the Presentation
• Overview of PCI and the role of Foreign Direct Investment in Vietnam
• Overview of the 2011 PCI – Foreign Invested Enterprises (PCI – FIEs) survey
• Key Findings: – Profile of FIE respondents – Drivers of investment – Business environment analysis – Implications for Vietnam’s investment policies
• Annual mail-out surveys to over 200,000 domestic firms since 2006 and 20,000 foreign invested firms since 2010 in all 63 cities and provinces
• PCI calculation: 60% survey results and 40% hard data • PCI assesses and ranks provinces by their economic
governance in developing business-friendly regulatory environments for private sector development in 9 areas:
PCI Methodology
1. Entry costs 2. Land access 3. Transparency 4. Time costs 5. Informal charges
6. Pro-activity 7. Business support services 8. Labor Training 9. Legal institutions
PCI 2011
• PCI measures actual quality of provincial governance by way of the “voice” of local firms.
• PCI 2011 represents the collective “voice” of 6,922 private firms across 63 provinces.
• 2011 PCI-FDI Survey was conducted on a sample of 1,970 foreign invested enterprises across 61 provinces in Vietnam.
PCI 2011 Map PCI 2011 Rankings
PCI 2011-collective voice of
nearly 7,000 private firms
PCI 2011 median score is 59.15/100, one point higher than 2009 and 2010
PCI workshop in Quảng Ninh province in
2010- live conference
to 9 remote districts of
Quang Ninh
PCI promotes public-private dialogue for better governance
Lao Cai province launched their own website on PCI in Nov 2011: www.pcilaocai.vn
PCI tops Da Nang Policy Agenda
- Slip in PCI ranking from 1st to 5th topped and concluded the agenda of Mr. Nguyen Ba Thanh, Da Nang Party Chief, when addressing 4,500 local officials on the provincial socio-economic situation on 24 February 2012
Observed “Convergence” of PCI scores over time
Range PCI
Max Min
Impact of Good Governance on Wealth/Growth
FDI and GDP
Source: World Bank Development Indicators
-4
-2
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Axis
Titl
e
FDI inflows as % of GDP, 2000-2010, in Asia Pacific
Vietnam China
Thailand Malaysia
Indonesia Philippines
Korea, Rep.
FDI and GDP
0.001.002.003.004.005.006.007.00
FDI inflows as % of GDP in Asia Pacific, 2005-2010 average
Source: World Bank Development Indicators
FDI and GDP
40.67 38.96 38.24 37.76 36.99
47.26 47.75 48.27 48.82 49.42
12.07 13.29 13.48 13.42 13.59
0
20
40
60
80
100
2005 2007 2008 2009 2010
Share of GDP
State Non-state FDISource: GSO
• FDI makes a sizeable contribution to GDP • FDI is widely accepted as an important driver of growth
FDI and Investment
17.6 17.4 16 14.2 14.9 16.2 24.3 30.9 25.6 25.8
0
20
40
60
80
100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Share of investment by ownership
State Non-state FDISource: GSO
FDI is an important source of investment, especially in fiscal and monetary difficulties of 2008-2010
WTO Accession
FDI and export
45.2 47.1 50.4 54.7 57.2 57.9 57.2 55.1 53.2 54.1 59
0%10%20%30%40%50%60%70%80%90%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Export share by ownership, 2001-2011
Domestic FDISource: GSO
FDI is a key driver for export growth, accounting for over half of export volume
FDI and employment
11.52% 12.44% 14.84% 16.62% 18.11% 19.57% 21.52% 22.84% 22.43%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008
State Non-state FDI
FDI is an important source of employment, accounting for over 20% of all the jobs
Source: GSO, Vietnam enterprise 2000-2008
Shifting away from manufacturing?
50.98% 45.15%
17.06% 30.07%
42.67% 40.01%
76.67% 45.35%
6.36% 14.84%
6.26%
24.58%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2007 2008 2009 2010
Registerd FDI by sector, 2007-2010
Manufacturing Property/construction/finance Other
There’s evidence that FDI is shifting away from manfacturing towards property and finance in recent years
Source: GSO
The 2011 PCI – FIEs survey
• The 2nd annual survey conducted by VCCI and
USAID/VNCI • Mailed out to over 9,000 registered FIEs in
Vietnam based on the list of General Tax Authority
• Assess FIEs’ performance and their perception of local business environment
• Identify challenges and opportunities facing Vietnam in attracting high value added investment
Profile of FIE Respondents
• Survey includes 1,970 Foreign Invested Enterprises (FIEs) from 45 countries, equal to about 16% of those found in the GSO Enterprise Census
• 75% of FIEs in Vietnam are from neighboring Asian countries (especially Taiwan, South Korea and Japan)
• Average FIE is relatively small in: – Employment :
• 75% have less than 300 employees • 11% have over 500 employees
– Investment size: • 63% licensed for less than $2.5 million capital; • 13% licensed for over $25 million
• 65% are involved in some form of low-end manufacturing; 30% in services sector
Country of Origin of Vietnam’s FIEs
0 2 4 6 8 10 12 14 16 18 20 22 24
Brunei DarussalamChileCuba
Czech RepublicFinland
PanamaPoland
South AfricaSri LankaSwaziland
TurkeyUkraine
CambodiaIsraelLaos
SpainSweden
SwitzerlandNew Zealand
PhilippinesAustriaNorway
ItalyDenmark
IndonesiaBelgiumRussia
NetherlandsIndia
CanadaUnited Kingdom
GermanyNorth Korea
AustraliaMalaysiaThailandFrance
USASingaporeViet Nam
ChinaJapan
South KoreaTaiwan
Share of Investors by Province
0 2 4 6 8 10 12 14 16 18 20 22 24
Gia LaiHa Tinh
Hau GiangSon La
Quang NgaiDong ThapNinh BinhQuang Tri
Thanh HoaTra VinhYen Bai
Nam dinhNinh Thuan
Thai NguyenHoa BinhNghe An
Lang SonBen TreLao Cai
Phu YenBinh Dinh
Binh PhuocKhanh Hoa
Quang NinhThua Thien Hue
Can ThoQuang Nam
Thai BinhBinh Thuan
Ha NamLam dongHung YenVinh Phuc
Phu ThoBac Giang
Long AnHai Duong
Tay NinhBac Ninh
Hai PhongDa Nang
BRVTDong NaiTP HCM
Ha NoiBinh Duong
6 provinces, cities in Southern Vietnam are among top FDI
attractions
Convergence in Economic Governance among Successful FDI Magnets
Increased Performance Yet Growing Pessimism among FIEs
• Performance improved: – Gross sales revenue in 2011 was $1.3 mil, up $300,000
compared to 2010 (biggest increases in manufacturing) – Profitability on invested capital increased from 11% in
2010 to 22% in 2011
• Yet, FIEs were more pessimistic about investment plans for the next 2 years – 39% were optimistic about expanding business
compared to 66% in 2010 – Pessimism was most pronounced in manufacturing
sector (only 33% planed to expand)
Performance of 2011 PCI-FIE Respondents
Sales 2011 2010 Manufacturing Construction Service Agriculture Natural Total sales of median firm (Million of USD) 1.3 1.01 1.6 1.5 0.60 0.56 0.50 Median sales per unit of labor (1000s of USD) 12.7 10.5 11.1 35.9 16.2 3.5 6.8
Expenditures 2011 2010 Manufacturing Construction Service Agriculture Natural Total expenditures of median firm (Million of USD) 0.66 0.8 0.9 0.99 0.24 0.35 0.00 Median expenditures per unit of labor (1000s of USD) 7.92 8.33 7.3 21.13 8.57 7.82 0.04
Profitability 2011 2010 Manufacturing Construction Service Agriculture Natural Profit/Capital Investment (median) (%) 21.9 11.04 25 10.33 20.55 11.99 11.08 Profit/Total Sales in 2010 (median) (%) 33.3 20.0 30.77 20.13 39.74 40.00 62.63 Firms with losses in 2010 (Calculated) (%) 16.4 19.42 17.52 20.00 12.24 21.43 40 Firms with losses in 2010 (Self-Reported) (%) 21.9 18.99 20.97 2.13 29.09 3.36
Limited Spill-Over to Domestic Private Sector
• 84% are 100% Foreign Owned (same as 2010 PCI – FIE survey)
• FIEs purchase 57.5% of their intermediate products from overseas; only 40% sourced locally
• Outputs of FIEs primarily destined for export – 46.7 % of all firms and 57% of manufacturing enterprises
export more than half of their output directly or indirectly – 15% of all FIEs sell to foreign individuals and companies
within Vietnam • There are positive benefits for trade-related services => Lack of linkage to domestic private sector limits
technology, management, and productivity spillovers
Determinants of FDI in Vietnam
• 32% of FIEs currently in Vietnam considered other countries (mostly Thailand, Cambodia and China), of these – 72% selected Vietnam over competition – 28% chose Vietnam as part of a multi-country
investment strategy • FIEs in Vietnam continue to select Vietnam for:
– Labor cost advantage, political stability, and tax or land incentives and
– Heavily discount other governance factors (such as intellectual property, access to decision makers, investor protection, and contract enforcement)
Why FIEs selected Vietnam?
• FIEs in Vietnam primarily are in low cost operations – 65% are involved in some form of low-end
manufacturing requiring low cost labor: apparel, shoes, light electronics, and food processing
• FIEs in Industrial zones tend to select tax and land incentives
Drivers of Investment – 2011 PCI-FIE Respondents
Factors Driving Selection of Provinces
Hold-ups during Customs procedures (by province)
Customs procedures
FIEs paying less bribes to expedite customs procedures (55% in 2011 v.s 70% in 2010)
Yet, custom hold-ups increased
Perception of Key Business Environment Indicators
• Improvements in: Entry costs, Land Tenure, Informal Charges, Transparency (relationships less important) and Infrastructure
• Areas for further reform: – Transparency of legal normative documents,
issuance of LURCs, and customs bottlenecks for existing FIEs.
– IPR enforcement, contracts, and labor quality to attract higher value-added FDI
What about US and EU FIEs?
• Smaller labor size: average of about 200 employees compared to about 250 for the rest
• Invest less in manufacturing, more in services, finance, banking and insurance
Characteristics of the US and EU FIEs in the PCI 20 US EU Whole sample
Number of firms in the sample 59 (3.02%) 147 (7.53%) 1970
Legal Form of Investment
100% foreign-invested enterprise 91.07% 82.86% 85.41%
Joint venture with a Vietnamese private company 1.79% 8.57% 7.15%
Joint venture with a Vietnamese SOE 3.57% 5.71% 3.40%
Registered as a domestic company 1.79% 1.43% 2.08%
Domestic company w/overseas Vietnamese capital 1.79% 0.71% 0.17%
Other 0.71% 1.79%
Sector
Industry/manufacturing 48.5% 41.5% 65.0%
Construction/infrastructure investment 4.6% 4.1% 4.1%
Service/commerce 36.2% 50.2% 29.4%
Agriculture/forestry/aquaculture 2.4% 0.1% 1.4%
Mining/natural resource exploitation 2.2% 0.0% 0.3%
Finance/banking/insurance 6.2% 4.2% 1.1%
Size of Labor Force
Less than 5 3.12% 8.35% 3.57%
5 to 9 10.32% 3.44% 5.10%
10 to 49 24.77% 28.08% 28.43%
50 to 299 38.83% 39.97% 38.00%
300 to 399 4.78% 5.70%
400 to 499 13.76% 4.30% 8.25%
500 to 999 7.76% 2.22% 5.64%
1,000 and over 1.44% 8.87% 5.31%
What about US and EU FIEs?
• Larger investment on average
• Directly export more • Buy more from
domestic supppliers stronger linkage with domestic firms
Characteristics of the US and EU FIEs in the PCI 2011 SurveyLicensed Investment Size US EU Whole sample
Under 5 BVND ($2,500,000 US 56.75% 64.35% 55.20%From 50 to under 200 BVND ($25 million USD)
31.47% 18.99% 26.57%
More than 50 BVND ($25 million USD)
6.03% 4.97% 6.55%
Median (USD) 1,835,800 854,775 1,500,000 Major CustomerSold domestically to SOE 2.32% 2.60%
Sold domestically to state agency
2.72% 2.04% 2.04%
Sold domestically to private individuals
37.96% 22.73% 33.90%
Sold domestically to foreigners
12.80% 19.10% 14.76%
Exported directly 43.79% 52.55% 44.10%
Exported indirectly 2.72% 1.26% 2.60%
SupplierSOE 0.29% 3.10%
Domestic private company 35.58% 68.12% 38.04%
Household business or individuals
0.97% 0.02% 1.69%
Produced in-house by your local operations
0.05% 2.43% 13.53%
Imported from branches of your corporations in other countries
16.94% 11.42% 19.89%
Imported from abroad outside of your corporation
46.45% 17.72% 23.76%
What about US and EU FIEs?
• More profitable compared to the rest
• More optimistic with higher percentage of firms planning to expand compared to the rest
Characteristics of the US and EU FIEs in the PCI 20 US EU Whole sample
SalesTotal sales of median firm (millions of USD) 0.8 1 1.3
Median sales per unit of labor (1,000s of USD) 5.2 15.6 12.7
ProfitabilityProfit/capital investment (median) 32.77% 27.29% 21.86%
Calculated profit/total sales (median) 25.00% 50.70% 33.33%
Investment PlansClose business 2.04% 1.59%
Considerably reduce size 0.41%
Reduce size 2.46% 2.96%
Continue operating at present size 58.97% 45.59% 56.22%
Increase size of business 11.36% 22.15% 16.59%
Considerably increase size of business 29.67% 27.76% 22.23%
Policy Implications
• Focus on Productivity Improvements: – Reduce the costs and risks for investors – Explore outsourcing of key services to private sector to increase
efficiency (e.g. customs) – Improve infrastructure connectivity and efficiency
• Improve Investment Attraction of Higher-value added Investors – Improve labor quality and education – Enhance quality of governance and public consultation – Develop industry-specific strategies and investment promotion
strategies • Improve overall performance and efficiency of the market
economy
Questions for discussion
• Is the data surprising to foreign investors? • What regulations and factors are most
detrimental to existing FIEs to increase investment and profitability?
• What regulations and factors are most detrimental to attracting new investors with higher value manufacturing and services?
Thank you!
Please visit PCI website at www.pcivietnam.org
E-mail: [email protected] or [email protected]