Reforming the Business Environment: From Assessing Problems to Measuring Results. The Final Draft SME Development Plan :

Transcription

1 Committee of Donor Agencies for Small Enterprise Development Business Environment Working Group International Conference Reforming the Business Environment: From Assessing Problems to Measuring Results Cairo, Egypt 29 November to 1 December 2005 The Final Draft SME Development Plan : Comprehensive Framework For Improving Competitiveness of SMEs through Business Environment Reform By Pham Thi Thanh Ha AGENCY FOR SME DEVELOPMENT (ASMED) MINISTRY OF PLANNING AND INVESTMENT VIETNAM

2 TABLE OF CONTENTS Executive Summary...1 I. Socio-Economic Context for Business Environment Reform in Vietnam...2 II. The Role of Business Environment Reforms in Reducing Cost of Doing Business...3 Reducing cost of doing business encourages entrepreneurship and investments...3 Reducing cost of doing business provides incentives to formalization in business...3 III. Consultative Process in SME Development Plan Formulation...5 Consultative process and its participants...5 Consultation at high levels helped convergence on overall objectives...7 Task Group activities improved ownership of reform recommendations and uncovered capacity building needs...7 Structured and inclusive dialogue uncovered the need for coordination and private sector participation during implementation at local levels...8 IV. Draft SME Development Plan: A Framework for Business Environment Reforms...9 Objectives and Priorities of the draft SME Development Plan Nature of Measures and Actions under Priority Areas...10 V. Coordination with donors...12 VI. Conclusions...12 Annex 1. Prime Minister s Decision on the SME Development Promotion Council...14 List of Acronyms...16 References...17 LIST OF TABLES Table 1. SMEs and SME Employment in Vietnam (2002)...2 Table 2. Some Characteristics of Micro Enterprises (2002)...4 Table 3. Process for Conducting Consultative Planning...5 Table 4. SME Task Groups Participating in the Plan Formulation Process...6 Table 5. Priorities of the draft SME Development Plan Table 6. Measures recommended under SME Development Priorities...11 LIST OF FIGURES Figure 1 Newly Registered Enterprises in Vietnam ( )...3 i

3 Executive Summary 1. Over the past years, Vietnam has had significant socio-economic achievements. The Vietnamese economy grew with an average annual rate of about 8%. GDP doubled over the 10- year period from 1991 to 2000, and this changed the socio-economic panorama of the country remarkably; despite high-paced changes in international markets and difficulties caused by international and regional calamities that also affected our country. Vietnam achieved successful results in development by implementing effective business environment reforms to build up markets and market facilitating and regulating institutions over the last decade. 2. Accounting for over 96% of the total number of enterprises under the Enterprise Law and 99% of all business establishments nationwide, small and medium sized enterprises (SMEs) play a very important role in mobilizing resources for development and in providing solutions to issues such as poverty reduction and job creation. Employment created in SMEs amount to over 77 percent of off-farm employment. 3. Entrepreneurship and investment contribute to growth by increasing the productive capacity of the economy, by creating jobs and by introducing technology that also increases the productivity of other factors of production. Reducing the costs of doing business encourages entrepreneurship and investments as well as enhancing the incentives for formalization. 4. Vietnam recently conducted a highly participatory consultative for formulating its first 5-year SME Development Plan. Public and private sector stakeholders, working in SME Task Groups, consolidated research and policy recommendations produced by over 100 individuals and views and inputs from over 550 persons at national and local levels, including representatives of donors interested in SME/private sector development in Vietnam. 5. The resulting draft SME Development Plan and its Action Plan for Implementation aims to improve the competitiveness of Vietnamese SMEs/private sector through extensive business environment reforms and targeted SME support programs. The draft Plan consists of 7 priorities areas, organized into 16 measures that are further detailed in 70 concrete policy actions. The majority of planned actions concern legal and administrative reforms that will improve the business environment in Vietnam. As such, the draft SME Development Plan is a comprehensive framework that will guide all stakeholders in policy implementation, monitoring and evaluation. 6. Dedicated policy coordination institutions at the national level (the inter-ministerial, multi-sectoral, multi-stakeholder SME Development Promotion Council and the Agency for SME Development, MPI), capable private sector representative bodies (e.g. Vietnam Chamber of Commerce and Industry) and a strong voice for local authorities and local private stakeholders were instrumental if comprehensive frameworks for business environment reforms are to be designed. 7. The participatory planning process revealed that high level, structured public private dialogue is useful and necessary to build consensus around common objectives, priorities and measures and for translation of these to concrete action proposals. By organizing policy design through SME Task Groups and by providing specialist technical assistance to the Task Groups capacity building needs of different stakeholder groups were also identified. 8. It was also observed that substantial financial and human resources are needed and should be mobilized, if policy formulation and design processes are to approach international best practice, especially when countries are trying to improve the business environment. 1

4 I. Socio-Economic Context for Business Environment Reform in Vietnam 9. Over the past years, Vietnam has had significant socio-economic achievements. The Vietnamese economy grew with an average annual rate of about 8%. Our GDP doubled over the 10- year period from 1991 to 2000, and this changed the socio-economic panorama of the country remarkably; despite high-paced changes in international markets and difficulties caused by international and regional calamities that also affected our country. 10. Over the recent years, FDI has accounted for about 18 to 20% of the total social investment; FDI sector has contributed 27% of export turnover (54%, if including crude oil exports); 35% of total industrial output, 14% of GDP; and has generated direct employment for 750,000 laborers and much more indirectly. 11. Vietnam is among countries having had the most outstanding achievements in poverty reduction, and an increasing Human Development Index that has improved at a higher pace than its economic growth rate. We have universal primary education; our economy has been able to generate 1.2 million jobs per annum; and Vietnamese people s cultural and physical lives have been remarkably improved. 12. In the Vietnamese context, enterprise is a business entity registered under the Enterprise Law of In terms of legal form, enterprises may be registered as a private enterprise (a sole proprietorship, where the owner is liable for the results of business operation with all his personal assets), as a partnership (2 or more partners, with total personal liability for results of business operations), as a limited liability company and a shareholding company. Enterprises and their owners pay corporate income tax and personal income tax. The total number of registered enterprises is about 190,000 as of In addition to registering an enterprise, a business entity may be registered as a household business at the district level. Household businesses should have less than 10 employees and pay a lump sum tax that is negotiated with the district tax office as a result of their business operations. The results of the 2002 Establishments Census showed that there were about 2.7 million household businesses in Vietnam. 14. Accounting for over 96% of the total number of enterprises under the Enterprise Law and 99% of all business establishments nationwide, SMEs 2 play a very important role in mobilizing resources for development and in providing solutions to issues such as poverty reduction and job creation. Employment created in SMEs amount to over 77 percent of offfarm employment (Table 1). Table 1. SMEs and SME Employment in Vietnam (2002) Vietnam, 2002 SME LSE Total Establishments Micro Small Medium Sub- Total Number of business establishments (1,000) 2, , ,720 Percentage of all establishments (%) Employment Micro Small Medium Sub-total Employment (1,000) 4, ,221 6,483 1,909 8,392 Percentage of persons engaged (%) Average Size of Establishments Persons engaged per establishment Source: GSO Establishments Census, 2002, classified as per tentative size groupings. 1 Business Information Center, ASMED, MPI, According to the official definition, an SME is a registered business having less than 10 billion VND of registered capital and less than 300 laborers. 2

5 II. The Role of Business Environment Reforms in Reducing Cost of Doing Business 15. Entrepreneurship and investment contribute to growth by increasing the productive capacity of the economy, by creating jobs and by introducing technology that also increases the productivity of other factors of production. Reducing cost of doing business encourages entrepreneurship and investments 16. It is entrepreneurs that mobilize resources to initiate and maintain economic activities. On the one hand, a positive balance between anticipated risk and reward is what motivates entrepreneurs to invest in business activities. Thus, economies with higher rates of entrepreneurship and investment are more likely to deliver and sustain higher rates of growth. 17. On the other hand, it is the way market regulating, facilitating and promoting organizations work; formally and informally, that set the rules of the game i.e. the business environment and determine the risks, costs and returns of doing business. Figure 1 Newly Registered Enterprises in Vietnam ( ) Registered Enterprises per Annum 40,000 35,000 30,000 27,751 37,116 25,000 20,000 15,000 10,000 5,000 19,800 14,457 21, Source: Business Information Center, ASMED, MPI, In realization of the importance of an enabling business environment, Vietnam has been gradually improving its market economy institutions through extensive reforms. For example, the Enterprise Law of 1999 greatly streamlined the way private firms register by eliminating a two-step registration procedure, limiting inspections of business and allowing all legal business activities to be registered as legal entities. All of these reforms decreased the costs of establishing and operating businesses in Vietnam. Firms registering according to this Law (Figure 1) have been increasing by an average of 20% per annum since Of the 190,000 firms, 97% are SMEs. 19. In the Vietnam session at this Conference, you have already learned about our efforts to further improve the conditions under which domestic and foreign enterprises will set up and operate once the National Assembly promulgates the Unified Enterprise and the Common Investment Laws. Reducing cost of doing business provides incentives to formalization in business 20. As we all know there are many benefits that are associated with formal enterprises and 3

6 jobs. Formal business activities: Provide higher quality, better paid and more sustainable jobs with greater access to onthe-job training; Reinforce the social contract between citizens and the State; Strengthen the reliability of agreements between firms; Build investor confidence (and increase investment); Broaden the tax base (potentially permitting lower tax rates for all businesses); Increase information on local enterprises to facilitate deal making and strengthen frameworks for policy advocacy; Reduce the cash economy and provide more resources for intermediation by the formal financial sector; and Improve access to business services, formal markets and productive resources such as capital and land. 21. While the relatively informal economy of about 2.7 million household businesses offers a short-term solution to a household s livelihood needs, creating an economy with a higher proportion of formal firms/enterprises and jobs is important for long-term welfare creation and growth, stability and poverty reduction. Table 2 illustrates the fact micro scale businesses that register formally as enterprises under the Enterprise Law report higher levels of turnover, wages paid, capital invested and taxes paid. The contribution of formal micro enterprises to the Vietnamese economy clearly outperforms the contribution of semi-formal household business operations. Table 2. Some Characteristics of Micro Enterprises (2002) Average per person engaged 5 persons 6-9 persons Difference between two size classes (times) For All Establishments in Size Group Turnover (million VND) Wages paid (million VND) Capital (million VND) Taxes and fees paid (million VND) Employees with university & college degrees Employees with technical skills Computers used Only for Establishments Registered under Enterprise Law in Size Group Turnover (million VND) Wages paid (million VND) Capital (million VND) Taxes and fees paid (million VND) Employees with university & college degrees Employees with technical skills Computers used Source: GSO 2002 Establishments Census, quoted in draft SME Development Plan , ASMED, MPI, Private sector in Vietnam consists predominantly of SMEs, including household businesses and the foreign invested businesses. As we have shown in the previous section, SMEs and among them small businesses, constitute the core of the private sector in Vietnam. Therefore, a significant proportion of business environment reforms directly affect SMEs and the small business and have to take into account the reality of small business. 23. Considering the success Vietnam had in encouraging new business registrations since the promulgation of the Enterprise Law in 1999, we expect business environment reforms that are coordinated and guided under a common framework, such as the draft SME Development Plan , to further encourage entrepreneurship, investment and formalization of the business sector in Vietnam. 4

7 III. Consultative Process in SME Development Plan Formulation 24. Institutional and policy change must involve a careful mix of contestation and negotiation between the public and private sectors and the civil society, and this result is likely to come about through a structured and inclusive dialogue between the public and the private sectors. Consultative process and its participants 25. In Vietnam, the SME Development Promotion Council (to be called the SME Council in this paper) coordinates SME development policy. The SME Council is an inter-ministerial, a multi-sectoral and multi-stakeholder advisory body to the Prime Minister 3. The Agency for SME Development (ASMED), Ministry of Planning and Investment (MPI), is the Secretariat of the Council and is responsible for policy coordination at the central (national) level. 26. The SME Council is a platform for conducting structured and relatively inclusive dialogue for discussion and agreement of important policy changes between the public and private stakeholders. In order for the SME Council to undertake its important role satisfactorily, the Council instructed ASMED/MPI to prepare the first 5-year draft SME Development Plan Accordingly, ASMED designed and organized a highly participatory and consultative process as shown in Tables 3 and 4. The planning process was supported throughout by the ASMED-UNIDO Project Assistance to Establish the National and Provincial SME Support Infrastructure, financed by Governments of Finland and Italy. Table 3. Process for Conducting Consultative Planning Conventional Planning Process New Planning Process 1 Detailed Outline-Government Drafting Team 1 Detailed Outline-Government Drafting Team 2 Consultation on Outline with SME Council members 2 Consultation with a selected group of stakeholders, including donors 3 Consultation with a selected group of stakeholders, including donors (workshop) 3 Administrative instruction to all Ministries, Agencies and Provinces to prepare their Plans as per the Detailed Outline 4 Administrative instruction to all Ministries, Agencies and Provinces to prepare their SME Plans as per the Detailed Outline 5 Cooperation Agreements between ASMED and Ministries, Agencies, Provinces and Business Community Representatives to set up SME Task Groups to participate in planning process 4 Research by Government Drafting Team 6 Research by SME Task Groups and Government Drafting Team, research, including recommendations, by Task Groups posted on the web ( 7 Joint identification of Priorities in a retreat with SME Task Groups 5 Consolidation of 1 st Draft by Governent Drafting Team for consultations, workshops with stakeholders, including donors 8 Consolidation of 1 st Draft for consultations by Government Drafting Team through 7 Roundtable Discussions with national and international experts, workshops with stakeholders, including donors 9 1st Draft of SME Plan posted on the web for comments ( 10 Consultations with ministries, Agencies and Provinces to make commenst on the 1st draft 6 Consultations with ministries, Agencies and Provinces to make commenst on the 1st draft 7 Revisions new Draft by Government Drafting Team 11 Revisions new Draft by Government Drafting Team 8 Consultations (a number of workshops) 12 Consultations (a number of workshops) 13 Submission to SME Council for final guidance and support by public-private stakeholders 9 Submission to competent agency for submission to Government 14 Submission to MPI for submission to Prime Minister 3 Annex 1 provides information on the organization and tasks of the Council for the interested reader. 5

8 28. As can be seen in Table 3, the participatory consultative planning process was conducted in parallel with the official administrative planning process, which we call conventional planning. Table 4. SME Task Groups Participating in the Plan Formulation Process o 10 Ministries (9 with formal cooperation agreements, and 1 with a mutual understanding to cooperate): 1. Planning and Investment, 2. Finance, 3. Industry, 4. Trade, (through a mutual understanding to cooperate), 5. Construction, 6. Transportation, 7. Science and Technology, 8. Natural Resources and Environment, 9. Labor, War Invalids and Social Affairs, 10. Justice. o o o 2 Central level Agencies (with formal cooperation agreements); 1. State Bank of Vietnam, 2. General Statistics Office. 4 People s Committees at provincial level (2 with formal cooperation agreements between ASMED and the concerned Province, and 2 with a mutual understanding to cooperate): 1. Danang, 2. Hai Phong, 3. Hanoi (through a mutual understanding to cooperate), 4. Ho Chi Minh City (through a mutual understanding to cooperate). 34 Business Associations and Civil Society Organizations through 5 SME Task Groups that were facilitated by the Vietnam Chamber of Commerce and Industry: 1. Vietnam Chamber of Commerce and Industry, 2. Vietnam Association of Rural Industries SMEs, 3. Central Cooperatives Council, 4. Vietnam Business Club, 5. Vietnam Young Entrepreneurs Association, 6. Hanoi SME Association, 7. Bat Trang Ceramics Association, 8. Vietnam Advertisement Association, 9. Vietnam Association for Electronics Enterprises, 10. Vietnam Garment and Textile Association, 11. Vietnam Leather and Footwear Association, 12. Vietnam Processing and Export Association, 13. Vietnam Wood and Forestry Products Association, 14. Vietnam Bank association, 15. Vietnam Association for Tourism, 16. Vietnam Association for Financial Investors, 17. Vietnam Association for Accounting and Auditing, 18. Vietnam Union for Science and Technology Associations, 19. Vietnam Economic Science Association, 20. Vietnam's Lawyer Association, 21. General Construction Associations, 22. Vietnam Association for Anti-counterfeit and Trademark Protection, 23. Youth Union, 24. Women's Union, 25. Trade Union, 26. Farmer's Union, 27. Hanoi Consumers Protection Association, 28. Foreign Invested Enterprise Club, 29. Japanese Enterprise Association, 30. Chinese Entrepreneur Association, 31. German Chamber of Commerce, 32. Association of French Businesses in Vietnam, 33. Singapore Enterprise Association, 34. British Enterprise Association. 6

9 Consultation at high levels helped convergence on overall objectives 29. The first difference in the planning process was the introduction of the consultations through the SME Council both on the detailed outline as well as on the draft of the SME Development Plan. The detailed outline prepared by the Government Drafting Team received extensive inputs from public and private sector members of the Council and was streamlined and improved by the time it was fed into the official administrative process and the SME Task Groups. The Council enabled the SME stakeholders to share their ideas and concerns and to come to an understanding on the issues that required convergence in priorities and approaches. Once the need for concerted business environment reforms for enhanced entrepreneurship, investments and formalization were reaffirmed by public and private stakeholders at the highest levels in the regular meeting of the Council on the detailed outline; stakeholders at the grassroots (in ministries, agencies, provinces, SME task groups, and members of business associations and civil society organizations) were able to discuss specific measures and actions to achieve the broader objectives. 30. Similarly, guidance received from Council members on the first Draft resulted in confirmation of major improvements recommended by grassroots stakeholders throughout Vietnam at workshops. For example, one of these improvements is an agreement that the draft SME Development Plan is to be the overall framework under which business environment reforms affecting SMEs are to be aligned and monitored. This will have implications for all SME stakeholders in Vietnam, including donors. Task Group activities improved ownership of reform recommendations and uncovered capacity building needs 31. The second difference was the introduction of SME Task Groups for conducting research on SME constraints and production of recommendations by SME stakeholders, Table 4. Each Task Group concluded a cooperation agreement with ASMED. The total number of Task Group members reached Through the Cooperation Agreements, ASMED provided each Task Group with technical assistance (national experts) and a small amount of financial assistance to facilitate group work, and logistics and administrative support to each group. In addition, ASMED provided all Task Groups with a collection of previous research conducted by Government, donors and private sector in Vietnam, including foreign investors, Task Group specific summaries of significant regulatory recommendations for consideration by each Task Group and background materials on international best practice in regulatory reforms that affect SMEs and on competitiveness improving services for SMEs. 33. It was observed that provision of some structure through the Cooperation Agreements and technical assistance improved the quality of discussions and considerations, helped in identification of both converging and very different views and approaches in respect of business environment reforms and SME support programs. 34. In public sector organizations, the SME Task Groups consisted of representatives from different departments of the same agency. Task Groups in public sector agencies realized the need to for improved cooperation and coordination within their organization and had to balance different priorities of departments in their recommendations. 35. In the private sector SME Task Groups, different types of associations and membership organizations were brought together. For example, non-sector specific associations were in one Task Group, sector and professional associations in two others, civil society organization in 7

10 a Task Group, and foreign business associations in another. Private sector representatives improved their awareness of differing approaches advocated by various membership organizations. 36. During this process, we realized that we still need to focus on building capacity for both public and private sector stakeholders: first, public and private SME stakeholders have to understand the real, practical, and underlying issues and constraints to growth and SME development. We believe posting of Task Group reports on the web helped in raising awareness with respect to capacity building needs of different stakeholder groups. Second, they should be empowered to transfer these issues to appropriate levels locally and nationally and, finally SME stakeholders should be endowed with the skills to translate the agreed issues to appropriate policies, strategies and programs. Structured and inclusive dialogue uncovered the need for coordination and private sector participation during implementation at local levels 37. The third difference in the process was the joint prioritization of priorities, measures and actions needed for SME/private sector development. A 2-day retreat where SME Task Group representatives presented their research and recommendations to the whole group and then prioritized the recommendations in intensive, parallel sessions that were facilitated by national experts helped this process. Moreover, upon the consolidation of the first draft of the Plan, workshops that brought together provincial authorities and local business community representatives assisted in fine-tuning of regulatory actions and SME support program measures under each priority area. A total of 550 persons participated in consultations. 38. Two major improvements in the draft Plan came about from open discussions at provincial levels. At provincial levels, the Departments of Planning and Investment under each People s Committee is responsible for coordinating SME development policies and programs. Both provincial authorities and local business representatives voiced the need for provincial (local) level coordination of legal, regulatory and administrative reforms as well as SME support programs. This resulted in the insertion of a public-private provincial Steering Committee for SME development as a management and implementation structure in the institutional arrangements foreseen in the draft SME Development Plan. 39. The second major Plan improvement advocated by grassroots stakeholders involved the enhancement of the role of business associations in the implementation of the draft SME Development Plan. Accordingly, the Plan clarifies how business associations are expected to contribute to SME development. Specifically, Business Associations are to: a. Inform their membership of the national and provincial level SME Development Plan objectives, priorities and actions being implemented. b. Be represented in the provincial Steering Committee for SME development in the province/city. c. Make recommendations to improve regulatory and administrative practices under the responsibility of the province/city to improve business establishment, enterprise operations and growth in the province/city through the provincial Steering Committee. (Recommendations brought forward by business associations should be concrete and based on sound evidence and analyses). d. Make recommendations on improving the effectiveness and efficiency of existing and planned province/city level SME support programs. e. Make recommendations on SME development actions (regulatory, administrative actions as well as support programs) that need to be decided and implemented at the national level. (Recommendations should be made through the province/city Steering Committee 8

11 for onward transmission to ASMED and/or directly to ASMED for submission to the SME Promotion Council). f. Participate actively in the implementation of SME support programs in the province under the draft SME Development Plan Priority 4 (sector specific competitiveness improvement programs, training and advisory services for SMEs, cluster and export development initiatives to maximize the benefits of deeper international integration and to create employment in rural areas, and in disadvantaged areas and groups). g. Participate in monitoring the implementation of the SME Development Plan at the level of the province/city according to the qualitative objectives indicated in the SME Development Plan h. Promote sustainable business practices, ethical business behaviour and compliance with regulatory and administrative procedures among their membership and in line with the objectives of the SME Development Plan. i. Actively seek resources to build up the capacity of their associations in human resources, finances, association management and services for SMEs. IV. Draft SME Development Plan: A Framework for Business Environment Reforms 40. Government s overall regulatory reform objectives focus on providing incentives to entrepreneurship and investment, increasing productivity through competition and innovation, improving market access and functioning, and harnessing international economic linkages. Objectives and Priorities of the draft SME Development Plan In line with these objectives, the draft SME Development Plan aims to significantly remove constraints faced by SMEs and to create an enabling environment for their growth. As a result of implementing the Plan, we expect to facilitate the creation of up to 320,000 new SMEs and up to 2.7 million new jobs in the SME sector by the year Strategies to achieve the draft Plan s goals in enterprise and employment creation focus on the following qualitative objectives: The Government will seek to reduce the costs of SMEs' start-up towards the most competitive in the ASEAN region and speed up the process by reducing burdensome procedures for approving new companies by using online access for registration. The Government will adapt its tax system to encourage start-ups, favor small business expansion and job creation. At the same time, the Government will conduct the reform of the accounting system, and reporting requirements to simplify them and encourage the tax self assessment system that is suitable for small enterprises especially those in rural and mountainous areas, hence creating favorable conditions for enterprises and preventing tax losses. The Government will implement suitable policies to improve SMEs access to land and at the same time to protect the environment by formulating and publicizing the land master planning and land use plan. The Government will seek to ensure that SMEs have access to new and appropriately located industrial zones and support the relocation of manufacturing enterprises from residential areas to such zones. The Government will take steps to encourage an effective market (both supply and demand) for business development services and phase out the function of directly providing services from the State management function of state organizations. In order to encourage the growth of BDS market, State agencies will focus on their role of promoting, supporting, supervising and managing the quality of services provided by others. In the period 2006 to 2010, the Government will carry out support programs to ensure that (1) SMEs are properly equipped with the skills they need to 9

12 compete internationally upon Vietnam s accession to the World Trade Organization. (2) Employment creation in rural and disadvantaged areas and among minorities so as to stem a wide-scale population movement from rural to urban areas. In order to improve the access of SMEs to credit finance, the Government will continue to take steps (restructuring the state-owned banking sector, encouraging the strengthening of private banks, and opening the economy to foreign banks) to orientate the financial sector to more market driven approaches that respond to customer needs, including the development of the leasing sector and other forms of non-collateralized finance for SMEs. In order to nurture entrepreneurial spirit and entrepreneur culture, the Government will conduct general information and awareness campaigns of the entrepreneurship, and entrepreneur spirit to the masses. Especially, specific enterprise-related training modules will be made an essential ingredient of education schemes at high schools, colleges and universities, vocational schools. The Government will support the development of stronger, more effective representation of small enterprises interests at national and provincial level by encouraging and supporting the establishment of business associations at both central and local levels. The Government will develop a more effective system for collecting and analyzing data on the state of the SME sector for the policy making process for this sector and to provide business information to enterprises. The Government will improve coordination of its actions to support SME development through the operation of the SME Promotion Council and the establishment of various interministerial work groups that will ensure an appropriate allocation of responsibilities within central and local government for SME development and the coordination of the implementation of the tasks necessary for SME development. Table 5. Priorities of the draft SME Development Plan Priorities Priority Coordinator Measures & (Actions) Priority 1: Simplification of regulations for business establishment, MPI 8 (41) enterprise operations and growth Priority 2: Creating access to land for SMEs MONRE 1 (5) Priority 3: Creating access to finance MOF 1 (6) Priority 4: Providing the tools for increased competitiveness Program 1: Maximizing the positive impacts of WTO accession for SMEs Program 2: Generating employment MPI MOT MPI 2 (6) Priority 5: Creating access to skilled labor MOLISA 1 (6) Priority 6: Creating a culture of entrepreneurship MPI 2 (2) Priority 7: Management of the Implementation of the SME Development Plan Nature of Measures and Actions under Priority Areas MPI 1 (4) 43. As can be seen Table 5, the majority of priorities of the draft SME Development Plan involves legal, regulatory and administrative reforms to be effected in Vietnam. As such the draft Plan provides an overall framework that is expected to guide business environment reforms, especially those that are relevant for domestic private sector in Vietnam. Simplification of regulations governing business establishment, operations and growth take the center stage in the draft SME Development Plan, with 8 measure groups containing 41 specific actions for legal, regulatory and administrative reform and implementation. 10

13 44. Of the 16 measures under the 7 priorities, 3 measures are about competitiveness improvement programs consisting of the facilitation of business development services (BDS) as per Priority 4 and raising of awareness of entrepreneurship as per Priority 6, measure no. 15. The implementation of these programs are most important in view of the approaching accession of Vietnam to WTO and deepening integrations into regional groupings such as ASEAN and APEC. 45. Table 6 below summarizes the types of measures and the number of actions that have been included in the draft SME Development Plan Table 6. Measures recommended under SME Development Priorities 1. Simplification of regulations for business establishment, operations and growth (MPI) 1 Improved registration and associated actions (MPI), 7 actions 2 Amended regulations on business conditions/ business licenses / permits and implementation of Enterprise Law (MPI), 3 2. Creating access to land for SMEs (MONRE) 9. Policy and regulatory support for access to land (MONRE), 5 3. Creating access to finance (MOF) 10. Policy and regulatory actions to improve access to finance (MOF), 6 4. Providing the tools for increased competitiveness (MPI) 11. Program 1: Maximizing the positive impacts of WTO accession through support to 4 selected sectors (MOT), Program 2 Creating employment in rural areas, disadvantaged areas and among minorities. (MPI), 1 5. Providing access to skilled labor (MOLISA) 13. Developing the labor market (MOLISA), 6 6. Creating a culture of entrepreneurship (MPI) 14. Creating a culture of entrepreneurship among authorities and the public (MPI), Creating a culture of enterprise in universities and schools (MOET), 1 7. Effective management of the SME Development Plan (MPI) 16. Effective management of implementation of the SME Development Plan (MPI), 4 3 Improved postregistration processes (MPI), 2 4 Improved investment legislation (MPI), 1 5 Improved commercial legislations (MOJ), 9 6. Simplified financial reporting requirements (MOF), 3 7. Simplified taxation reporting requirements (MOF), 8 8. Simplified access to technology (MOST), 5 Source: Draft SME Development Plan , ASMED, MPI, Numbers after each measure denote number of actions. 46. Capital is the most important resource entrepreneurs need to mobilize and depend upon because it is instrumental in the engagement of other factors of production in business activities. Therefore, in addition to a business sector with a higher proportion of formality, a well functioning financial sector is necessary to develop SMEs specifically, and investments in general. In line with this, Vietnam has undertaken monetary and financial reforms by restructuring its banking system and by allowing flexible exchange and interest rate adjustments that correlate better with market realities. 11

14 47. We believe that a sound and competitive financial sector will not only reassure investors, but also facilitate improved financial flows and create new business opportunities. Accordingly, the draft SME Development Plan a priority (No. 3) for improving access of SMEs to finance through formal financial institutions. As common in many developing countries, access to finance greatly depends on access to collateral, most significantly to land and buildings by SMEs. While the new Land Law improves the conditions for accessing land in Vietnam, implementation of this Law as well as administrative procedures for accessing land in Vietnam has to be improved as per Priority No. 2 in the draft SME Development Plan. 48. Providing access to skilled labor (Priority 5), a continuous stock of new entrepreneurs (Priority 6) and effective management of the implementation of the Plan, i.e. the business environment reforms and support programs, take their prominent place in the Plan with 4 measure groups containing 12 specific actions. V. Coordination with donors 49. Vietnam has a relatively well-established donor coordination mechanism and process in SME/private sector development. In fact, an ASMED colleague has provided detailed information on donor coordination for SME development in Vietnam during this Conference in Session During the formulation of the draft SME Development Plan and its Action Plan for Implementation, ASMED facilitated provision of ample inputs by donors first to the detailed outline of the Plan at an Inception Workshop and then at an SME Partnership Group meeting that was devoted to an extensive discussion on the 1 st draft of the Plan. Written comments received from donors were also discussed by at the roundtable discussions held and incorporated into the final draft. Additional information was provided to donors on major improvements made in the final draft at a second Partnership Group meeting. 51. Our objective is to further improve the functioning of markets and market regulating institutions. We have promulgated and implemented policies to encourage the development of all economic sectors by launching reforms and restructuring of the State owned enterprise sector and by encouraging domestic and foreign investments extensively. We have been improving our national administrative systems with a view to ensure that all investors whether public or private, domestic or foreign are treated fairly and equally and that they are enabled to realize their full potential within the Vietnamese economy. We expect the draft SME Development Plan to further expedite the reform process by providing an overall framework for implementation and monitoring as well as and guidance for public-private dialogue and cooperation in the coming years for SME stakeholders, including donors. VI. Conclusions 52. During the process of formulating the draft SME Development Plan, we learned the following specific lessons: a. Involvement of public and private sector SME stakeholders at high levels, through the SME Council, improved ownership of business environment reform recommendations. b. An institutional structure dedicated to the coordination of SME development policies (the SME Council and the Agency for SME Development, MPI) at the national level is necessary for designing consistent policies and agreeing on concerted action in the field of business environment reform. The SME Council and ASMED, the agency dedicated to SME/private sector policy coordination 12

15 achieved this among domestic stakeholders. The SME Partnership Group helped build consensus among donors. c. Enabling different grassroots stakeholder groups to first develop their recommendations and then to negotiate and to build consensus around priorities through Task Groups according to their specific fields and interests improved the quality (both scope and depth) and ownership of policy recommendations incorporated into the SME Development Plan. d. The Task Group activities, including the provision of targeted and dedicated technical assistance helped uncover capacity building needs of different stakeholder groups. Finding means and ways to address these capacity building needs would be essential for the successful implementation of business environment reforms and SME support programs in the coming period. e. Facilitation of Task Groups work, provision of specialist technical assistance to these groups and consultations at national and provincial workshops and roundtables require a significant amount of financial and human resources to be deployed. Neither public nor private sector institutions in developing countries such as Vietnam have these types of budgetary allocations. Availability of these resources is perhaps the major difference between developing and developed countries and may be a major factor affecting policy formulation as per international best practice, including during the business environment reform process. f. Availability of similar resources for policy implementation, especially in translating business environment related policies through administrative reforms and their actual implementation, as public services, will be essential. For example, further simplification of business registration and eliminating discretionary practices during implementation (an action according to the draft SME Development Plan ) can be achieved by standardizing the administrative processes that are dictated under the Unified Enterprise Law and by computerizing the standard practice nationwide. This means that significant investments in procedure development, human resource training and physical investments in hardware, software, networking, etc. will be required for operationalizing a few pages of legal text in the Unified Enterprise Law. This will require time (perhaps a few years) and millions of dollars of investments. g. Recommendations on policy implementation (e.g. administrative reform measures and their implementation at local levels) at local levels received as much attention as legislative measures proposed at the national level. This is an important lesson showing the need for opening up bottom up information channels that should feed into national level business environment reform agendas. 13

16 Annex 1. Prime Minister s Decision on the SME Development Promotion Council UNOFFICIAL TRANSLATION GOVERNMENT SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness No. 12/2003/QD-TTg Hanoi, January 17th, 2003 PRIME MINISTER'S DECISION on functions, tasks and members of the Council for encouraging development of small and medium sized enterprises PRIME MINISTER Based on Government Organization Law dated December 25th, 2001; Based on Decree no. 90/2001/ND-CP dated November 23rd, 2001 by Government on support SMEs development; As per proposal of Ministry of Planning and Investment (official document no. 48 BKH/CPTDN dated January 3rd, 2003), DECIDES: Article 1. Council for encouraging SMEs development (hereinafter referred to as Council) has functions to provide consultancy to Government Prime Minister on mechanism, policies encouraging SMEs development in the whole country. Article 2. Council has tasks to provide concrete consultancy on: - Strategic orientation and plan to develop SMEs in accordance with orientation, strategy of national social-economic development; - Recommendations to amend, supplement, improve mechanisms, policies for SMEs development; - Measures, solutions and programmes to assist SMEs in strengthening their capacity and increasing competitiveness of SMEs; - Other issues concerning SME development as assigned by Government Prime Minister. Article 3. Council members include: 1. Council president: Mr. Vo Hong Phuc, Minister of MPI. 2. Standing member: Mr. Tran Dinh Khien, Deputy Minister of MPI. Members: 3. Mr. Tran Van Ta, Deputy Minister of Ministry of Finance. 4. Mr. Bui Xuan Khu, Deputy Minister of Ministry of Industry. 5. Mr. Cao Duc Phat, Deputy Minister of Ministry of Agriculture and Rural Development. 6. Mr. Tong Van Nga, Deputy Minister of Ministry of Construction. 7. Mr. Pham Duy Anh, Deputy Minister of Ministry of Transport. 8. Mr. Do Nhu Dinh, Deputy Minister of Ministry of Commerce. 9. Mr. Bui Manh Hai, Deputy Minister of Ministry of Science of Technology. 14

17 10. Mr. Dang Hung Vo, Deputy Minister of Ministry of Natural Resource and Environment. 11. Mr. Le Vu Hung, Deputy Minister of Ministry of Training and Education. 12. Mr. Le Duy Dong, Deputy Minister of Ministry of Labour, War Invalids and Social Affair. 13. Mr. Ha Hung Cuong, Deputy Minister of Ministry of Justice. 14. Mr. Nghiem Xuan Dat, member of Hanoi People's Committee. 15. Mr. Nguyen Huu Tin, member of HCMC People's Committee. 16. Mr. Tran Phuoc Chinh, Vice president of Da Nang People's Committee. 17. Mr. Pham Tien Dung, Vice president of Hai Phong People's Committee. 18. Mr. Nguyen Cong Tan, President of SMEs association of rural branches and trades. 19. Mr. Nguyen Ty, President of Vietnam Cooperative Union. 20. Mr. Vu Tien Loc, Vice president of Vietnam Chamber of Commerce and Industry. 21. Mr. Ho Uy Liem, Vive president cum General Secretary of Vietnam Union of scientific and technical associations. 22. Mr. Truong Gia Binh, President of Vietnam young businessmen association. 23. Head of SMEs development department (MPI) acts as standing Council secretary. - Council members work under mechanism of holding several positions. - When necessary, according to actual work, Council President may invite some representatives of other organizations, associations and experts to take part in Council meetings. Article 4. Council's standing agency is the Agency for SME Development (MPI). Council president shall stipulate responsibilities and working mechanism for standing agency. Article 5. This Decision shall take effect after 15 days from the signing date. Article 6. Ministers, Heads of ministerial level agencies, Heads of Governmental agencies, Presidents of People's Committee of the provinces and cities directly under Central Government and Council members shall be responsible for implementing this Decision./. FOR GOVERNMENT PRIME MINISTER DEPUTY PRIME MINISTER Delivery: - Secretariat of the Party Central Committee (Signed and sealed) - Prime Minister, Deputy Primer Ministers - Ministries, ministerial level agencies, Nguyen Tan Dung Governmental agencies - People's council, People's committee of the provinces and cities under central Government - Central Office and Boards of Party - Assembly Office - President Office - Enterprise development & renovation board - Vietnam Chamber of Commerce and Industry - Central agencies of organizations - Council members - Public gazette - Government office: BTCN, PCN, departments, units - Archive: CN (5). 15

18 List of Acronyms ASMED GSO MOF MOLISA MONRE MPI SME UNIDO VCCI Agency for SME Development, MPI General Statistics Office Ministry of Finance Ministry of Labor, War Invalids and Social Affairs Ministry of Natural Resources and Environment Ministry of Planning and Investment Small and medium sized enterprises United Nations Industrial Development Organization Vietnam Chamber of Commerce and Industry 16

19 References ASMED/MPI (2005), Final Draft SME Development Plan and its Action Plan for Implementation, Hanoi. ASMED-UNIDO (2005), Progress Report: Assistance to Establish the National and Provincial SME Support Infrastructure, August. Background Reports (2005), various Ministries, Agencies, Provinces and Private Sector Representative Organizations, 17