Preliminary country paperPreliminary country paperOnOn

Competition Scenario in VietnamCompetition Scenario in VietnamPrepared by Prepared by

the Central Institute of Economic the Central Institute of Economic Management (CIEM)Management (CIEM)

for the 7-UP MARK II Project Launch for the 7-UP MARK II Project Launch MeetingMeeting

23rd-24th, April23rd-24th, AprilHanoi, VietnamHanoi, Vietnam

1.1. Geographical location, 1.1. Geographical location, populationpopulation

Land territory:Land territory: Total: 330,991 sq km. Total: 330,991 sq km. Borderline:Borderline: Total 4,567 km, inclusive of Total 4,567 km, inclusive of

1,150 km bordering Cambodia, 1,350 km 1,150 km bordering Cambodia, 1,350 km with China, and 2,067 km with Laos.with China, and 2,067 km with Laos.

1.1. Geographical location, 1.1. Geographical location, population (Cont.)population (Cont.)

Population:Population: 80.7 million (in 2003) 80.7 million (in 2003)

Male Pop: 39.2 million, Female Pop:Male Pop: 39.2 million, Female Pop: 41.5 41.5 million; Urban Pop: 19.9 million (or 20%)million; Urban Pop: 19.9 million (or 20%)

Population growth rate:Population growth rate: 1.31% 1.31%

1.2. Economic performance1.2. Economic performance

The average growth rate for 91-95, 96-The average growth rate for 91-95, 96-2000, and 2001-20032000, and 2001-2003

AgricultureAgriculture: 4.1%, 4.3%; 3.6%: 4.1%, 4.3%; 3.6%

IndustryIndustry: 12%; 10.6%; 10.1%: 12%; 10.6%; 10.1%

ServicesServices: 8.6%; 5.7%; 6.3%: 8.6%; 5.7%; 6.3%

GDP:GDP: 8.2%; 6.9%; 7.1% 8.2%; 6.9%; 7.1%

1.2. Economic performance 1.2. Economic performance (Cont.)(Cont.)

Economic Structure of agriculture, Economic Structure of agriculture, industry, and serviceindustry, and service

1990: 31.8%; 25.2%; 43%1990: 31.8%; 25.2%; 43%

1995: 26.2%; 29.9%; 43.8%1995: 26.2%; 29.9%; 43.8%

2000: 23.2%; 35.4%; 41.4%2000: 23.2%; 35.4%; 41.4%

2003: 21.0%; 38.5%; 40.5%2003: 21.0%; 38.5%; 40.5%

1.2. Economic performance1.2. Economic performance (Cont.)(Cont.)

The inflation has been kept at a low rate The inflation has been kept at a low rate since 1992. The inflation rate in 2000 was since 1992. The inflation rate in 2000 was -0.6%, in 2001: 0.8%, in 2002: 4%, and in -0.6%, in 2001: 0.8%, in 2002: 4%, and in 2003: 4%.2003: 4%.

The fiscal deficit stayed at a level less than The fiscal deficit stayed at a level less than 5% of GDP.5% of GDP.

The external debt is controlled at a level of The external debt is controlled at a level of about 40% of GDPabout 40% of GDP

1.2. Economic performance1.2. Economic performance (Cont.)(Cont.)

The average annual growth rates of The average annual growth rates of exports and imports during the period exports and imports during the period 1986-2003 are 20.9% and 15.5%, 1986-2003 are 20.9% and 15.5%, respectively. respectively.

the exports and imports per capita are still the exports and imports per capita are still very low. In 2003 the export and import very low. In 2003 the export and import values per capita are equal to USD 246.25 values per capita are equal to USD 246.25 and 309.61, respectively. and 309.61, respectively.

2.1. Industrial Policy2.1. Industrial Policy

Industrial development strategy is not Industrial development strategy is not clearly set up. The “freeze” and “fever” are clearly set up. The “freeze” and “fever” are alternated from year to year in commodity alternated from year to year in commodity market.market.the leading role of the state sector is the leading role of the state sector is emphasizedemphasizedstate corporations was established by state corporations was established by administrative measures (Decision 90/TTg administrative measures (Decision 90/TTg and 91/TTg), not by market forcesand 91/TTg), not by market forces

2.1. Industrial Policy (Cont.)2.1. Industrial Policy (Cont.)

The non-state sectorThe non-state sector is at a more is at a more disadvantageous in comparison with the disadvantageous in comparison with the state sector.state sector.

A large share of investment spending has A large share of investment spending has concentrated onconcentrated on key capital-intensive key capital-intensive import-substitution industries.import-substitution industries.

2.2. Trade Policy2.2. Trade Policy

The extensive trade reform has been The extensive trade reform has been undertaken since 1989.undertaken since 1989.

The state monopoly on trade was The state monopoly on trade was abolished. In 1989, quotas and abolished. In 1989, quotas and quantitative targets on all but seven quantitative targets on all but seven exports and twelve import items were exports and twelve import items were eliminated; all direct export subsidies were eliminated; all direct export subsidies were eliminated.eliminated.

2.2. Trade Policy (Cont.)2.2. Trade Policy (Cont.)

The new tariff schedule (Decision 110/2003/QÐ-The new tariff schedule (Decision 110/2003/QÐ-BTC)BTC) has 4,200 additional tariff lines in has 4,200 additional tariff lines in comparison with the old one.comparison with the old one.

The new tariff schedule has 15 tariff rates: 0%, The new tariff schedule has 15 tariff rates: 0%, 1%, 3%, 5%, 7%, 10%, 15%, 20%, 25%, 30%, 1%, 3%, 5%, 7%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 80%, 100%, less 5 rates than 40%, 50%, 60%, 80%, 100%, less 5 rates than the old schedule.the old schedule.

The average tariff rate is 18.2% compared to the The average tariff rate is 18.2% compared to the average rate of 16.8% of the old tariff schedule. average rate of 16.8% of the old tariff schedule.

2.3. Privatisation and regulatory 2.3. Privatisation and regulatory reform policyreform policy

The 1992 Constitution recognizes the right The 1992 Constitution recognizes the right to business freedom of enterprises and the to business freedom of enterprises and the development of a multi-sector economy.development of a multi-sector economy.

In Vietnam the “equitisation” terminology In Vietnam the “equitisation” terminology may be understood as a “quasi-may be understood as a “quasi-privatisation”. It means that SOEs are privatisation”. It means that SOEs are allowed to transfer to one of the ownership allowed to transfer to one of the ownership forms defined by the Enterprise Law.forms defined by the Enterprise Law.

2.3. Privatisation and regulatory 2.3. Privatisation and regulatory reform policy (Cont.)reform policy (Cont.)

a five-year SOE reform plan was set in March a five-year SOE reform plan was set in March 2001.2001. 1800 SOEs are subject to SOE reform 1800 SOEs are subject to SOE reform measures, mostly through equitization (1440), measures, mostly through equitization (1440), divestiture (140), or liquidation (220). An divestiture (140), or liquidation (220). An additional 200 SOEs will be merged or additional 200 SOEs will be merged or consolidated. consolidated. the idea to unify the enterprise law, the SOE law the idea to unify the enterprise law, the SOE law into a common law is considered. The unification into a common law is considered. The unification of the law on domestic investment promotion of the law on domestic investment promotion and the law on foreign direct investment is also and the law on foreign direct investment is also consideredconsidered

2.4.Investment Policy2.4.Investment Policy

The domestic investment environment is The domestic investment environment is vitalized by the Enterprise Law. vitalized by the Enterprise Law. During During 2000-2003, about 75 thousand of 2000-2003, about 75 thousand of enterprises were established, while in the enterprises were established, while in the period 1991-1999 there were only 45 period 1991-1999 there were only 45 thousand enterprises. The total registered thousand enterprises. The total registered capital was about USD 10 billion, much capital was about USD 10 billion, much higher than FDI and 4 times higher than higher than FDI and 4 times higher than the investment of enterprises during the the investment of enterprises during the previous period.previous period.

2.4.Investment Policy (Cont.)2.4.Investment Policy (Cont.)

Since 1997 FDI has reduced significantly. The Since 1997 FDI has reduced significantly. The improvement has started since 2000, but not improvement has started since 2000, but not reached the level before 1997. reached the level before 1997.

Some improvements have been made in the Some improvements have been made in the Law on Foreign Direct Investment in June 2000. Law on Foreign Direct Investment in June 2000. Its guiding document is Decree 24/2000/ND-CP.Its guiding document is Decree 24/2000/ND-CP.

The stock exchange market is still at the early The stock exchange market is still at the early stage of its development; the size is very small.stage of its development; the size is very small.

2.5. Government Procurement 2.5. Government Procurement PolicyPolicy

The process of establishing a modern The process of establishing a modern procurement framework for public expenditure in procurement framework for public expenditure in Vietnam, based on the principles of open Vietnam, based on the principles of open competitive bidding, began after the first competitive bidding, began after the first procurement review in 1994.procurement review in 1994.

Decree 66/2003/ND-CP on June 2003 amended Decree 66/2003/ND-CP on June 2003 amended a number of articles in Regulation on Bidding, a number of articles in Regulation on Bidding, attached to Decree 88/1999/ND-CP and Decree attached to Decree 88/1999/ND-CP and Decree 14/2000/ND-CP.14/2000/ND-CP.

2.5. Government Procurement 2.5. Government Procurement PolicyPolicy

The process of establishing a modern The process of establishing a modern procurement framework for public expenditure in procurement framework for public expenditure in Vietnam, based on the principles of open Vietnam, based on the principles of open competitive bidding, began after the first competitive bidding, began after the first procurement review in 1994.procurement review in 1994.

Decree 66/2003/ND-CP on June 2003 amended Decree 66/2003/ND-CP on June 2003 amended a number of articles in Regulation on Bidding, a number of articles in Regulation on Bidding, attached to Decree 88/1999/ND-CP and Decree attached to Decree 88/1999/ND-CP and Decree 14/2000/ND-CP.14/2000/ND-CP.

2.5. Government Procurement 2.5. Government Procurement Policy (Cont.)Policy (Cont.)

Some weaknesses of the legal and regulatory Some weaknesses of the legal and regulatory framework in regard to the government framework in regard to the government procurement: lack of clarityprocurement: lack of clarity due to due to overlapping overlapping and conflicting provisions; restrictions in the use and conflicting provisions; restrictions in the use of open, international competitive bidding do not of open, international competitive bidding do not allow for a level playing field; no regulation allow for a level playing field; no regulation concerning time limits and participation in bid concerning time limits and participation in bid opening; lack of clear guidelines for advertisingopening; lack of clear guidelines for advertising

the Draft Ordinance on Procurement is under the Draft Ordinance on Procurement is under preparationpreparation

2.5. Labour policy2.5. Labour policy

About 90% of total jobs are created in the About 90% of total jobs are created in the non-state sector; the rest 10% are created non-state sector; the rest 10% are created by the state and foreign invested sector.by the state and foreign invested sector.

The new Labor Code implemented in 1995 The new Labor Code implemented in 1995 and related Decrees cover three types of and related Decrees cover three types of labor regulations: minimum wages, non-labor regulations: minimum wages, non-wage compensation, and laws regulating wage compensation, and laws regulating employment termination.employment termination.

3. The further research issues3. The further research issues

The issues needed the further research The issues needed the further research are: a) Nature of market/competition; b) are: a) Nature of market/competition; b) Sectoral policies c) Anti-competitive Sectoral policies c) Anti-competitive practices; d) Consumer movementpractices; d) Consumer movement

Thank you very much!Thank you very much!