Presentation at the International Workshop on Public Private Dialogue Paris, 1-2 February 2006 Thomas Finkel Chief Techn

1. Public Private Dialoge in the Making of the Enterprise Law and Investment Law (2005): The Case of Vietnam Presentation at the International Workshop on Public Private Dialogue Paris, 1-2 February 2006 Thomas Finkel Chief Technical Advisor MPI-GTZ SME Development Programme

2. Vietnam: A Quick Overview • “Doi Moi” (renovation policy) in 1986 shifted the economy from planned to market-oriented • Stable macro-economic conditions • High economic growth: • 7.0% in 2002 • 7.2% in 2003 • 7.7% in 2004 • 8.4% in 2005 • Living standards steadily improving, poverty decreasing

3. Vietnam: A Quick Overview • Still poor and under-developed country: • Per capita GDP: $550 (2004) • Predominantly agricultural economy (70% of population) • Less than 1 enterprise per 1,000 people • Human Dev’t Index: ranked 104/177 countries (2005) • Business environment not yet competitive: • WEF competitiveness 2005 rating: 81/117 (downgraded by 4 ranks from 2004) – lowest among ASEAN countries • WB Doing Business 2006: Vietnam third in number of reforms, but still ranked 99/154 in overall ease of doing business • State-owned enterprises still dominate key sectors of the economy; tend to be inefficient, unable to create sufficient jobs • FDI is increasing (~US$5.4 bil. in 2005), but competition from other East Asian for FDI is stronger than ever

4. Some improvements in the business environment in the last decade: The environment for doing business has improved Results of Enterprise Law of 2000: Freedom to do business guaranteed Nearly 200,000 new enterprises established within 6 years of passing the law Very important effects in terms of job creation, poverty reduction and growth Remaining Issues and challenges: The quality of growth still is a matter of concern Achievement of Vietnam Development Goals requires bolder reforms of the business environment Accession to WTO imminent Legal framework for business still inconsistent and in some cases contradictory Implementation of business laws inconsistent; thus business environment varies from province to province Despite a Growing Private Sector – Serious Investment Climate Problems Remain

5. Current Legal Framework for business and investment in Vietnam: • Laws regulating business organization: • Enterprise Law 1999 - private domestic enterprises • SOE Law 2003 – State-owned Enterprises • Foreign Investment Law –FIEs • Law on Cooperatives – business cooperatives • Laws regulating investment activity: • Foreign Investment Law • Domestic Investment Encouragement Law • Weaknesses of legal framework: • Unlevel playing field • Inconsistencies between the laws • Not compliant with international best practices and commitments • Implementation and enforcement of laws is weak

6. Enterprise Law (EL) and Investment Law (IL) • The making of the EL and IL commenced in 2003. They were passed in November 2005 with the following objectives: • Address level playing field issues • One business registration system for all investors • Same rights for investors (both domestic and foreign) • More freedom to do business/investment • More transparent business environment/ further administrative reforms • Address issues related to NT, MFN and WTO • Set timeframe for SOEs to be converted and subject to the same playing field • Improve corporate governance practices • However, they are effective only from 1st July 2006.

7. Public Private Dialogue in Vietnam • Rationale for Public Consultation and Public Private Dialogue: • Public consultation and PPD has been made mandatory by Vietnamese laws and Government regulations • Required under USBTA and WTO • Increasing awareness (though still low) of the Government and the business about the benefits of public consultation • For main mechanisms by which the Government in Vietnam consults the business community: • Public meetings between specific Government agencies and interested business interests; • Direct requests for contributions of specific business representatives by Government agencies assigned to draft particular business laws; • Announcement of draft regulations and laws on the mass media or the internet and requests for comments from the public; • The bi-annual Vietnam Business Forum. • In addition to this is the inter-ministerial consultation: formation of inter-ministerial drafting committees and their operating method is a way to guarantee the consultation between ministries on business laws or regulations.

8. Quick diagnosis of main constraints in public consultation • Public consultation is still implemented in an ad-hoc manner rather than a thorough and systematic process • Government’s ambivalence regarding how exactly PPD is to be carried out. Vietnam’s governmental bodies, at present, appear committed to maintaining the power to decide which voices should participate in the dialogue and which should not. • Entrepreneurs generally believe that sticking their own individual necks out to advocate for change on behalf of their greater community can come with personal costs—and with little in terms of potential personal gains to balance these costs. So they say: “better not to rock the boat”. • VCCI – the main policy dialogue partners of the Government – is a semi-governmental organization with much of a top-down function. • In Vietnam, the Government-centric concept of consultationrather than the more enterprise-centric concepts of advocacy and dialogue prevails. • From the Government side, the shortage of resources (human and financial), unavailability of a systematic approach to public consultation, lack of techniques and expertise and absence of a penalty and incentive mechanism have made public consultation by many government bodies formalistic and ineffective.

9. Focus on the “shift from an investment licensing mechanism to investment registration”, i.e. a significant reduction of entry barriers Conducted by Prime Minister’s Research Commission, with support from GTZ and UNDP Under the assessment, 7 major business test panels and 3 consultation workshops were held in major cities from North to South of Vietnam The process and study results were presented to: Policy makers and business community To the National Assembly (workshops organized by PMRC and GTZ, as well as by MPDF) A Regulatory Impact Statement on the issue was developed, in which opinions from all stakeholders, included minority groups, are included. Used by PMRC for different proposals to the Prime Minister on the issue of investment licensing (under the CIL) GTZ’s Approach to Support Public Consultation under the UEL and CIL Introduction of Regulatory Impact Assessment in which public consultation on contentious issues is strongly imbedded and policy dialogue was carried out in a systematic manner

10. Support to policy dialogues, forums to exchange ideas on the draft laws between domestic and foreign business community and the drafting committee. Foreign business community: mainly through Eurocham with strong participation of the European business community and lawyers. Domestic business community under the umbrella of VCCI (Legal Department). Results of the meeting were documented and sent to the drafting committee together with written detailed comments by stakeholders on the draft laws. Accompanied by a press campaign and documentation of the results to make sure that the chambers’ member see the benefits of their participation. GTZ’s Approach to Support Public Consultation under the UEL and CIL (cont.) Direct support to the organization of policy dialogue meetings between government agencies, the drafting committees and private sector

11. GTZ’s Approach to Support Public Consultation under the UEL and CIL (cont.) GTZ’s Approach to Support Public Consultation under the UEL and CIL (cont.) The consultation process is supported by high-quality studies on business issues related to the two laws. The studies were used as inputs and food for discussions at consultation workshops. This recommendation was strongly debated in consultation workshop and policy dialogues supported by GTZ Now praised by the business community as one of the important advances of the law in further liberalizing the freedom to do business and recommends that: “…an individual may establish an one Member liability limited company…” EL adopted in 2005: “…One-member Liability limited company is owned by an organization or by an individual……” (Article 62)

12. GTZ’s Approach to Support Public Consultation under the UEL and CIL (cont.) Additionally, the consultation process is supported by strong participation of the mass media, which has made the law more transparent, more participatory and has strengthened public ownership of the laws. Inputs from GTZ Inputs from GTZ Inputs from GTZ

13. Key Results Obtained • Domestic business associations become more proactive and more professional in public consultation • Results of policy dialogues with support from GTZ were documented into formal appeals and many recommendations were reflected in the laws when they were passed in Nov. 2005 • Critical issues were widely discussed by the public with support of the local mass media • Business associations are becoming more and more aware of the importance of actively taking part in PPD • GTZ’s inputs and approach to PPD have set an example and a model for other PPD activities in Vietnam • New tools and mechanisms in public consultation and PPD are introduced and increasingly adopted by Vietnamese partners

14. Key Factors for Success • It is important to emphasize the ownership of national stakeholders • Make the local stakeholders aware of the benefits of involving in the policy dialogues with the Government • Keep the participants informed about how their proposal and requests have been addressed by the Government • Do not just complain, but suggest solutions also • Collective voices are important • Technical advice to consultation process is important • Good advice on business law contents is important. However, more important is how it is communicated • Identify the right dialogue partners • Use the press and other media • Build trust between the private and the public sector

15. Thank you,and for additional information, please contact: Mr. Thomas Finkel Chief Technical Advisor GTZ SME Development Programme 97, Tran Quoc Toan, Hanoi Vietnam Email: thomas.finkel@gtz.deor visit our websites: www.sme-gtz.org.vn and www.sme.com.vn