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New ordinance on investment formalities seeks to standardize them across Vietnamese localities and sectors, in the "˜strongest' administrative reform effort yet

In 2008, Construction Minister Nguyen Hong Quan promised to remove at least seven formalities related to licensing construction projects.

His pledge came after subordinates reported that a project had to undergo 33 formalities over a period of three years between applying for the license and launching the project.

Quan directed that the average period be cut short by between five months and one year for a project. "That will help businesses effectively," he said.

Six years later, however, the situation has not improved, but worsened. Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said the seven formalities that had been lifted ultimately reincarnated in other procedures.

Nguyen Van Duc, the association's vice chairman, estimated that there were about 400 implementation guiding documents on real estate transactions of all kinds issued by both central and local governments.

Land related formalities are just part of the many administrative hurdles that Vietnamese businesses have to pass. As many as 8,000 of 10,000 businesses surveyed by the Vietnam Chamber of Commerce and Industry selected procedures relating to the environment and construction to be most problematic besides those relating to land.

According to Nguyen Hung Hue, an official with the office under the Justice Ministry that checks on administrative procedures, despite efforts to cut them,  the list is "still long, overlapping and full of contradictions."

Dau Anh Tuan, deputy head of VCCI Legal Department, said investors have to fulfill 18 major formalities relating to investment, land, environment and construction in the first phase of investment. Each formality can be broken down into "layers" of formalities.

In practice, it is hard to decide in which order these formalities should be carried out, and due to their confusing content they may also be interpreted differently by different sectors and localities.

There are five laws, 10 decrees, nine ordinances and "hundreds of local-level guiding documents" related to an investor entering the market, said Tuan, who has spent eight years reviewing business formalities as part of an annual survey of provincial competitiveness.

So far, however, there has been no "complete, highly consistent procedure for investors to follow from starting to finishing a project," he said.

"There are so many formalities that even veteran investment officials struggle to update themselves. And they change constantly. There are quite a few instances of regulation changes in the middle of a project, which forces investors to face risks," Tuan said.

This also becomes fertile soil for corruption, he said.

Nguyen Quoc Hiep, chairman of the Vietnam Association of Construction Contractors, said recently that his company was constructing a high-rise building in Hanoi in 2009 when the municipal government suddenly decided to ban multi-storied buildings in the area. The project has stalled since.

Hiep said changing rules midway was just part of the problem. He calculated that it takes a business 40 days just to get an investment application to be considered by local planning and investment office. The office then submits its review of the application to the local people's committee. This step takes an average of 30 days. The committee then asks agencies dealing with land and construction issues, among others, for feedback about the investment, and at least another month is gone. It then takes another 30 days for those agencies to submit their feedback.

"This procedure takes too much time compared to the officially set maximum of 60 days for approving an investment application," Hiep said.

Tuan of VCCI said the system placed too much power in the hands of civil servants in charge of administrative procedure.

"An investor has to go through many services, and for each service, he/she has to deal with multiple departments, and to approach specific department staff if he or she wants the application to proceed faster," Tuan said.

The responsible services also share the habit and "mentality" of passing the buck when they find that some legal stipulation is not clear enough. Investors are then "like a ball being kicked from one [government] agency to another," Tuan said.

VCCI Chairman Vu Tien Loc said the poor investment environment would put Vietnam out of "radar range" of many foreign businesses and undermine local businesses.

"We certainly must have a consistent investment procedure for the entire country," he said.

 Strong awareness

In fact, authorities in a number of provinces, such as Bac Ninh, Ba Ria-Vung Tau and Thua Thien-Hue have issued a manual that details procedures and paperwork for investors.

The manual was written with the help of the International Financial Corporation (IFC), an affiliate of the World Bank Group, and the Central Institute of Economic Management (CIEM). Based on an annual provincial competitive index survey by VCCI, these provinces have rapidly improved their business environment.

However, Prime Minister Nguyen Tan Dung has said that these improvements are not enough. He recently called a meeting of a number of experts with experience in the country's business environment to discuss the issue. CIEM deputy director Nguyen Dinh Cung, who attended the meeting, said PM Dung and other cabinet members were "strongly aware" of the hurdles in investment procedures.

Dung asked the Planning and Investment Ministry to coordinate with the ministries of Justice, Natural Resources and Environment, and Construction to prepare an ordinance on investment procedures.

Cung said the inter-ministerial ordinance would hopefully be issued in the third quarter. "This time the government is really showing strong determination," Cung said.

He said ministries are reviewing administrative formalities relating to investment, land and construction and putting them in order. The next step would clarify required paperwork for each formality so as to standardize it and avoid overlapping.

Another improvement could be made to the work flow at licensing agencies, Cung said. Different formalities could be carried out simultaneously instead of one after another.

For formalities that can be carried out at the same time, but are required by different agencies, a multi-sector council could be formed to tackle them. This would help save time and ensure consistency in investment licensing, Cung said.

The inter-ministerial ordinance would detail investment procedures for all localities and sectors.

After the ordinance is issued, "people's committees in provinces can proactively apply it as suits their situation," Cung said, explaining that they would have the flexibility to convene multi-sector meetings to speed up perusal of investment applications.

The ordinance, which some experts fear can potentially be in conflict with existing laws, has received strong support.

Nguyen Phuong Bac, deputy director of the Planning and Investment Service of Bac Ninh, said the ministries should not wait for laws to be amended. "When one (law) is amended, there's still another (that needs amending)," Bac said.

"The ordinance is the most feasible way of having consistent procedures nationwide."

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