MINSITRY OF PLANNING AND INVESTMENT (MPI)

ENTERPRISE DEVELOPMENT AGENCY (EDA)

TA 8184 – VIE: Supporting the Second Small and Medium-Sized Enterprises Development Program

REGULATORY IMPACT ASSESSMNET (RIA) ON THE DRAFT LAW IN SUPPORT TO THE SMALL AND MEDIUM-

SIZED ENTERPRISES (SMEs) IN VIET NAM

MAY 2015

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ACRONYM and ABBREVIATION

ADB Asian Development Bank

AFTA ASEAN Free Trade Area

AP Annual Plan

APEC Asia-Pacific Economic Cooperation

ASEAN Association of Southest Asian Nations

CBA Cost and Benefit Analysis

CIEM Central Instritute for Economic Management

EDA Enterprise Development Agency

EU European Union

GOV Government of Viet Nam

GSO General Statistic Office of Vietnam

MOF Ministry of Finance

MOIT Ministry of Industry and Trade

MOJ Ministry of Justice

MONRE Ministry of Natural Resources and Environment

MOST Ministry of Science and Technology

MPI Ministry of Planning and Investment

NA National Assembly

RIA Regulatory Impact Assessment

SBA Small Business Act

SBV State Bank of Viet Nam

SMEDF Small and Medium-sized Enterprise Development Fund

SOE State-owned enterprise

TPP Trans-Pacific Partnership

USA The United States of America

VND Vietnamese Dong

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TABLE OF CONTENTS

REGULATORY IMPACT ASSESSMENT ON THE VIETNAMESE LAW ON SMALL &

MEDIUM-SIZED ENTERPRISES IN VIET NAM 4

A. An overview of the legal development in support to SMEs in Viet Nam 4

B. Development status of SME in Viet Nam and Background for formulation of Law in support

to SMEs in Vietnam 5

Table 1. Number of enterprises closed out and dissolved by captital size as of 2013 8

Table 2. Laws on SMEs by selected economies and regions. 9

C. Regulatory Impact Assessment (RIA) for the draft Law in support to SMEs in Viet Nam 10

C.1. Objectives and Purposes of Regulatory Impact Assessment (RIA) of the Draft Law in support

to SMEs 10

C.2. RIA Methodology 11

C.3. Assessment of the structure and contents of the draft Law in support to the SMEs 12

C.4. Policy Issues / Problems under the ex-ante RIA 13

Table 3. Policy issues proposed from ex-ante RIA for the Law in support to SMEs 13

C.5. Analysis of Potential Impacts of Policy Options 14

D. Recommendations 17

Table 4. Proposed criteria for full RIA in the next steps 18

E. Conclusion 18

F. Annex 20

Table 5. List of consultation workshops on development of Law in support to SMEs in Vietnam 20

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REGULATORY IMPACT ASSESSMENT ON THE VIETNAMESE LAW ON SMALL & MEDIUM-SIZED ENTERPRISES IN VIET NAM

A. An overview of the legal development in support to SMEs in Viet Nam

1. Prior to the birth of the Law in support to Small and medium-sized enterprises (SME), the Government of Viet Nam (GOV), in fact, has established policies supporting the development of SMEs in Viet Nam through the Decree No. 56/2009/ND-CP dated 30 June 2009 on assisting and supporting development of SMEs, superseding the Decree No. 90/2001/ND-CP dated 23 October 2001. For the purposes of policy implementation, the Government issued Resolution No. 22/NQ-CP dated 5 May 2010 guiding the execution of Decree No. 56/2009/ND-CP in terms of enhanced implementation and synchronizing the business and production activities of SMEs, maximize all capabilities and mobilize resources for SME development.1

2. To accelerate development and enhance the competitiveness of SMEs, create an enabling investment and doing-business environment in which SMEs can increasingly contribute to economic growth, national competitiveness and international economic integration, the Prime Minister issued the Decision No. 1231/QD-TTg dated 07 September 2012 approving the SME development plan for the period of 2011 – 2015 2. As such, this plan is the basis on which the 5-year plan for SME development year has been implemented by concerned and responsible ministries, ministerial-level agencies and local authorities.

3. The established policy mechanisms and programs for support to SMEs in Viet Nam have contributed to capacity building, awareness, and attention of the government and authorities at both national and sub-national levels to assisting SMEs in overcoming initial difficulties, investing in business and production towards economic efficiency and effectiveness. In parallel, the development of SMEs aims to improve quality and number of SMEs for achieving the targets of economic efficiency, environmental protection, job creation, poverty alleviation, and social security3.

4. In March 2014, Small and medium-sized enterprise Development Fund (SMEDF) was established to support small and medium-sized enterprises (SMEs) that invest in feasible projects, business and production plans in prioprized and encouraging sectors and industries by the government policies, which are in line with SMEDF’s development objectives in terms of (i) enahancing competitiveness of SMEs, (ii) increasing income and job creation for laborers, given that the list

1http://www.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id=2&_page=13&mode=detail&document_id=1635562http://www.chinhphu.vn/portal/page/portal/chinhphu/hethongvanban?class_id=2&_page=13&mode=detail&document_id=1635563http://nif.mof.gov.vn/portal/page/portal/nif/Newdetail?p_page_id=43068753&item_id=160734044&p_details=1

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of prioritized sectors and industries would be issued by the Ministry of Planning and Investment (MPI) in respective periods.

5. Under the approved SME development plan for the period of 2011 – 2015, the GOV assigned the Ministry of Planning and Investment (MPI) to establish project for preparing the Law in support to SMEs. Indeed, delopment of the Law in support to SMEs in Viet Nam is a participatory process, including consultations of expert evidneces and development experiences from both domestic and inrernational individuals and organizations in public and private sectors. By doing so, the Law in support to SMEs established by Enterprise Developmnet Agency (EAD) under MPI is expected to formulate a uniform legal framework, which processes its own characteristics that do not overlap or conflict with the enacted 2014 Law on Enterprises 4. This development is also suitable to the international context where such regional countries as India, Japan, and Korea have already established their laws in support to SMEs. The preparation of this Law at this stage has qualitatively and quantaitatively considered economic benefits and costs incurred in support to SMEs, and it is significantly important that the goals of Law aims to factor the macro targets of socio-economic development in terms of employment generation (reduction of unemployment rate), and minizing social disorders and crimes from which associated policies and measures shall be formed and provided to SME sectors in an effective and sustainable manner.

B. Development status of SME in Viet Nam and Background for formulation of Law in support to SMEs in Vietnam

6. To date, most of the Vietnamese enterprises are categorized as small and medium-sized. In terms of number of empoyees5, 97% of the total 500,000 enterprises in active operations are SMEs. Also, the average capital6 of SMEs is at a small scale, which may be equipvalent to 1.5% and 8% of those State owned enterprises (SOE) and Foreign Direct Investment (FDI) enterprises, respectively. The average value of SMEs’ fixed assets is about VND 4-7 billion each, which is approximately 1% and 5% of those of SOE and FDI enterprises7 in Viet Nam. The total assests of SME sector accounts for about 38% of the whole enterprise sector. In consideration of (i) number of SMEs, and (ii) their asset value, it can be seen that there is a big gap between SMEs and large-sized enterprises that own up to 60% of the total asset of the busnesss sector although the number of large-sized enterises is occupied about 3%.

7. Over the past years, a number of researches and surveys on SMEs conducted by SME-related organisations, institutes, universities, e.g. Vietnam Chamber of Commerce and Industry (VCCI), Central Institute for Economic Mangement (CIEM), and others found that SMEs in Vietnam have still been chanlleged by their own constraints in business administration, transparency in business practice and conducts, capabalitie capabilities of applying technique and technology in manufacturing and businee-doing. These are very common weaknesses facing SMEs, not only in Vietnam but also in other countries where SMEs are in developing stages. Besides, Vietnamese SMEs have been confronted by their own constraints as follows:

4 Naitional Assembly (NA), the Law on Enterprise No. 68/2014/QH ratified on November 26, 20145 Government of Vietnam (OGV): SME definition by the Decree No. 56/2009/NĐ-CP dated June 30, 20096 Investopedia: (i) Capital is defiend as the amount of financial resources available to support the execution of business; (ii) Asset is a resource with economic value that an individual, enterprise owns or controls with the expectation that it will provide future benefit. 7 MPI, Annual statistics on SMEs in Viet Nam, 2013

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a. Of the total number of SMEs, there is a majority of micro and small-sized enterprises with (i) 68.7% of micro enterpises, and (ii) 27.1% of small-sized enterises, respectively, while only 1.9% of SMEs is medium-sized enterpises8. In comparison with SMEs in the regional countries like Korea, and Japan or others in the world where SMEs are dominant in the economies9, a portion of medium-sised enterprises in Vietnam has still been limited and inclined to decrease in terms of number and scope of operations, i.e. from 4.3% in 2001 down to 2% in 2013, while number of micro enterprises has increased from 54.8% in 2001 to 69% in 2013.10

b. While creativity and innovation are advantages of SMEs in a number of countries 11, e.g. in developed economies, these factors weaknesses of the Vietnamese SMEs. Indeed, there is still a lack of (i) leading enterprises promoting and investing in advanced technology, (ii) business incubators, and (iii) venture capital funds in Vietnam specializing in SME development with the fact that investment in research and innovation on average is only 0.2%-0.3% of turnover while the figures of those in India and Korea are 5% and 10%, respectively. It can be understood that these specific characteristics, or rather weaknesses, results in low quality of the Vietnamese SMEs with regard to creation of a strong linkage among SMEs in and out of sectors, enhancement of competiveness of SMEs’ producsts and services, increase in quality of economic growth for the national economy.

c. Despite all existing constraints facing SMEs, the crucial role of SMEs in socioeconomic development is undeniable. It is observed from international experience that SMEs are identified as an economic growth driver and a backbone of the economy. Such developed countries as the United States (USA), Japan, European Union (EU), members of Organisation for Economic Cooperation and Development (OECD), Asia-Pacific Economic Cooperation (APEC), newly emerging economies like China (PRC), India, and Association of Southeast Asian Nations (ASEAN) countries have recognized the importance of SMEs in their economies and economic growth. To that end, support to SME development in Vietnam is a right way to secure sustainable development, stability, competitiveness, and health of its economy in future.

d. Facing difficulties and constraints as mentioned, the Vietnamese SMEs have endurably maintained their business and production activities even in economic downturn periods and contributed a high value to economic growth. In fact, SMEs have created a remarkable value for the economy with (i) 40% of GDP, (ii) 39% of social investment, (iii) 33% of the state budget revenue, and (iv) 1 million job per year, i.e. 62% of the total employment generated by business sector12. The following figure 1 demonstates the numbers (in thousand) of new enterprises, which were newly established during the period of 1991 – 2013.

8 General Statistic Office of Vietnam, 20139 OECD: Outlook for Small and Medium Enterprises (SMEs), 2000. The numbers of SMEs in Japan, Korea and EU are 98-99% and 95%, respectively.10 Enterprise Development Agency, Ministry of Planning and Investment, the White Book on SMEs in Vietnam 11 Asian Development Bank (ADB), Creative Productivity Index: Analysing creativity and innovation in Asia, August 2014 12 General Statistic Office of Vietnam (GSO), 2013

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Source: Ministry of Planning and Investment (MPI), The White Book on SMEs in Vietnam, 2014

8. Analysis of the current policies in support to SMEs in Vietnam

a. From the policy-making perspective, chapter A of this report has brieftly reflected the support to SMEs in various modalities, which are in place. Descriptively, such SME-support policies and programs are comprehensive and diversified from creation of enabling business envoiroment through a series of administrative reform in investment, trade, customs, taxes, into preferential programs prioritizing SMEs’ access to finance, technology, trade promotion, human resources development, and so on. However, the outcomes and impacts of the SME-support polcies and programs have yet to meet the actual needs of SMEs. Specificallly, the impacts are not clearly seen and measured. From both direct and indirect communications between MPI and SMEs, it is noted that most of policies in support to SMEs and programs are not fully realized in reality as commented by representatives of SMEs, particularly at the consultation workshops on development of the Law in support to SMEs. In other words, SMEs have not been able to approach these SME-support policies and programs partly because of their multi-layer procedures without clear guidance that may hinder the participation of business communities.

b. The fundamental reasons leading a gap in support to SMEs in recent time have been identified. Part of these is associated with the fact that the supportiing policies and programs did not clearly emphasize concrete SME beneficiaries and address their focal priorities. This can be seen through following points:

i. Most of current SME-support policies were constituted and integreated into the sector-wide programs that were separately managed and implemented by assigned line ministry / ministries. Decree 56/2009/ND-CP is a clear-cut example in which 8 policy groups were proposed and approved, but the coverage, e.g. target beneficiaries, of each program is board, not entirely specialized for SMEs. Therefore, the support programs did not fully suit to assisting SME development,

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given their patchiness, and dispersal causing certain obstacles to SMEs as the key beneficiaries to approach these programs in reality, and hence the expected change effect is still at a low level.

ii. In reality, the available resources for support to SMEs as a whole are intrinsically scarce, but divided in piece and in a scattering manner. At the national level, each line ministry implements its own policies and program without an effective coordination and connectivitity with other concerned programs in order to maximize the effectiveness in support to SMEs, particularly priopritized group(s) of SMEs should be focused first. By doing so, the SME-support program help transform the priopritised SMEs into greater size enterprises whose spillover effect, in turn, can pervasive into other SMEs. At the sub-national level, the local authorities have not been prepared themselves in terms of budget allocation for supporting SMEs. In this regard, support, if any, is insignificant compared to the realistic needs of SMEs (approximately 19% of local authorities nationwide sets state budget for supporting SMEs).

.iii. Since the SME-support objectives and target SME beneficiaries have not been

groundedly established, a system of SME-support ogranisations and implementation mechanisms has yet to be substantially developed and ready for supporting SMEs. At present, such organisations are weak and insufficient, and have yet to be linked to develop an effective and complementary network.

c. During the global economic crisis as of 2008, the Vietnamese SMEs have confronted an increasing competitiveness and substantial corporate business re-structiring for survival from which their weaknesses have clearly exposed. According to the 2013 statistics on SMEs MPI as indicated in table 1, the number of SMEs that completely closed out, and dissolved and exited the markets has tendentiously increased in recent years. From the macroeconomic perspective, the process of economic restructuring, transforming growth model towards quality-based growth, and wide and in-depth economic integration into regional and global economies has required the Vietmamese enterprises, especially SMEs, with more critical demand for continued innovative reform, increasing their competitiveness, and positions in the markets for stronger development. Now, it is an important timing that SMEs are in need of the government support with concretized policy actions.

Table 1. Number of enterprises closed out and dissolved by captital size as of 2013

Size of registered capital (VND)

Number of enterprises

Proportion of enterprises (%)

Proportion of enterprise in active operations at Dec 31, 2013 (%)

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Below 10 billion 63,462 93.57 24.0

10 – 20 billion 1,911 2.82 4.18

20 – 50 billion 1,338 1.97 4.20

50 – 100 billion 615 0.91 4.94

Above 100 billion 497 0.73 3.56

Total 67,823 100

Source: Department of Business Registration and Department of Statistics, MPI, 2013

d. As such, external and internal requirements for supporting SMEs have proven that the Government needs to cover much ground in its SME-support policy reform and support modalities that must improve the SME-support effectiveness and impacts. It is adopted by international development partners, national bussiness communities, and SME-related individulals, orgainsations that formulation of the Law in support to SMEs in Vietnam as an effective legislative instrument is the highest priority in the law-making agenda.

e. Support to SMEs is an common policy issue drawing considerable attention of the governments and legalized for decades in the world as illustrated in the following table:

Table 2. Laws on SMEs by selected economies and regions.

Economies by size and region SME-related Laws Year of IssuanceJapan Law on SMEs 1963

The United States (USA) Law on small-sized enterprises 1953

Canada Law on financing SMEs 1998

Russia Law on SME development 2008

China (PRC) Law on SME promotion 2002

Korea Law on SMEs 1966

Taiwan Law on SMEs 1991

India Law on support to SMEs 2006

Thailand Law on support to SMEs 2000

Indonesia Law on small-sized enterprises 1995

European Union (EU) Law on support to small-sized enterprises commonly applied to member countries / Small Business Act (SBA)

2008

Source: Development Agency (EAD), MPI and consolidated by author, April 2015

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The common ground of the SME-related law in the listed contries is that this law was established as an overall legal framework under which concretized and specific laws such Laws as SME financing, on credit guarantee, on promotion of linkages between SMEs and large-sized enterprises, investment promotion, tax incentives for SMEs, innovation and creativity in SMEs, public procurement with the participation of SMEs shall be developed accordingly.

9. In summary, the summarized analysis of development status of SMEs and SME-support legal development process in Vietnam and in connection with international experiences and practices has suggested that estanlishing a legal framework in the form of Law in support to SMEs in Vietnam is an urgent task that is strongly supported by internatonal and national stakehoders. And given the draft Law in support to SMEs in Vietnam prepared by EAD – MPI in place for internal review, the next section of this report shall come up with an ex-ante regulatory impact assessment (RIA) alignining with the law preparation process at this stage.

C. Regulatory Impact Assessment (RIA) for the draft Law in support to SMEs in Viet Nam

C.1. Objectives and Purposes of Regulatory Impact Assessment (RIA) of the Draft Law in support to SMEs

10. Regulation is one of the main tools as part of government’s interventions that have impact on its individuals, institutions, organizations in both public and private sectors, including the private sector in which small and medium-sized enterprises (SMEs) is the major force, to achieve their objectives in terms of protecting its citizens and environment, economic growth, and so on. So far, Viet Nam has yet to establish a comprehensive legal framework in the form of Law, especially for the development of SMEs.

11. The method used in most countries to assess the impacts of new laws and policies is Regulatory Impact Assessment (RIA). One of the roles of Regulatory Impact Assessment (RIA) is to furnish a systematic appraisal of the potential impacts of a new regulation in terms of whether or not a proposal for regulation is likely to achieve the designed goals objectives. The fact is that a regulation may have numerous impacts, which are in need of assessment through studies and consultations with affected individuals and parties. Economic approaches commonly used for RIA are cost and benefit analyses, including an emphasis on associated risks generated by regulatory costs that is generally conducted in a comparative context.

12. As part of a Regulatory Impact Assessment (RIA) process, the assessment conducted for the draft Law in support to SME at this stage intends to (i) justify the government’s interventions through the Law, (ii) find common ground for solutions that produce economic benefits, (iii) support further public consultations of the contents of the draft Law, (iv) assist the Law in support to SMEs developed by Ministry of Planning and Investment (MPI) in coordination with the Ministry of Justice (MOJ) to be well targeted, effectively implemented, and proportionate to the needs; and (v) avoid inconsistencies, incompatibilities, or duplicative policies, if any.

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13. Aligning with the purposes specified paragraph 12, the RIA report in this context will provide technical inputs as part of the policy making process within the Ministry of Planning and Investment (MPI) with critical evaluation of the contents and policy issues, solutions and potential impacts, and the next steps in preparation of Law in support to SMEs with the technical assistance Asian Development Bank (ADB) through the TA 8184-VIE whose overall program objectives aim to assist sustainable high economic growth in Viet Nam by supporting the development and competitiveness of small and medium-sized enterprises (SMEs). This second SME Development Program will support the Government reforms efforts by: enhancing the policy and planning framework for SME development; improving the efficiency of administrative systems in support of SME development and operations; strengthening the regulatory framework for competition policy; and enhancing SME access to finance. And the continuous improvement of the policy and regulatory framework for SME development and operation will require addressing the current gaps on SMEs data, facilitating the government evaluation of SME trends during the implementation of the SME Development Plan 2011-2015; and upgrading the SME database will also assist the preparation of the White Paper on SMEs 201413, to conduct RIA tasks.

14. To captioned end, this ex ante Regulatory Impact Assessment (RIA) is indeed an in-house assessment. The lessons learned from this stage are deemed as preparation of a RIA strategy for Enterprise Development Agency (EDA) within Ministry of Planning and Investment (MPI) before submission to Ministry of Justice (MOJ) for review.

15. The Law in support to SMEs is both an important reform towards the stability and quality of legal framework and system, and a vital national economic and governance reform that are expected to result in two major benefits of economic growth through SME development, and (ii) efficiency and effectiveness of public policies, where:

a. Economic benefits. High regulatory costs and risks increase the costs of doing business and investment, leading to reduction in the national competitiveness with which Viet Nan is a concrete case factored by the uncertain, unstable and ineffective legal and regulatory environment. The coming Law in support to SMEs is expected to play significant roles in minimize costs and risks for SMEs and other businesses, stimulate investment at higher level(s), promote economic growth, and expand markets in the regional and global platform.

b. Public policy benefits. Failure to establish effective regulations and its implementation will cause high risks to citizens, environment, and deficiencies in the government’s roles and effectiveness in development and implementation of public policies adopted. The coming Law on support to SMEs aims to boost the quality of regulatory instruments, directly assisting enforcement and compliance activities among government enforcement agencies in the public sector and stakeholders in the private sector.

C.2. RIA Methodology

16. The RIA process in principle covers the defined steps as follows:

13 ADB, Technical Assistance Report on Supporting the Second Small and Medium-Sized Enterprises Development Program, October 2012

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a. Identify prioritized issues for analysis b. Determine options for resolving issuesc. Identify RIA method for each policy issue d. Collect data subject to its availability needed for analysise. Select method(s) for data collection f. Collect the data in line with the agreed method and criteriag. Conduct the analysis based on data collectedh. Interpret the analysis and findings, andi. Write the RIA report.

17. The RIA method specifically applied to the draft Law in support to SME has substantially adopted international practices 14 applied to the RIA process through (i) identifying and categorizing prioritized issues / problems; (ii) analyzing the impacts of Law on the key groups of actors / stakeholders and distributional effects and attributing these to the group(s) affected; (iii) proposing a continued RIA with a focus on an analysis of costs and benefits of each options for identified and prioritized policy issue based on consultation and data collection from concerned ministries in the public sector, SMEs and businesses in the private sector, and international experience. One of the challenges facing this stage is to collect information, which has yet to be done at this point of time.

18. As mentioned in paragraph 12, the RIA on the draft Law in support to SMEs is preliminarily conducted within the MPI at this drafting stage. In this sense, the RIA will not consist of all steps as described in paragraph 16. Instead, it concentrates more on assessment of the (i) outlining options for the structure, (ii) contents of the draft Law in Support to SMEs; and (iii) an initial assessment of the draft Law, to be submitted to the Ministry of Justice (MOJ) for its consideration of its compliance, including desk review and use of the results from the consultation workshops listed in Annex as part of Law preparation process. As such, the analysis under this RIA of the Law in support to SME in this context mainly presents respective qualitative impacts.

C.3. Assessment of the structure and contents of the draft Law in support to the SMEs

19. Before analyzing the Law objectives and policy issues, which are prioritized under the draft Law in support to SMEs, this sub-section intends to assess structure and contents of the draft Law as described in the next paragraphs.

20. The draft Law is outlined with 6 main chapters covering important, necessary, and consolidated contents that aim to support SME in Viet Nam. In terms of its structure, the draft Law can optionally be modified by dividing Chapter 4: Budget / Funding, Coordination Mechanism, and Monitoring and Evaluation into three separate chapters, namely (i) Budget / Funding; (ii) Coordination Mechanism in support to SME; and (iii) Monitoring and Evaluation (M&E). To this end, each single Chapter may be in need of additional articles stipulating the (iv) roles and responsibilities of all concerned individuals and parties; (v) principles of implementation arrangements, and (vi) resources in a clear-cut manner.

14 Regulatory Impact Assessment Best Practices in OECD Countries: Alternative approaches to regulatory analysis

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21. The following chapters and articles are in need of supplemental clarifications and modifications, where appropriate.

a. Chapter 1 – General Provisions

i. Article 4 – Interpretation of Terms. There are only 4 terms are interpreted. In order to make the Law fully and consistently understandable by public, a further review of terms that shall be applied in a specific context governed by thus the Law should be done and added to the next draft version by the drafting team. Particularly, concrete definitions of (i) financial-typed assistance, (ii) non-financial-typed assistance, (iii) technical assistance, and (iv) others relevant used under the Law should be located.

ii. Article 5 – Definition of SME in Vietnam. An in-depth study of a definition of SME, including micro enterprises, in line with international best practices and experiences that can suitably be applied to the country context, i.e. size of micro and SME is defined subject to (i) number of employees, (ii) revenue which is in line with the Law on Corporate Tax; and (iii) sector, respectively.

iii. Article 8 – Definition of SMEs entitled to preferential support by the Government. SMEs and sectors and / or industries, which are prioritized, described in this article should be categorized as appropriate.

b. Chapter 2 – Categories of supports to SME and Chapter 3 – Responsible agencies and organizations supporting SME

i. Articles 11, 12, 13, 14, 15, 16. These sections should fully focus on description and stipulation of all categories of support to SMEs. In other words, the roles and responsibilities of line ministries, People’s Committees of provinces and cities, and concerned agencies and organizations should be separately defined and stipulated in Chapter 3.

ii. Articles under Chapter 3. These are mainly about state management in supporting SME development, while the contents of public services, which are still limited, should be highlighted and provided as an integral part of the Law.

C.4. Policy Issues / Problems under the ex-ante RIA

22. SME development-related issues in prioprities are briefly represented in the table 3 as below:

Table 3. Policy issues proposed from ex-ante RIA for the Law in support to SMEs

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No. Policy issues1 A synchronized and uniform legal framework in support to SMEs

2 A system of comprehensive solutions for supporting SME development towards innova-tive and sustainable orientation

3 Classified SME-support solutions and implementation by priopritised sectors and SME categories

4 Roles and responsibilities of the central government and local authorities, and of or-ganisations and agencies in both public and private sectors in supporting SME devel-

5 Competitiveness capabilities of SMEs in the internationalization and globilisation con-text

6 Efficiency and effectiveness in use of resources for supporting SME development

C.5. Analysis of Potential Impacts of Policy Options

23. Options for Issue 1. A synchronized and uniform legal framework to improve efficiency and ef-fectiveness in support to SMEs established

a. The goals of Law in support to SMEs aim to ensure the policy synchronization and high-ten the legal and legislative value at the highest level in order to enforce responsibility-taking and orderly implementation. This Law demonstrates the government’s full atten-tion to the national enterprises, and highly affirms the responsibilities and obligations that the government shall take concrete actions for supporting SME development through mo-bilizing resources and providing pubic services for promoting SME development. In this sense, the government shall not only take the state management roles, but also participate in arrangements, implementation, and coordinating SME-support activities.

b. The objectives of the Law in support to SMEs confirm the consistency, unification, and syncronisation of all SME-support activities that may differ by narure, scope, and so on. To this end, SME-support activities can be implemented at different levels, and supported by diversified resources. But such activities must target the Law objectives by establish-ing an integrated, supportive, and complementary system connecting all activities as des-ignated.

24. Options for Issue 2. A system of comprehensive solutions through establishing SME-support principles, policies, and programs governing actions supporting SME development in a creative and sustainable manner introduced and formulated.

a. SMEs are supported by the principles, which aim to ensure the publicity, transparency, alignment with actual needs of of SMEs, and suitability with the availability of national resources. In this context, the Law has changed the views of general support with a large coverage of SMEs by moving to selection of SMEs subject to specific sectors, industries, characteristics, and long-term development objectives for support. Given the current con-ditions and development status of the country, the SMEs that are priopritized for the gov-ernment support are those operating in manufacturing sectors taking national competitive-

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ness advantages, applying advanced teachnogies, orienting export of high value products, and joining vaule chain and industrial clusters generating added value for the economy.

b. Perceived from the Law, support to SME development is the long-term, consistent, and thorough strategy in the Government action programs, and the primary tasks in the na-tiomal economic development policy.

c. In addition to creation of an enabling legal flatform covering workable policies and mech-anisms facilitating fair competition and development for all economic sectors, the GOV and societal orgainsations are responsible for guiding and implementing all SME-support activities, which are concretized, towards the common targets for SME development with sustainability and higher and greater contribution economic growth in the long-term.

d. SME-support by the government requires publicity, transparency, alignment with SMEs’ actual needs, and suitability to the availability of national resources. All eligible SMEs as beneficiaries are equally access to public policies in support to SMEs and take part in SME-support programs led by the government.

e. The government is in charge of encouraging an increasing participation of private sector in SME-support programs and activities. It is subject to actualities in support to SME and development stages, the government shall gradually hand over SME-support programs into the private sector for implementation in line with the market rules.

25. Options for Issue 3. Dispersal and patchy execution of SME-support policies and programs over-come through reforming support modalities

a. The draft Law in support to SMEs stipulated support policies for SMEs in prioritized sec-tors and areas encouraging the development of support schemes to, namely (i) innovative and creative SMEs; (ii) SMEs’ access to finance and tax incentives; (iii) market develop-ment for SMEs’products; (iv) distribution of SMEs’products and services; (v) information services, legal and business consultancies for SMEs; (vi) human resources development and labor supply for SMEs; (vii) enhancement of business linkages among SMEs, and be-tween SMEs and large-sized enterprises; and (viii) business start-up for SMEs.

b. The SME-support policies prescribed in the Law shall be specifically interpreted and per-formed in Annual Plan (AP) and 5-year Plan on support to SME development for secur-ing common development targets and synchronization, and realized through implementa-tion of the government’s SME-support programs and projects. Applying advanced SME-support instruments that have been internationally implemented such as business incuba-tors, venture capital funds, and business startup funds together with expanding SME-sup-port modalities, for instance, in the form of help desk or business counseling. It is ex-pected that successful SMEs will create the so-called spilover effects on business partners and enterprise in the value chain and industrial cluster.

c. The SME-support modalities shall also be regularlly renovated in line with market-based mechnims. Intervention, when implemented, must generate indirect effects through build-ing and enhaningc capacity for SMEs that take full responsibilities for their own business and production activities subject to market rules and SME capabilities. In parallel, SME-

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support programs and activities must be considred for transferring to private sector for handling on a step-by-step basis subject to the actual SME-support implementation status. To this end, the public private partnership (PPP) mechanism is an important tool in terms of mobilization of resources from both sectors for supporting SMEs.

26. Options for Issue 4. Responsibilities and roles of the central government and local authorities, societal organizations, and private sector in supporting SMEs; and (ii) Strengthening the SME-support implementing systems and mechanisms clearly defined and assigned

a. The draft Law clearly stipulates the functions, tasks, organization and responsibilities of the (i) state management system in supporting SMEs, including: The national SME policy advisory council, the Ministry of Planning and Investment (MPI), line ministries in charge of sector management, People’s committee of provinces and municipalities, and (ii) SME-support implementation organisations in charge of executing policies and as-signed action plans and programs supporting and providing services to SMEs. Particu-larly, responsibilities of the central government and local authorities in mobilizing re-sources for SME-support, which is commensurate with SMEs’ contribution in each loca-tion, together with establishing and ditecting established implemtation agencies and orga-nization to execute SME-suport policies and programs in each locality that shall be elabo-rated in associated law documentation in future.

27. Options for Issue 5. Orientation and development of SME-support programs and projects aiming to (i) strengthen competitiveness capabilities and positions of SMEs in the globalization context, and (ii) contribute to sustainable development of the national economy and improvement of peo-ple’s living standards groundedly established.

a. The Law in support to SMEs factored by synchronized and focal policies shall accelerate SME development process in term of increased number and size of registered SMEs, con-tributing to sustainable growth, and enhancing substaintial competitiveness capabilities for SMEs in order to meet prerequisite requirements for an in-depth international eco-nomic integration. Particularly by the end of 2015, Vietnam will remove the tariff barrier as its commitment under the ASEAN Free Trade Area (AFTA) framework, and is now in a negotiation process for new Free Trade Area (FTA) agreements such as Trans-Pacific Partnership (TPP), Vietnam – EU FTA, and so on. In this context, the Law in support to SMEs is expected to play an important role in furnishing the Vietnamese enterprises, es-pecialy SMEs, with capabilities and well preparation for further development in a severe competitive business environment now and future.

b. The Law in support to SMEs is a legal base for Vietnam to develop SME-support strate-gies, which are in compliance with the international rules and practices, through SME-support programs and solutions that facilitate SMEs in market development, consumption stimulation, enhancing business administration, developing business support tools for business development, improving efficiency in utilization of SME-support resources, in-cluding opportunities to access SME-support in PPP modality.

c. SME development means to create jobs in the economy, thereby improve incomes and living standards for laborers, contribute poverty reduction, and form new motivation for Vietnam to step into the period of economic recovery and sustainable growth.

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28. Options for Issue 6. Efficiency and effectiveness in utilizing SME-support resources through a monitoring and evaluation (M&E) mechanism maximized.

a. The draft Law in support to SMEs stipulates the monitoring and evaluation (M&E) mech-anism(s) for measuring the outcomes and impacts of the SME-support implementation funded by government’s resources, including:

i. Budget allocation and use of funds mechanism for SME-support from the state budget and other legal sources of mobilized funds

ii. Monitoring and evaluating the implementation of SME-suppport programs and projects funded by the state budget on regular and non-regular basis.

iii. Compulsory sanction in place for handling all violating behavior of individuals and organisations participating in implementation of SME-support policies, pro-grams, and projects

29. In brief, the addressed 6 policy issues and solutions with anticipated impacts are at a significance level that is in need of the government support in cooperation with other concerned stakeholders from international community, individuals and organisations of both public and private sectors in formulating concrete SME-support policies, programs, projects, action plans, activities so as to re-alize the Law and regulations in supporting SMEs in Vietnam in practices with measurable out-comes and impacts in future.

30. Given the ex ante RIA within the framework of this assignment at this stage, the following sec-tion covers necessary recommendations on a comprehensive RIA for the Law in support to SMEs in the next steps.

D. Recommendations

31. In addition to the captioned analysis of potential impacts of policies supporting SME in Viet Nam set under the draft Law, the following are recommendations in need of consideration:

a. The draft Law is continuously revised, where appropriate, before submission to MOJ;

b. The Law is passed through a public consultation process with the parricipation of representatives from both public and private sectors, especially SMEs who are directly affected by the Law;

c. A comprehensive Regulatory Impact Assessment (RIA) is fully conducted with (i) determing various options for each policy issues, (ii) set up criteria for RIA of the Law in support to SMEs as suggested in the table 4; (iii) collecting data; and conducting cost and benefit analysis (CBA) for each option with a focus on comparison of benefits generated and costs incurred to SME and the government, respectively; and (iv) RIA analysis and reporting.

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Table 4. Proposed criteria for full RIA in the next steps

No Continued Criteria for RIA of Law in support to SMEs1 Number and percentage of newly established SMEs

2 Failure SMEs after the first years in operations, e.g. business-doing and investment activities

3 Compliance costs for complying with the Law and regulations, and costs incurred to SMEs against benefits for SMEs

4 Public policy costs against benefits from establishment of the Law in support to SMEs

5 Quality and efficiency of public services

6 Transparency of the Law and regulations in support to SMEs

7 Job creation by SMEs categorized by number of employees and assets

8 Diversity in business and services areas participated by SMEs

9 Consistencies in execution of the Law and associated policies

10 Size and quality of business relationships, e.g. (i) among SMEs, (ii) between SMEs and large-sized enterprises, and between domestic enterprises, especially SMEs, and (iii) FDI enterprises both horizontally and vertically

11 SMEs’access to resources, production factors, including labor, capital, land use, infrastructures, and so on.

d. The RIA report is publicised together with the draft Law for consultantion as part of the law making process in Viet Nam.

32. It is critical that supporting SME in Viet Nam be understood as the highest priority with the fact that this established Law is intended to create benefits that are expected to outweigh costs imposed on the SMEs. Therefore, a comprehensive RIA on the draft Law in support to SME that shall be presented to the Ministry of Planning and Investment (MPI) and Ministry of Justice (MOJ) for review should be fully implemented for key provisions of the Law that may make concerned stakeholders, especially SME communities, better off.

E. Conclusion

33. The Law in support to SMEs is a new legal framework, which is the highest legislation especially designated to SME sector in Vietnam. The draft Law with 6 chapters and 34 articles cover highly important contents, which clearly prescribe, such as (i) state management and government policies in support to SMEs; (ii) prioritized SMEs and sectors and industries; (iii) a system of measures and solutions for support to SMEs; (iv) a system of central agencies and organisations and local authori-

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ties, and other international and local stakehoders involved in implementing the government policies and SME-support projects and programs; (v) budgetary arrangements and budget allocation; (vi) co-ordination procedures and process; and (vii) monitoring and evaluation system(s) for implementa-tion. For an effective execution of the Law, it does require an inter-disciplinary coordination in syn-cronisation from the central government to local authorities, and effective participation and coopera-tion of both public and private sectors, and therefore propagation and dissemination of laws and as-sociated regulations need to go with incorpotated training and guidance programs that aim to ensure that each responsible individual and organization are fully aware of their roles and responsibilities for supporting SME development towards a full achievement of the highest goals set by this Law.

34. It is significantly noted that international partcices and experiences in supporting SME development are important for the government to consider and employ in an appropriate manner in the context of Vietnam. In order to do so, international approaches and methologies, which are selected, should be prepared for further promotion that can motivate the proactive participation and contribution from both public and private sectors, or rather the whole society, implementing the Law under which all regulations and associated legal documents can properly be realized, especially the country is now in the process of accelerating its economic cooperation and integration into the regional and global platforms.

F. Annex

Table 5. List of consultation workshops on development of Law in support to SMEs in Vietnam

No. Workshop title Host organization

Participants Time

1 Law in support to SMEs: International experiences and lesson learnt for Vietnam

Ministry of Planning and Investment (MPI)

MPI, Vietnam Chamber of Commerce and Industry (VCCI), National University of Eeconomics, Departments of

August 7, 2014

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Planning and Investment (DPI), SME Business Association, and other concermed stakeholders

2 Assessment of the implementation status in support to SME development in Vietnam

Ministry of Planning and Investment (MPI)

MPI, Vietnam Chamber of Commerce and Industry (VCCI), National University of Eeconomics, Departments of Planning and Investment (DPI), SMEs, and other concermed stakeholders

September 9 2014

3 Proposal of key contents for the Law in support to SMEs

Ministry of Planning and Investment (MPI)

MPI, Vietnam Chamber of Commerce and Industry (VCCI), National University of Eeconomics, Departments of Planning and Investment (DPI), SMEs, and other concerned stakeholders

November 4, 2014

4 Support to Small and Medium-Sized Enterprises (SMEs): The roles of Government in Vietnam

Ministry of Planning and Investment (MPI)

National Assembly (NA), MPI, Vietnam Chamber of Commerce and Industry (VCCI), National University of Eeconomics, Departments of Planning and Investment (DPI), SMEs, ADB consultant, and others

May 30, 2015

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