Quarter 4-2011: The EuroCham Business Climate Index dropped 11 points further to 52

Ho Chi Minh City, October 20th 2011 - Results of the 5th quarterly EuroCham Business Climate Index survey, conducted in early October 2011 and released today, show that business confidence  and outlook among European businesses in Vietnam has continued to fall for a fourth consecutive quarter and has now almost reached the "neutral" index midpoint of 50. EuroCham members that participated in the survey continued to be even more cautious about their business outlook and in assessing their current situation as well as the overall economic outlook in Vietnam.

The EuroCham Business Climate Index dropped 11 points further to 52
Around half of the businesses that participated in the survey are active in the services industry, about a third in manufacturing and the rest in trading or other activities 

Current business situation:
Compared to our last survey, there was a 14% drop in respondents assessing their current business situation as 'good' or 'excellent' to 32% down from 46% before and 64% in the 1st quarter  2011. Not one respondent described their current situation as 'excellent'. The shift was mainly towards a neutral assessment of the current situation which was up 7% to 45% compared to the last survey. The number of businesses having a negative view on their current situation rose slightly from 16 to 22% points.

Bleak business outlook:
We can witness a larger downward shift in companies business outlook. Only 27% stated a 'good' or 'excellent' outlook. This is a vast drop from 42% last quarter and a significant drop from the 72% of respondents that had a positive business outlook in the 1st quarter 2011. The shift has been towards a neutral outlook which is the highest category with 43%. 27% of businesses
surveyed had a negative business outlook, slightly up from 20% in the last quarter.

"Wait and see" attitude towards investment plans:
When asked about their investment plans for 2011, respondents have shown to be more cautious than in previous surveys. 38% want to maintain their level of investment and only 36% are looking to increase their investments in Vietnam, a significant fall from 52% last quarter. This shows a continuation of the trend that businesses are getting more cautious about investing. 22% of businesses are looking to reduce their overall investment in the country, up from 13% last quarter and only 6% at the start of 2011. 

Mixed outlook on revenue:
When asked about their expected number of orders and revenue in the medium-term the answers were mixed. For the first time since the start of the BCI, the majority of respondents expected their revenue (or orders) to remain the same, 36% up from 24% in the last survey. 34% expected a slight increase in revenue in the medium term, this is an decrease of than 10% from 43% in the last quarter. In line with this were the respondents recruitment plans. 45% of respondents expected to hire more staff in the medium-term. 34% expected to maintain the same level and 15% where planning to reduce their staff in Vietnam.

High inflation remains a major concern for businesses:
But businesses seem to have been coping with the pressures of inflation. 48% of companies expect inflation to have a significant impact on their business down from 56% last quarter. In this survey, we asked members to tell us what THEY think the rate of inflation will be and the average of all the numbers we received came to 7.83%.

Pessimism about overall economic outlook:
When asked about the Macroeconomic outlook for Vietnam over the next 6 months, 2/3 of respondents think that they will see a further deterioration of an already difficult economic situation against 1/3, who think that the situation will stabilize and gradually improve. This shows that the measures taken to stabilize the economy have so far failed to ease the concern of the business community about the macroeconomic outlook

Decree 46 will affect foreign businesses:
When asked about Decree 46 on the recruitment and management of foreign employees in Vietnam, 79% answered that it will affect their business in Vietnam 31% of which fear that the new legislation will affect them 'significantly'. 20% stated that Decree 46 would have no effect on their business. 

Under the new Decree 46, in order to extend work permit for a foreign employee, a company must now enter into an apprenticeship contract with a Vietnamese employee expected to substitute the relevant foreign employee. EuroCham member companies have always put the development of the Vietnamese staff as their highest priority but many require some foreigners in their business operations in the country.

The business community needs to work closely with the government to seek solutions that satisfy both Vietnam's need to control the labour market as well as foreigner's freedom to hire their preferred staff without additional administrative burdens. EuroCham will continue recommending that employers should be allowed to select the right candidate based on their own discretion and internal processes. In the current business climate, it is more important than ever not to deter potential investors willing to do business in Vietnam.

EuroCham Chairman Alain Cany commented on the survey: "Over the last quarters, EuroCham's BCI has declined from 78 to 52 points, indicating a declining confidence in Vietnam as an investment destination. Coupled with the 28 percent drop in FDI through the first 9 months of 2011 and inflation rates of over 20%, it is fair to say that European companies are increasingly concerned about the business and investment environment in Vietnam."

EuroCham Executive Director Matthias Duhn added that "The further drop of EuroCham's BCI is caused by slow progress on many of the issues that were addressed in last year's Whitebook, coupled with some new issues that are eroding confidence in the business environment in Vietnam: Macroeconomic troubles, high rates of inflation, lack of adequate infrastructure and administrative burdens continue. At the same time, a number of new "market access" issues, such as restricting the importation of goods into Vietnam, price controls and decreasing transparency have not contributed to better perception of the business climate in Vietnam."

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