Business confidence and outlook among European businesses in Vietnam remains unchanged for the third time

Ho Chi Minh City, 6 November 2013 - Results of the 13th quarterly EuroCham Business Climate Index (BCI) survey, conducted in October 2013, show that business confidence and outlook among European businesses in Vietnam remains unchanged for the third time - stagnating at 50. EuroCham members that participated in the survey expressed reduced confidence in the business outlook and remain worried about the impact of future legislative changes. Yet, investment plans and business orders are expected to increase, which in turn positively impacts recruitment plans. Another positive development is the expected reduced impact of inflation on business. 

Following the findings of last quarter’s survey, EuroCham has sought to determine which changes would further strengthen our members’ commitment to stay in Vietnam. The key findings indicate that legislative changes during 2013 have negatively impacted business operations and that this trend is expected to continue in 2014. Respondents therefore strongly believe (89%) that the Government should take note of the issues described in the EuroCham Whitebook 2014.  

More than half of the businesses that participated in the survey are active in the services industry, less than a fifth in trading and manufacturing, respectively and the rest in other activities.

Business Climate Index stuck at midpoint with reduced confidence in business outlook:

Respondents’ assessment of the current business situation has overall remained unchanged compared to the last quarter, with 38% assessing the current situation as positive. However, this number is still considerably better than one year ago - when the BCI was at its lowest level ever at 45. The respondents having a negative view of the current business situation (24%) has dropped compared to the last quarter (28%). 

Ominously, the number of positive assessments of the business outlook dropped (to 44%) for the first time after two consecutive quarters of growth. However, compared to last year’s 26% it is more promising. Even if the majority of our members remain committed to the Vietnamese market in the long term, this development is worrying and further underlines the need for the Vietnamese Government to address the business issues negatively impacting foreign investors.

Investment plans and expected business orders increase:

Reported investment plans are increasing with the number of respondents expecting to increase investments in Vietnam growing from 34% last quarter to 41% this quarter. Furthermore, the number of respondents planning to ‘significantly increase investments’ has doubled from last quarter’s 8%, to 16% this quarter. In line with this development, the expected number of business orders has continued to grow – to 67% (from 61% and 53% the past two quarters, respectively). We have also seen a drop in the respondents expecting a reduction of business orders down from 36% one year ago to 14% this quarter. 

 Recruitment plans remain positive:

The positive development in investment plans and expected business orders has translated into increased recruitment plans: the number of respondents expecting to increase their headcounts remains at 47%. More importantly, the number of respondents expecting to reduce their workforce has decreased from 23% last quarter – the same as last year – to 15% this quarter.

Inflation less of an issue to the European business community:

The initiatives undertaken by the Vietnamese Government to reduce inflation have been effective, which is clearly demonstrated by the BCI findings; the number of respondents expecting inflation to have a ‘significant or threatening impact’ on their business has been substantially reduced (29% compared to 43% last quarter and 50% last year). 
Members were also asked to indicate what they think the rate of inflation will be and the average came to 4.69%. Compared to last quarter’s estimate of 5.94%, this represents a considerable improvement.

Macroeconomic outlook stabilises:

Respondents remain somewhat confident in the macroeconomic outlook, with 47% expecting a ‘stabilisation and improvement’ of the situation and 35% expecting no change. 

Call for the Government of Vietnam to take note of EuroCham Whitebook 2014: 

Last quarter’s BCI survey found that a number of respondents have considered relocating their business to another ASEAN country. EuroCham has sought to support the Government of Vietnam in identifying the underlying problems for this concern. The key findings of this quarter’s BCI indicate the following four key challenges to doing business in Vietnam: corruption (72%); lack of or inconsistent implementation of legislation (67%); administrative difficulties (52%); and lack of transparency (45%). 

When looking more in detail on the impact of ‘lack of or inconsistent implementation of legislation’, it was found that 50% of respondents found that legislative changes negatively impacted their business and only 7% recognised the legislative changes as positive in 2013. 

Looking forward to 2014, half of the respondents expect legislation to continue to have a negative impact on their business. However, 32% remain hopeful of a positive legislative environment in 2014. This may explain why a staggering 89% of respondents believe that ‘the Government of Vietnam should take note of the Whitebook 2014’, which will be published on 11 November 2013.
It should also be mentioned that the respondents found a number of very positive aspects with doing business in Vietnam, of which the most important are: business opportunities (60%); future growth of the market (60%); and Vietnam as a regional hub for export (19%).

EuroCham Chairman Preben Hjortlund commented on the survey: “It is worrisome to see that EuroCham’s Business Climate Index comes out at 50 for the third time. Furthermore, it is interesting to see that so many of the respondents still fear that legislative changes could negatively impact their business in 2014. This clearly demonstrates the need to incorporate the business community in the legislative process and to take their opinions into account in order to avoid legislation having perverse effects when implemented. Finally, it is important to note the high level of respondents calling for the Vietnamese Government to take note of the Whitebook 2014, which will be published next week - on 11 November.”

EuroCham Executive Director Csaba Bundik added that: “The Business Climate Index (BCI) is now for the third time at 50. With the upcoming visit of Vice-President of the European Commission, Antonio Tajani and more than 50 European business representatives under the Mission for Growth initiative, it is of utmost importance for Vietnam to demonstrate that it remains a competitive market in the region and brings the BCI back to previous levels. We strongly believe that the issues mentioned in the EuroCham Whitebook 2014 – if successfully addressed - will help turn around the business climate and attract more European companies to invest in Vietnam.”

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