European Business Outlook in Vietnam Falls

Results of the fourth quarterly EuroCham Business Climate Index survey, conducted by the European Chamber of Commerce in Vietnam (EuroCham) in early July 2011, show that business confidence and outlook among European businesses in Vietnam has continued to fall for a third consecutive quarter. EuroCham members that participated in the survey continued to be more cautious about their business outlook and sombre in assessing their current situation.

 

Around half of the businesses that participated in the survey are active in the services industry, about a quarter in manufacturing and the rest in trading or other activities.

 

Compared to our last survey, there was a 10 percent drop in respondents assessing their current business situation as ‘good’ or ‘excellent’ to 46 percent, down from 56 percent before and 64 percent in the first quarter 2011. The number of businesses having a negative view on their current situation rose slightly from 12 percent to 16 percent points.

 

Mr Alain Cany, President of Eurocham, said: “The continuous fall in European business confidence index in Vietnam from 70 to 63 shows the increase in uncertainty of investors. That largely reflects concerns over inflation and Vietnamese dong weakness.”

 

There is a similar shift in business outlook. 41 percent stated ‘good’ or ‘excellent’. This is a 10 percent drop from the last survey and a significant drop from the 72 percent of respondents that had a positive business outlook in the first quarter 2011. 20 percent of businesses surveyed had a negative business outlook, slightly up from 16 percent in the second quarter.

 

When asked about their investment plans for 2011, respondents are more cautious than in previous surveys. Most companies (32 percent) want to maintain their level of investment and 31 percent are looking to increase their investments in Vietnam by a little bit. This shows a continuation of the trend that businesses are getting more cautious about investing. 52 percent of businesses still want to increase their investment, but this is put in perspective by 45 percent of respondents that are looking to maintain or even reduce their investment in the country.

 

According to EuroCham, 56 percent of companies expect inflation to have a significant impact on their business and 37 percent expect to be impacted in some way. 6 percent stated that inflation was actually threatening their business in the country.

 

Despite ongoing initiatives like Project 30 to reduce the administrative burden on companies operating in Vietnam, this reform has yet to have an impact on businesses. When asked about the amount of bureaucracy affecting their business over the past year, 53 percent responded that it had remained constant. 33 percent reported an increase in bureaucracy and only 10 percent reported a decrease. When asked about their outlook on the level of bureaucracy over the next 1-2 years, 39 percent expect it to rise further, followed by 38 percent who expect it to remain constant and 24 percent expect bureaucracy to decrease in the future. This shows that the administrative reforms are being recognized as a step in the right direction, but need to be continued and intensified in order to have a real effect on companies operating in Vietnam.

 

When asked whether corruption had ultimately reduced or delayed their investment in Vietnam, opinions were split roughly in thirds. About 40 percent stated a slight impact, 30 percent said corruption had not affected them at all, and 28 percent of companies said that corruption had ‘significantly’ reduced or delayed their investment in Vietnam. This indicates that corruption is still a serious problem but affects some sectors more than others.

 

Dr Matthias Duehn, Managing Director of EuroCham said: Vietnam’s public administration reform initiatives, like the completion of Project 30 on simplification of administrative procedures, are considered a right direction. However, there are more matters that need strengthening and companies participating in the survey still expect an overall decline in administrative procedures in daily business activities in Vietnam.