Business Outlook Remain Sombre

Results of the sixth quarterly EuroCham Business Climate Index survey, conducted in January 2012 and released on February 1, 2012 by the European Chamber of Commerce in Vietnam (EuroCham), show that business confidence and outlook among European businesses in Vietnam has stabilised and shown a modest increase after a steep 11 point drop in the fourth quarter of 2011. Concerns about the current business situation and outlook appear to have eased slightly among EuroCham member companies that participated in the survey. However, their business outlook and assessment of the current situation remains sombre.

 

The EuroCham Business Climate Index increased by 4 points to 56. EuroCham Chairman Alain Cany commented on the survey: “The slight increase of the EuroCham Business Climate Index shows a halt in the downward trend in business confidence we have seen in 2011. However, the business confidence is still far below last year’s level. This shows that uncertainty amongst investors remains. Key structural issues have not been resolved such as privatisation of state own enterprises and stabilising the macroeconomic environment to name two examples.”

 

40 percent of the businesses that participated in the survey are active in the services industry, about a quarter in each manufacturing and trading and the rest in other activities.

 

Compared to the last survey, there was little change in respondents assessing their current business situation. 38 percent of companies are assessing their current business situation as ‘neutral’, slightly down from 45 percent in the last survey. A ‘good’ or ‘excellent’ view of their current business situation was held by 36 percent or respondents, up slightly from 32 percent last quarter, but still much lower than the 64 percent who were content with their current business situation this time last year. The number of businesses having a negative view on their current situation has remained nearly unchanged since last quarter, but at 26 percent it is 14 percent points higher than a year ago.

 

The survey also shows signs of optimism in business outlook. 39 percent stated a ‘good’ or ‘excellent’. This is a 12 percent increase from last quarter, but is put into perspective by the 72 percent of respondents that had a positive business outlook this time last year. A quarter of respondents had a pessimistic outlook for business in the last six months. These results are still not decidedly positive but the continuous downward slide of business sentiment has halted. Whether companies’ business outlook will stagnate at this level or gradually improve remains to be seen.

 

When asked about their investment plans for 2011, respondents have relaxed a little but are still cautious like in previous surveys. 38 percent of respondents are planning to increase their investment 'slightly' or 'significantly' (10 percent), while 31 percent want to maintain their level of investment and 24 percent are planning to decrease their investment in the country in the medium-term. This shows an easing of the "wait and see" attitude that we have seen in previous quarters.

 

The average number of all answers we received was 8.33 percent. Furthermore, 53 percent of companies expect inflation to have a significant impact on their business and 36 percent expect to be impacted in some way. 8 percent stated that inflation was actually threatening their business in the country.

 

A significant 65 percent of companies expect the difficult macroeconomic situation in Vietnam to further decline while 35 percent expect the situation to stabilise and gradually improve. This shows an underlying uncertainty by investors about the fate of the Vietnamese economy. When asked whether the current economic crisis in Europe is affecting their company's decision to invest in Vietnam, 55 percent stated that the crisis affected them, although most of them stated a ‘slight’ effect. On the contrary, 44 percent said that the crisis in Europe does not affect their decision to invest in Vietnam at all.

 

When asked whether corruption had ultimately reduced or delayed their investment in Vietnam, opinions were split roughly in thirds. About 39 percent stated a slight impact, and 25 percent said corruption had not affected them at all, 34 percent of companies said that corruption had ‘significantly’ reduced or delayed their investment in Vietnam. This is an increase from 28 percent last quarter and indicates that corruption is still a serious problem and features prominently in investors’ considerations about the country.

 

EuroCham Executive Director Matthias Duehn added that “The European debt crisis has added to investors’ uncertainty and impacted European investment in Vietnam. European investors are increasingly looking for alternative investment destinations in ASEAN. Therefore Vietnam has to increase its efforts to remain competitive in the region.”