Caution with Business Outlook

The result of the seventh quarterly EuroCham Business Climate Index survey conducted in April and May 2012, has revealed that the reliability and business prospect among European enterprises community in Vietnam still stay at a medium level. Enterprises participating in the survey remain cautious about business prospects and assessment of current situations, as well as overall economic prospects of Vietnam.

According to EuroCham, business climate index of European enterprises reduced 3 points to 53 points. Among them, 44 percent of respondents in the survey belong to industry and service sectors, 28 percent belong to producing sector, 20 percent are of commercial sector, 8 percent are of remaining sectors.

 

Compared with the latest survey, the number of enterprises that assess their current business situation as “not good” increases 10 percent to 29 percent, higher than the level of 19 percent of the previous quarter and 12 percent of pervious year. 34 percent of enterprises assess their current business situation as “good”. This figure does not change compared to the previous survey, but it has reduced from 50 percent of positive opinions compared to the same period of last year. No enterprise assessed its current business situation as “excellent”.

 

Figures show that optimism about business prospects has been largely unchanged. 38 percent of opinions are “good” and 36 percent are “medium”. Figures do not change much, however when compared to the last year, 51 percent of enterprises reply positively about business prospects, and 26 percent of enterprises are pessimistic about them. There is a worry that 62 percent of enterprises assess their business prospects as “medium” or “negative”.

 

Mr Preben Hjortlun, Chairman of EuroCham said: “The fact that business environment indicator of EuroCham remains at a low level of 53 points has shown the worry and uncertainty in the enterprise community and among investors. Apart from encouraging signs, the overall economic assessment is low.”

 

When asked about investment plans in 2012, many members continue to show caution. 34 percent of enterprises want to keep the same investment scale, while 38 percent of them are searching for opportunities to increase investment in Vietnam. The latter figure is slightly higher than 36 percent of the previous year. 28 percent of enterprises want to decrease overall investment in Vietnam, up 24 percent over the previous quarter and up 8 percent over the beginning of 2011. This result has shown the reduction of confidence in investment in Vietnam. While a large part of enterprises are finding ways to maintain and increase investment in Vietnam, it also raises concern when one part of enterprises in this survey are considering about reducing investment in Vietnam.

 

While the macro-economy has been a little loosened, many European enterprises in Vietnam are worrying about inflation. Regarding to surveys, enterprises forecasted that VND will devaluate at an average level of 5.63 percent, lower than 8.33 percent of the previous quarter, which has shown the increase of confidence in anti-inflation methods of the government. However, 57 percent reveal that inflation is the largest concern, not to say a threat to their business in Vietnam. The figure is slightly lower than 61 percent of previous quarter, but inflation has still the major concern. When asked about difficult macro-economic conditions in Vietnam, enterprises said that the prospects are slightly loosened. 45 percent hope there will be “stability and recovery” from the current economic situation (up 10 percent over previous quarter). This has shown the increase in confidence, however 55 percent still hope that overall economic conditions will not be worse.

 

Regarding the completion of preparation and soon-beginning official negotiations about free trade agreement between Vietnam and the EU, the majority of enterprises members of EuroCham hope that the agreement will abolish import taxes. When asked about the most influential part of the agreement to their business, two major points are mentioned, namely “abolishing import taxes” (56 percent) and “increasing trade in services” (51 percent); there are also “tackling non-tariff barriers” (34 percent) and “reaching agreement about intellectual property rights” (27 percent). Issues about competition with other markets are also considered important parts of Free Trade Agreement between Vietnam – EU in the future.

 

Mr Preben Hjortlund said, “The Vietnam – EU Free Trade Agreement will form a foundation for an increase in confidence of enterprises, as well as set a stage for a rise in European investment in Vietnam in the future.”

 

According to Mr Paul Jewell, CEO of EuroCham, macro-economic instabilities, high inflation rate, corruption and formalities still remain. More and more European investors are searching for investment opportunities in Asia. Therefore, Vietnam should make more efforts to maintain its competitiveness in the region. Clear processes for a free trade agreement between Vietnam-EU will be a proper step to win back the confidence of investors.”