Confidence Undermined

 

The business environment index of European companies continues to decrease, another 5 points to 48 points. Among the companies participating in the survey, 38 percent are in the service industry, 30 percent in manufacturing, and the rest in commercial or other industries.

 

Mr Preben Hjortlund, EuroCham’s President expressed his opinion about the survey, “In 2012, EuroCham’s business environment index has fallen to 48 from 56, evidence of the undermined confidence in Vietnam as an investment destination. For the first time since we started our survey in the third quarter of 2010, the index has fallen to below average (50 points) and towards a negative business sentiment! This just shows that businesses are losing patience and further stresses the need for Vietnam to improve its competitiveness and attractiveness as a business destination.”

 

Compared to the latest survey, seven percent of those surveyed decreased the evaluation level of their current business results. The “good” level decreased to 29 percent from 34 percent, while the number was 43 percent during the same period last year. Only one percent surveyed describes their current business results as “excellent”. The number of neutral evaluation of current business results still remains at 30 percent. The biggest concern, however, is the increase in the number of businesses (about 10 percent) who concluded that their current business results are “very bad”.  39 percent of those surveyed expressed a negative evaluation of their current business results

 

A negative business prospect sentiment is in the making. Only 31 percent expect their business prospect to be either “good” or “excellent”. This is down from 38 percent in the previous quarter and down sharply from 42 percent in the second quarter of 2011. There is a shift towards a more negative business prospect sentiment, with 31 percent considering their business prospect as either “not good” or “very bad”. Last year only 20 percent had negative business prospect sentiment.

Business attitudes are divided into three groups regarding investment plans in 2012: increase their investment, maintain the status quo or reduce their investment in Vietnam. Of those surveyed, only 32 percent hope to increase their investment capital in Vietnam. This number is a slight decrease from 36 percent in the previous survey and a sharp decrease from 52 percent a year ago. About 33 percent have plans to reduce their investment, in which 20 percent declare that they will “substantially reduce” their investment in Vietnam this year. According to our survey last year, only four percent declared they would substantially reduce their investment in Vietnam. This shows an increasing trend of businesses being more cautious about their investment and some businesses beginning to downsize their operations in Vietnam. The number of businesses who wish to maintain the current investment level decreased slightly but stayed generally steady at about 31 percent.

 

There are still many concerns regarding inflation, with 49 percent of businesses stating that inflation has a significant impact on their operations. However, this number is a slight decrease from 52 percent in the previous quarter.

 

When asked about macroeconomic conditions in Vietnam in the next six months, 60 percent see a continued downhill slide of an already troubled economy. 30 percent think the economy will be stable and gradually recover. This shows that economic stabilising measures have not reduced concerns among the business community regarding macroeconomic prospects.

 

Mr Paul Jewell, Director of Eurocham, emphasised, “In spite of some improvements in the inflation rate, there is still a wave of ongoing and new issues undermining the confidence in the business environment in Vietnam, such as continuing macroeconomic problems, inadequate infrastructure and administrative procedures.

The new Labour Law, effective from May 1, 2013, has generated much unease and concern from European businesses in Vietnam. About 42 percent believe that the new Labour Law will have negative effects on their operations. 28 percent express uncertainty regarding the new rules, citing the inherent lack of information around new rules and the exact impact on their daily operations. 5 percent expect that the new Labour Law will have a positive impact on their operations.

 

When asked about which issue in the new Labour Law being their biggest concern, the majority of businesses pointed to the more stringent requirements regarding foreign labourers (73 percent of businesses), followed by the increase in maternal leave period (46 percent) and a new limit on overtime (34 percent). EuroCham will continue to propose that owners should have the right to choose suitable candidates based on their intention and internal recruitment procedures, with the purpose of trying to balance the labour demand in Vietnam in order to control the labour market and foreigners’ freedom to recruit employees at will. In the current business environment, the most important thing is not to discourage potential investors who come to Vietnam to do business.