The results of the quarterly EuroCham Business Climate Index Survey, conducted in February 2013 and recently released by the European Chamber of Commerce in Vietnam (EuroCham), show that business confidence and outlook among European businesses in Vietnam is improving slightly. This quarter, the level has risen from the recent record low of 45 to 48 points. However, the index remains below the half-line and EuroCham members that participated in the survey continued to express general concerns about their current business situation and outlook as well as the impact of increased taxes, fines and official scrutiny.
Compared to the last quarter survey, there was a relatively large increase in respondents assessing their current business situation as positive from 26 per cent to 40 per cent. With respondents holding a neutral view remaining fairly stable at 36 per cent, there are still a quarter of respondents holding a negative view of their current business situation. It is possible that this is linked to increased business which happens for most businesses during the Tet or Lunar New Year season. The business outlook for respondents has also improved slightly: those reporting a neutral view remained stable at 42 per cent, with slight improvement in those with a positive view to 30 per cent, balanced by a slight decline in negative view to 28 per cent.
Reported investment plans however seem to be stabilising. There are fewer companies intending to significantly increase investment, which is down from 11 per cent to 7 per cent of the sample; but also fewer companies reporting the intention to cut investment, which has reduced from 27 per cent to 24 per cent. The majority of companies (73 per cent) either expect to keep their investment at similar levels to 2012, or to increase investment slightly. Overall, some 78 per cent of respondents report they are maintaining or increasing their investment, indicating a continued faith in Vietnam’s medium term future.
When asked about their expected number of orders and revenue in the medium-term, the answers also have slightly improved. Whilst the share of companies expecting revenue to increase remained relatively constant at 45 per cent, those expecting a drop in orders fell from 32 per cent to 23 per cent, which is a significant improvement.
The respondents’ recruitment plans have however moved in the opposite direction. 68 per cent of respondents expect to either maintain or decrease headcount, compared with 56 per cent in the last quarter. Only 29 per cent are expecting to increase headcount compared with 40 per cent in the last survey. This seems to tie up with other surveys and reports that companies are responding to the recent downturn by looking for efficiencies, and are trying to maintain flexibility by keeping their fixed costs as low as possible in an uncertain environment.
Concerns about inflation are declining slightly, though still 45 per cent of companies expect inflation to have a significant impact on their business in the medium term. Members were also asked to indicate what they think the rate of inflation will be and the average came to 5.12 per cent. This continues to decline and is now very significantly below respondents perceptions a year ago, where the average inflation rate was predicted at 7.83 per cent.
Besides, respondents’ appreciation of the macroeconomic situation is also improving. Whereas last quarter a massive 72 per cent expected a further deterioration in conditions, this has now fallen back to 57 per cent, though this is still a majority of respondents expecting a further deterioration, and only 43 per cent expecting stabilization and improvement.
The current downturn in the economy impacts Vietnamese government tax revenues. This has resulted in cases of increased fines, auditing visits, customs duties, etc. As many as 70 per cent of respondents continue to report experiences of increased scrutiny. 36 per cent of the respondents report this to be a significant increase in such attention. As EuroCham have previously commented, such attention if unwarranted or targeted at certain companies in a biased way, impedes the competitiveness of Vietnam as a market for European businesses. Despite the slight improvements reported above, the business environment remains difficult, and adding further pressure through increased official scrutiny and fines certainly does not help in attracting additional FDI.
EuroCham Chairman, Preben Hjortlund said “This is welcome news and reflects a perceived stabilisation in the macroeconomic situation. However we must remember that the index is still the wrong side of 50 and is well down on the 79 level achieved only 2 years ago. We need now to see continued efforts by the Government to improve the underlying structural problems of the economy. It is only solutions to these difficult structural issues that will result in a return to the optimism of the past.”
Mai Anh
Vietnamese
