72% of German Businesses Set to Continue Investment Plans in Vietnam

Despite expressing concerns about the negative impact of the Covid-19 epidemic on business performance, 72% of German businesses expect to keep investing in Vietnam in the near future, according to the AHK World Business Outlook (AHK WBO), a survey to assess global German business confidence, announced recently by the German Industry and Commerce Vietnam (GIC/AHK Vietnam).

Covid-19 crisis

Most businesses feel the negative effects of the Covid-19 pandemic on their operations. Cancelled important events and postponed travelling have seriously impacted all services, especially logistics, commerce, restaurant and hotel. Shops are closed, neighborhoods are unoccupied, schools and daycare centers are closed, workers are forced to work from home to prevent the epidemic spreading, supply chains are disrupted, the market is inactive and hospitals are always overloaded. All this weighs on the economy and businesses.

Accordingly, 14% of German companies estimate their business performance to be weakened in 2020, while 59% expect that their operations and financial position will be stable this year, but only as good as in 2019. Only 27% are optimistic about their performances in 2020 Vietnam (this index reached 77% in 2019). Compared with other German firms and investors in ASEAN, the German business community in Vietnam has an optimistic perspective and expectations for the upcoming year.

Most businesses significantly lowered their financial goals in 2020. According to the survey, 82% revised down revenue targets due to the Covid-19 outbreak. 9% admitted their revenue will decline more than 50%, and 63% anticipated a decline by 10-50%.

In addition, most German companies in Vietnam have already experienced the epidemic’s effect on their business activities, with different levels and aspects. 86% said entry halts and travel restrictions are impacting their business. 59% reported coronavirus disrupted their supply chains. 55% of firms witnessed contract cancellations and 50% delayed new investment projects to an indefinite term as the plague spreads.

The GIC/AHK survey also noted that concerns about market demand and economic policies are increasing in the German business community in Vietnam.

Accordingly, 68% said the Covid-19 epidemic has resulted in a substantial decline in market demand, while 59% expressed concerns that economic policies will be a challenge to their business activities in Vietnam. Other matters such as finance, infrastructure and shortage of high-quality labor will affect German firms’ operations in Vietnam in the medium term.

72% of businesses continue their investment plan

According to the German Industry and Commerce Vietnam, 2019 was considered a successful year for Germany - Vietnam trade and investment relations. Vietnam has become the second most important partner of Germany in ASEAN, and also drawn much attention of German investors, who are investing in more than 350 FDI projects in Vietnam.

In 2020, although worried about negative impacts of the pandemic on their business performance in Vietnam, they still expect a medium-term economic recovery of Vietnam. Indices in Vietnam are substantially higher than their averages across Southeast Asia.

According to the survey, 43% of German companies are already feeling the effects that the coronavirus pandemic will have on the Vietnamese economy in the middle term, despite good prospects for the Vietnamese economy. One out of five respondents thought Vietnam’s economy can even be better despite this epidemic in the medium term. The Government of Vietnam has launched aid packages to help businesses get through the crisis caused by this pandemic. As the Vietnamese government has taken decisive, forceful and prompt action against the impact of the coronavirus crisis, businesses believe that the economy will therefore recover quickly and keep growing.

As for future investment plans, 72% of German companies in Vietnam intended to keep investing in Vietnam and 27% planned an increase in employment. This showed Vietnam’s efforts to improve the investment environment, as well as positive effects of free trade agreements (FTAs), especially the EU - Vietnam Free Trade Agreement (EVFTA). This pact is expected to leverage Vietnam's economic recovery, bring it to the current growth path and attract more quality investors from Europe and Germany in the medium and long term.

By Ha Thu, Vietnam Business Forum