Despite Global Uncertainty, Vietnam Remains Promising Business Destination

During the second quarter of 2022, European business stakeholders' confidence in Vietnam's investment environment declined slightly, according to the Business Climate Index (BCI) released by the European Chamber of Commerce in Vietnam (EuroCham).

Following a first-quarter rise, the BCI dropped 4.4 points in the second quarter to 68.8 points. In contrast with earlier in the year, compounding factors such as the continuing war in Ukraine, commodity price spikes, and the ripple effect of China's zero-COVID policy have dampened expectations among Vietnam's European business community. Although the BCI has fallen, it remains 7.6 points higher than in the fourth quarter of 2021, when it measured 61.0 points.

The BCI is the leading indicator of the European business and investment community in Vietnam. To better understand the Vietnamese market, EuroCham surveyed its more than 1,200 members, representing virtually every sector of the Vietnamese economy, to provide quarterly updates on Vietnam's business environment and forecasts for their own businesses in Vietnam. Researchers from YouGov Vietnam conducted the BCI research and compiled the data.

Vietnam's potential growth is also being viewed with less favor by European business leaders. 60% of respondents predicted that the Vietnamese economy would stabilize or improve in the third quarter of 2022, compared with 69% who held this belief entering the second quarter.

Additionally, participants were surveyed regarding foreign direct investment (FDI) in Vietnam. According to the findings, 45% of respondents were significantly or moderately satisfied with Vietnam's efforts to attract and retain FDI, while 76% expected their company to increase FDI to Vietnam before the end of the third quarter. This may be due to the fact that 55% of respondents said Vietnam improved its FDI attraction and retention capabilities since the first quarter.

Positive views were expressed about Vietnam's prospects for green growth as well. 79% of participants said their assessment of Vietnam's green development potential improved from the first quarter. Regarding the link between green growth and FDI, nearly 90% of respondents believed Vietnam should increase green sector development to attract more foreign investment.

Furthermore, the survey identified barriers to European investment in Vietnam and trade between the two. 35% of respondents cited reducing administrative barriers as the most effective way to increase FDI, while 24% pointed to infrastructure development. Likewise, 45% of participants said administrative procedures impede their ability to utilize the EU-Vietnam Free Trade Agreement (EVFTA), demonstrating the difficulty foreign companies face in navigating Vietnam's bureaucratic processes.

Mr. Alain Cany, EuroCham Chairman Although the outlook for European business leaders has decreased since the last quarter, the factors affecting it are mostly beyond the Vietnamese government's control. A perfect storm of external factors is contributing to global economic instability. This problem is not unique to Vietnam. With this BCI, Vietnam's path to improving its investment and business environment is clearly outlined. Green growth is the way of the future, not just because it will help build a prosperous foundation for Vietnam's economy and people, but also because it will support the country’s transformation into one of the world's strongest markets. Prime Minister Pham Minh Chinh's COP26 commitments and the government's National Green Growth Strategy show that the government is serious about making the changes necessary for a green transition.  Therefore, despite the global economic uncertainty, it is an incredibly exciting and promising time to do business in this country. Mr. Thue Quist Thomasen, CEO of YouGov This BCI measurement clearly shows a small setback in Vietnam’s reopening and return to normal. However, Vietnam’s handling of the current situation is clearly a mitigating effect in the global economic context. The near-target inflation rate and improvement in the country’s credit ratings are a strong testament. As foreign investors' confidence in the Vietnamese market remains stable in a turbulent time, more FDI is flowing into the country. Vietnam's potential for green growth is also inspiring European investors. As a result, these BCI results should be interpreted positively, as should the Vietnamese market in general.

By Giang Tu, Vietnam Business Forum