European Businesses Upbeat about Vietnam’s Economic Prospects

European businesses in Vietnam are feeling more optimistic due to the country’s strong economy and promising growth. This is reflected in the Business Confidence Index (BCI) by the European Chamber of Commerce in Vietnam (EuroCham), which hit a record high of 52.8 in Quater 1 (Q1) 2024. This shows that European investors are more confident and see Vietnam as a key market in Southeast Asia.

Vietnam’s skilled workers are attracting European investors. 75% of EuroCham members employ mostly local staff, showing the quality of Vietnamese workers. This leads to growth expectations, with more than half expecting increased sales in Q2 2024. Almost 40% plan to hire more staff, showing confidence in the future. Looking further ahead, 71% are optimistic about their long-term future in Vietnam, showing their commitment to the market.

However, despite the prevailing optimism, European businesses continue to grapple with regulatory hurdles that impede market entry and long-term investment. Over half of the respondents identified administrative burdens as a major obstacle, highlighting the need for streamlined procedures to reduce red tape and ease the process of setting up shop in Vietnam. Unclear regulations further complicate matters, creating uncertainty and hindering strategic planning for European businesses. The process of obtaining permits and licenses also emerged as a significant concern, with delays in approvals discouraging new ventures and adding unnecessary risk for investors. Work visa restrictions were another point of contention, as they stifle the transfer of essential skills and limit the inflow of foreign expertise, which is crucial for driving growth.

To unlock Vietnam's full economic potential and further incentivize European investment, EuroCham recommends a multi-pronged approach to regulatory reform. Streamlining administrative procedures is a top priority, with businesses advocating for a reduction in red tape to facilitate market entry. Strengthening the legal framework is equally important, as clear and consistent laws are essential for creating a predictable investment climate. Investing in infrastructure improvements, particularly roads, ports, and bridges, would significantly enhance trade logistics and benefit businesses across all sectors. EuroCham's 2024 Whitebook delves deeper into these recommendations, providing a detailed roadmap for streamlining regulations and fostering a more welcoming environment for foreign investors.

The issue of sustainability presents another set of challenges for European businesses in Vietnam. Limited consumer demand for eco-friendly products and services makes it difficult for some businesses to justify adopting sustainable practices. Balancing cost competitiveness with sustainability commitments is another hurdle, as businesses often struggle to reconcile eco-friendly practices with maintaining competitive pricing. Unclear and confusing environmental regulations add another layer of complexity, making compliance difficult for European businesses seeking to operate sustainably in Vietnam. The lack of essential infrastructure, such as access to renewable energy sources and proper waste management solutions, further hinders the implementation of sustainable practices.

The EuroCham Green Economy Forum & Exhibition (GEFE) 2024 aims to bridge these gaps and empower businesses to navigate the transition to a green economy. The forum will provide a platform for knowledge sharing, exploring solutions to address infrastructure limitations, and promoting sustainable business practices.

As Vietnam navigates its economic journey, European businesses are keeping a close eye on several upcoming policy changes that could significantly impact their operations. The recently approved implementation plan for the Power Development Plan VIII (PDP8) is a key area of interest, with businesses seeking clarity on its potential implications for the energy sector. Revisions to the Pharma Law and the Land Law are also being monitored closely, as they have the potential to reshape the regulatory landscape for pharmaceuticals and land ownership, respectively. Additionally, developments in areas like the Carbon Border Adjustment Mechanism, Direct Power Purchase Agreements, and the General Data Protection Regulation are on the radar of European businesses, as these policies could influence a wide range of industries, from manufacturing to technology.

While economic uncertainties, real estate market fluctuations, and global supply chain disruptions pose challenges, the data paints a clear picture: European businesses are overwhelmingly optimistic about Vietnam's economic trajectory. They are poised to seize opportunities presented by Vietnam's growth, but advocate for targeted regulatory reforms that will further sharpen Vietnam's competitive edge and solidify its position as a leading investment destination in Southeast Asia.

By Giang Tu, Vietnam Business Forum