The EuroCham Business Climate Index dropped a furthe points to 45
More than half of the businesses that participated in the survey are active in the services industry, a quarter in manufacturing and the rest in trading or other activities.
Unease about current business situation:
Compared to our last survey, there was a further drop in respondents assessing their current business situation as positive (‘good’ or ‘excellent’) from 30% to 26%. More than a third of businesses continue to have a negative view of their current situation. At the same time the neutral assessment of the current situation grew to 37% - up by 7points compared to last quarter.
Downward slide in business outlook:
The business outlook also continues its negative trend, with 35% of respondents assessing their business outlook as ’not good’ or ’very poor’. Additionally, this quarter sees a further decrease in businesses having a ‘good’ or ‘excellent’ outlook - down from 31% last quarter to 26%.
More positive attitude towards investment plans:
Interestingly, when asked about their investment plans for 2012, the percentage of respondents planning to increase their investments has grown. Since last quarter there has been an increase of 7 points to 39%. Furthermore, there has been a reduction in the percentage of businesses aiming to reduce their investments ‘significantly’ in 2012 - only 13% - down from 20% last quarter. This shows a change towards businesses’ plans to invest in Vietnam. The number of companies that are looking to maintain their current level of investment remained relatively constant at 32%. This development probably reflects the medium term optimism linked to the recent improvements in macroeconomic stability of Vietnam.
Continued expectation of drop in number of orders and/or revenue:
When asked about their expected number of orders and revenue in the medium-term the answers were mixed. At 44% the share of companies expecting revenue to increase experienced a small drop, down 1 point as compared to last quarter. A relatively consistent 20% of respondents expected revenue to remain the same in the medium term. However, approximately a third still expect their orders to decline, much in line with last quarter’s survey and significantly higher than previous years, where the numbers have been much lower.
The respondents’ recruitment plans have improved, with 40% of respondents expecting to hire more staff in the medium-term and 33% expect to maintain the same level. The percentage of businesses planning to reduce their staff in Vietnam has slightly decreased - this percentage has gone down by 3 points to 23%.
Concerns about inflation remain:
Concerns about inflation remain high with 50% of companies expecting 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 5.63%, representing a slight drop from last quarter’s 5.82%, and considerably lower than the forecast a year ago, where the average inflation rate was predicted at 7.83%.
Surge in pessimism about overall economic outlook:
When asked about the macroeconomic outlook for Vietnam over the next 6 months, a staggering 72% of respondents think that they will see a further deterioration of an already difficult economic situation. This is a rise by 12 points since last quarter and it shows that the measures taken to stabilize the economy do not ease the concern of the business community about the macroeconomic outlook. The fact that only 28% think that the situation will stabilize and gradually improve is likely to be linked to the concerns about the banking situation.
Anxiety and worry about increased taxes, fines and official scrutiny:
The current downturn in the economy impacts Vietnamese government tax revenues. This has resulted in cases of increased fines, auditing visits, customs duties etc. and 72% of respondents have experienced a form of increased scrutiny. 10% of the respondents find that this threatens their business in Vietnam. It is an unfortunate development, as these measures further impede the competitiveness of Vietnam as a market for European businesses. Increased official scrutiny and fines have certainly played a role in terms of this quarter’s overall decline of the Business Climate Index and it is therefore of utmost importance that these issues are addressed.
EuroCham Chairman, Preben Hjortlund commented on the survey: “During the past 12 months, EuroCham’s BCI has declined from 56 to 45 points - a drop of 11 points! This indicates a declining confidence in Vietnam as an investment destination for European business. We remain hopeful that recent developments such as the beginning of negotiations for the FTA between Vietnam and the EU will encourage Vietnam to improve its competitiveness and attractiveness and turn around the declining business climate.“
EuroCham Executive Director, Paul Jewell added that “The further drop of EuroCham's BCI is caused by slow progress on many of the issues that we have flagged in the past. We will continue our dialogue with the Vietnamese government as illustrated by the upcoming publication of our annual Whitebook. The Whitebook will be published at the end of this year and will provide a helpful steer to the Vietnamese government in terms of addressing some of the issues that impede the business climate for European companies and organisations.”