Business confidence and outlook among European businesses in Vietnam is improving slightly

EuroCham Business Climate Index Vietnam

1st Quarter 2013
 
Ho Chi Minh City, 7th March 2013 - Results of the 10th quarterly EuroCham Business Climate Index survey, conducted in February 2013 and released today, 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 concern about their current business situation and outlook as well as the impact of increased taxes, fines and official scrutiny.
 
EuroCham Business Climate Index increased by 3 points to 48. 
 
Slightly less 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.
 

Minor improvement in current business situation:
Compared to our last survey, there was a relatively large increase in respondents assessing their current business situation as positive from 26% to 40%. With respondents holding a neutral view remaining fairly stable at 36%, 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 season. 
 
Slight improvement in business outlook:
The business outlook for respondents has also improved slightly: those reporting a neutral view remained stable at 42%, with slight improvement in those with a positive view to 30%, balanced by a slight decline in negative view to 28%.
 
Investment plans remain positive:
Reported investment plans however seem to be stabilizing. There are less companies intending to significantly increase investment, which is down from 11% to 7% of the sample; but also less companies reporting the intention to cut investment, which has reduced from 27% to 24%. With the majority of companies i.e. 73% either expecting to keep their investment at similar levels to 2012, or to increase investment slightly. Overall, some 78% of respondents report they are maintaining or increasing their investment, indicating a continued faith in Vietnam’s medium term future.
 
Recruitment plans on hold:
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%, those expecting a drop in orders fell from 32% to 23%, which is a significant improvement. 
 
The respondents’ recruitment plans have however moved in the opposite direction. 68% of respondents expect to either maintain or decrease headcount, compared with 56% in the last quarter. Only 29% are expecting to increase headcount compared with 40% 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 falling:
Concerns about inflation are declining slightly, though still 45% 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%. 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%
 
Pessimism about overall economic outlook, whilst lessening, continues:
Respondents appreciation of the macroeconomic situation is also improving. Whereas last quarter a massive 72% expected a further deterioration in conditions, this has now fallen back to 57%, though this is still a majority of respondents expecting a further deterioration, and only 43% expecting stabilization and improvement.
 
Anxiety and worry about increased taxes, fines and official scrutiny remain:
The current downturn in the economy impacts Vietnamese government tax revenues. This has resulted in cases of increased fines, auditing visits, customs duties, etc. A similar number (70%) of respondents continue to report experiences of increased scrutiny. 36% 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.  
 
Increased scrutiny measures are further undermining the business environment:   
When asked what aspects of the official scrutiny are of biggest concern to them, the most cited concern in past quarters were labour issues where 39% of respondents mentioned this as a problem. This has now been overtaken by new interpretations of tax laws and auditing visits as the major worries, with fully 85% of respondents citing these tax related areas as of concern to them. This may in part reflect the fact that this is the auditing season. But nevertheless the high number is worrying. EuroCham will continue to advocate the need for removing any unwarranted scrutiny and for applying all the rules fairly across all companies operating in Vietnam. It remains important for Vietnam to ensure and be seen to ensure a level playing field for all investors in order to continue to encourage investment from foreign and local companies alike.
 
EuroCham Chairman, Preben Hjortlund commented on the survey: “It is encouraging to see  EuroCham’s BCI increase slightly. This is welcome news and reflects a perceived stabilization 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...“
 
EuroCham Executive Director, Paul Jewell added that “In EuroCham’s recent Whitebook, we have analysed, suggested and prioritised solutions to the structural problems in Vietnam. A reduction of trade barriers which is the aim of the recently started FTA negotiations between Vietnam and the EU should also have a beneficial effect if successfully and swiftly concluded”.
 
Please click to download BCI press release in English /  Vietnamese and the data 

 

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