Ho Chi Minh City, 26 August 2013 - Results of the 12th quarterly EuroCham Business Climate Index (BCI) survey, conducted in August 2013 and released today, show that business confidence and outlook among European businesses in Vietnam remains unchanged from last quarter-stagnating at the midpoint. EuroCham members that participated in the survey expressed an increasing concern about their current business situation, fear of increased inflation levels as well as the overall macroeconomic outlook in Vietnam. Furthermore, the survey also found that during the last six months around one fifth of the respondents have considered shifting their business to another ASEAN market.
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 and other activities.
Business Climate Index remains at midpoint but demonstrates continued belief in the economic outlook:
Following the turn-around of the Business Climate Index over the past two quarters, the BCI has now come to a halt at the midpoint. This is to a large extent due to the reduction in respondents assessing their current business situation as positive - from 43% to 38% -, which is further strengthened by the increase in respondents having a negative view of the current situation from 25% last quarter to 28%.
However, looking to the future, the business outlook has seen continued improvement with respondents having positive expectations, rising to 51% from 43% last quarter - and 30% the previous quarter. This is a clear demonstration of the fact that EuroCham members are committed to Vietnam in the long term, and strongly linked to hopes of improvement of the business climate as a result of the WTO Country Review of Vietnam in September this year and the belief in a strong, implementable EU-Vietnam Free Trade Agreement in the future.
Investment plans decrease:
Reported investment plans are decreasing with the number of respondents expecting to increase investments in Vietnam decreasing by 8% (from 42% to 34%). The number of companies intending to ‘significantly increase investment’, has returned to the levels of the first quarter of the year of 8% from last quarter’s 13% - and 20% one year ago. In addition, there has also been a slight increase in members expecting to decrease their investments in Vietnam, from 19% last quarter to 21%.
Compared to last year, the numbers have further reduced, and we are seeing a continuation of a trend where European companies are getting more cautious about investing and some are starting to plan the relocation of their activities within ASEAN.
Business orders expected to increase:
When asked about their expected number of orders and revenue in the medium-term the answers have continued their positive trend. Whilst the share of companies expecting a drop in revenue remains at 17%, the number of respondents expecting it to increase, has further improved from 53% to 61%, which is a significant improvement bringing us back up to the same levels as one year ago.
Recruitment plans remain stable:
The positive development in revenue has unfortunately not translated into increased recruitment plans: the number of respondents expecting to increase hiring (up 8 percentage points) is roughly the same as the ones expecting to decrease headcount (9 percentage points). However, compared to last year, the number of respondents expecting to hire more staff has grown - from 32% to 47%.
Increasing concerns about inflation:
Concerns about inflation return, with, 43% of respondents finding that inflation could have a significant impact on - or even threaten - their business (an increase of 8 percentage points compared to last quarter). However, compared to last year, this is still a slight improvement, from the then 49%.
Members were also asked to indicate what they think the rate of inflation will be and the average came to 5.94%. Compared to last quarter’s estimate of 5.13%, this represents a noticeable difference.
Slight improvement in overall economic outlook:
Last quarter 48% expected a further deterioration of the macroeconomic environment. This quarter, respondents’ appreciation of the macroeconomic situation has slightly improved, with only 40% expecting a further deterioration and the majority of respondents (60%) now expecting the macroeconomic environment to stabilize and improve. This is a very positive trend which we hope will materialise in the near future.
Looking to other markets in ASEAN:
With the increasing role of ASEAN, EuroCham asked its members how this influences their business planning and decision making. The results demonstrated that around one in five respondents have during the past 6 months considered shifting their business to another ASEAN market. Have we asked before? This is an indication of the increasing frustration with the current business environment and the growing competitiveness of other markets in the region. This is further supported by the assessment of respondents’ perceived position of Vietnam in a regional business context: 45% found other markets in ASEAN to represent better business destinations than Vietnam, 37% considered the Vietnamese business climate to be among the average and only 18% to be in the top tier.
However, it should be noted that more than 80% of respondents have not considered shifting their business, which clearly indicates that the vast majority of our members remain dedicated to the Vietnamese market in the long term.
EuroCham Chairman Preben Hjortlund commented on the survey: “It is thought-provoking to see that EuroCham’s Business Climate Index has not continued to increase – and stagnates at the midpoint. Even if many of our members are here for the long haul, it is interesting - and worrying - to see that so many of the respondents perceive other ASEAN markets as potential better business destinations. This further underlines the importance of Vietnam continuing and intensifying the efforts to improve the underlying structural problems of the economy as well as ensuring a strong and well-implemented FTA.”
EuroCham Executive Director Csaba Bundik added that: “The Business Climate Index (BCI) is a very strong indicator of how business sees the Vietnamese business climate. It is therefore of utmost importance that the situation is improved and that the BCI is brought back to previous levels. With many of our members being active in other ASEAN countries, it is key that Vietnam stays ahead of the curve, with a view to the creation of the ASEAN Economic Community. EuroCham will continue to work together with the Vietnamese Government to ensure this progress. Hopefully, the launch of our Whitebook 2014 later this year will help tackle the key issues.”