Quarter 3-2012: Business confidence and outlook among European businesses in Vietnam has fallen below the "neutral" index midpoint

Ho Chi Minh City, 1st August 2012 - Results of the 8th quarterly EuroCham Business Climate Index survey, conducted in July 2012 and released today, show that business confidence and outlook among European businesses in Vietnam has fallen below the "neutral" index midpoint of 50 for the first time. EuroCham members that participated in the survey expressed an increasing concern about their current business situation and outlook as well as the overall macroeconomic outlook in Vietnam. 

 
 
The EuroCham Business Climate Index dropped 5 points further to 48:

38% of the businesses that participated in the survey are active in the services industry, about 30% in manufacturing and the rest in trading or other activities. 

Unease about current business situation:

Compared to our last survey, there was a 7% drop in respondents assessing their current business situation as 'good' from 34% to 29%, down from 43% one year ago. Only one percent of respondents described their current situation as 'excellent'. The neutral assessment of the current situation remained constant at around 30%. But worryingly, there was an increase in the number of businesses viewing their current business situation 'very poor' to 10%. A total of 39% have a negative view of their current situation.

Business outlook apprehension:
 
We can see a negative trend in companies business outlook. Only 31% stated a 'good' or 'excellent' outlook. This is down from 38% last quarter and a significant drop from the 42% of respondents that had a positive business outlook in the 2nd quarter 2011. The shift has been towards a negative outlook with 31% assessing their business outlook as 'not good' or 'very poor'. One year ago only 20% of respondents had a negative outlook. Mixed attitude towards investment plans: Not good When asked about their investment plans for 2012, Very Poor respondents are roughly split in thirds about whether to increase their investment, maintain the same level, or reduce their investment in Vietnam. Only 32% of respondents were looking to increase their nvestment in the country. That is a slight fall from 36% in the last survey and a plunge from the 52% that were planning to do so one year ago. A staggering 33% of businesses in this survey are planning to reduce their investments with 20% of them stating that they will 'significantly reduce' their investments in Vietnam this year. In our survey one year ago, only 4% of respondents anticipated a significant reduction of their investment in Vietnam. This shows a continuation of the trend that businesses are getting more cautious about investing and some are starting to plan a reduction of their activities in Vietnam. The number of companies that are looking to maintain their current level of investment slightly dropped, but remained relatively constant at 31%. 

Growing number of businesses expect drop in number of orders or revenue:

When asked about their expected number of orders and revenue in the medium-term the answers were mixed. At 45% the share of companies expecting revenue to increase was down 13% from 8% last quarter. A relatively consistent 20% of respondents expected revenue to remain the same in the medium term. Worryingly, at 35% expect their orders to decline, representing a 12% increase from last quarter and significantly more than the 9% who were worried about a decline in orders/revenue one year ago.

In line with this were the respondents recruitment plans. 32% of respondents expected to hire more staff in the medium-term. 41% expected to maintain the same level. However, 26% are planning to reduce their staff in Vietnam. Only 19% of businesses were planning to do so last quarter and just 9% had plans to reduce their headcount this time last year. 

Slight ease in concerns about inflation:

While overall concerns about inflation remain high with 49% of companies expecting inflation to have a significant impact on their business, this figure is slightly lower than 52% last quarter. In this survey, we asked members to tell us what THEY think the rate of inflation will be and the average of all the numbers we received came to 5.82%, representing a drop from the 8.33% inflation that was forecast by our respondents 6 months ago.

Persistent pessimism about overall economic outlook:

When asked about the Macroeconomic outlook for Vietnam over the next 6 months, 60% of respondents think that they will see a further deterioration of an already difficult economic situation against 30%, who think that the situation will stabilize and gradually improve. This shows that the measures taken to stabilize the economy do not ease the concern of the business community about the macroeconomic outlook.

Increase in minimum wage doesn't concern many businesses:

When asked about the effect of the increase of minimum wage on their business, 82% answered that the increase will have no or only a minor effect on their business in Vietnam. 13% feared that it would have a significant effect on their business here.

Anxiety and confusion about new Labour Code:

The new Labour Code coming into effect on the 1st May 2013 is causing uncertainty and concern among European businesses in Vietnam. The vast majority of 42% expected the new Labour Code to have a negative effect on their business. 28% stated they were unsure what the new legislation would entail, hinting at a lack of information available about the new legislation and what exactly it will mean for day-to-day business. 5% thought the new Labour Code will positively affect their business. 73% of companies concerned about tighter restrictions on foreign workers. When asked what aspects of the new Labour Code are the biggest concern to them, the most cited concern was tighter restrictions on foreign workers (73%) followed by an increase in maternity leave (46%) and new overtime work limitations (34%). EuroCham will continue recommending that employers should be allowed to select the right candidate based on their own discretion and internal processes. With the aim to try and balance both Vietnam's need to control the labour market as well as foreigner's freedom to hire their preferred staff. In the current business climate, it is more important than ever not to deter potential investors willing to do business in Vietnam.

 
EuroCham Chairman Preben Hjortlund commented on the survey: "During 2012, EuroCham's BCI has declined from 56 to 48 points, indicating a declining confidence in Vietnam as an investment destination. For the first time since we started this survey in the 3rd Quarter 2010 the index has dropped below the mid-point of 50 pointing towards an overall negative business sentiment! It appears that businesses are losing their patience and this further underlines the urgency with which Vietnam needs to improve it's competitiveness and attractiveness as a place to do business."
 
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 were addressed in last year's Whitebook. Despite some progress on inflation there is a torrent or new and ongoing issues that are eroding confidence in the business environment in Vietnam:Macroeconomic troubles, lack of adequate infrastructure and administrative burdens continue."

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