Ho Chi Minh City, 17 June 2014, Results of the 15th quarterly EuroCham Business Climate Index (BCI) survey, conducted in May 2014, shows that business confidence and outlook among European businesses in Vietnam have continued to increase. This quarter the BCI is back to its 2011 levels-having gone from last quarter’s 59 to 66. This increase further underlines the commitment of European companies to the Vietnamese market. It is expected that the continued positive development of the BCI is linked not only to the ongoing trade negotiations, such as EU-Vietnam FTA but also the creation of ASEAN Economic Community in 2015.
In line with the creation of an ASEAN Economic Community, the BCI survey also asked respondents to evaluate Vietnam’s competitive advantages against other ASEAN countries across a number of different criteria. According to the findings, competitive labour cost was perceived as one of the main reasons for EuroCham members to settle their businesses in Vietnam.
On the other hand, one should note that a comparatively high percentage of respondents assessed Vietnam as being less competitive in terms of infrastructure (75%) and legal/administrative system (80%).
In terms of internal market developments supporting the increased BCI, the survey finds that increased investment plans, positive perception of business situation and business outlook could also be counted. However, it should be also noted that the vast majority of the responses to this quarter’s BCI were provided prior to the anti-Chinese protests in specific locations, which may have had an impact on the overall findings.
Current stable and positive business situation
Compared to the results of last quarter’s BCI, the amount of respondents assessing their current business situation as positive has remained relatively stable at 44% - compared to 45% last quarter and last year’s 43%. In addition, the number of respondents remain negative perception has comparably declined from 29% to 21%.
However, in order to maintain that positive trend, there are number of concerns from European companies that should be taken into consideration by relevant Government Authorities.
Specifically, when survey participants were asked about the impact of the new Decree 102/2013/NĐ-CP and Circular 03/2014/TT-BLĐTBXH on hiring of foreign staff and experts for their companies, 69% of responses indicate it would be an issue. This point is further supported by the finding that only 16% of respondents found that lack of skilled labour in Vietnam would not have an impact on their business. At the same time, 50% found that this particular issue would have a serious impact on their companies.
Strong business outlook for the next 6 months
The business outlook has seen a continued qualification with responses having positive assessment rising above the midpoint to an impressive 57% compared to last quarter 49% and last year 44%.
This quarter has shown a high expectation from the European business community in terms of the resource of strong implementation of FTA.
In addition, the new online Customs VNACCS/VCIS system is deemed to be positive by almost relevant respondents (75%). Investment and Recruitment plans continue to improve despite declining expected business orders. Positive trend of increasing investment plans has come back with 81% of respondents intend to maintain or increase their investment level, compare to last quarter 78%. The positive development in expected investment plans also transfers into the recruitment plans, with the number of respondents expecting to increase their headcounts continuing to increase – from 48% last quarter to 55% this quarter. Equally important is the fact that the number of respondents expecting to reduce their workforce has further diminished - 11% compared to last quarter 15%. Unfortunately, this is not an outcome of increase business orders as the number of respondents expecting an increase of business orders has dropped to 64% from 70% in last quarter. At the same time, the level of respondents expecting a reduction of business orders has remained stably low – 12%, compared to 15% last quarter and 14% past two quarters.
Expected inflation rate increases while macroeconomic outlook remains stable
After a dip in the expected level of inflation last quarter (3.68%) the inflation level is now back to earlier expectations, with members having guesstimated it at around 4.26% this quarter. Respondents remain somewhat confident in the macroeconomic outlook, with 46% expecting ‘stabilisation and improvement’ of the situation (slightly lower than last quarter) and 26% fearing a further deterioration. The part of respondents expecting a deteriorating has slightly increased from the 23% last time.
EuroCham members expect trading and manufacturing to be most impacted by the FTA
When EuroCham members were asked which sectors would find the EU-Vietnam FTA the most beneficial, 50% found it to be trade, 33% manufacturing and 10% services. This is clearly in line with the previous findings that the FTA will have an impact which is much wider than just normal trade aspects.
EuroCham Chairwoman, Nicola Connolly commented on the survey: “It is encouraging to see the EuroCham Business Climate Index having continued its upwards flight – to an impressive 66. A further increase by 7 points seems to underline the findings of last quarters survey. Our members have a strong belief in the Vietnamese market and are very hopeful of a strong implementable FTA. As EuroCham, we will continue to work with the Government of Vietnam and the European Union to ensure that the final agreement will provide practical benefits for our members in the years to come.”
EuroCham Executive Director, Csaba Bundik added that: “The Business Climate Index (BCI) having reached the levels of 2011 is a very positive sign- something that we should all cherish. However, it is also important that we do not lose sight of the goal – to get a strong, implementable FTA – bringing clear benefits to our members, which in turn will keep the BCIs positive momentum. EuroCham will remain our effort and collaboration with Vietnamese Government to address issues to our business both within and outside the remit of the EU-Vietnam FTA to ensure the best possible business climate for our members.”