European businesses hold positive yet cautious views towards Vietnam market

EuroCham Vietnam, an organization for European business community in Vietnam, has released the results of its Business Confidence Index (BCI) for the second quarter of 2023, conducted by Decision Lab. The BCI shows a modest decline of 4.5 points, with a score of 43.5 in European business confidence towards the Vietnamese market.

The quarterly BCI acts as a tool for understanding the perceptions of European countries and investors in the Vietnamese market. With feedback from the extensive network of 1,300 members across a diverse range of sectors, this survey offers valuable insights into the current business landscape in Vietnam and future expectations.

BCI shows a score of 43.5 in European business confidence towards the Vietnam market. (Source: Decision Lab)

Businesses cautious about upcoming outlook

The BCI reveals a challenging outlook, with a significant 10% increase in negative responses regarding the present business situation. This sense of caution is further reflected in a 6% increase in negative comment for the upcoming quarter.

For optimizing revenue and orders, businesses are carefully assessing the scope, with a marginal increase in 4% of companies anticipating a decline in these areas. In addition, companies may have a proactive approach, with 7% more companies plan to carefully manage investments in the upcoming quarter.

Respondents call for reform and development

Respondents also highlight the importance of improving regulatory environment, developing infrastructure and ensuring access to financing in Vietnam to increase foreign direct investment (FDI). Regulatory obstacles, including unclear regulations, commented by 53% of businesses, and onerous administrative procedures, from 50% of businesses, are significantly impeding the companies’ operations in Vietnam.

Regulatory reforms and the availability of skilled labor are also the crucial drivers for company growth – regulatory reforms contribute to the growth in service sector while the availability of skilled labor contributes to the growth in manufacturing sector.

A list of key factor for business growth of European businesses in Vietnam. (Source: Decision Lab)

The report also highlights rising concern of power shortages that impacted businesses. Around 60% of respondents experienced the repercussions of such shortages on their business operations. This resulted in reduced operational efficiency, decreased productivity, and disruptions in production and services.

Furthermore, European businesses comment an inadequate infrastructure development in Vietnam, with 53% saying that it is “very inadequate” or “lagging behind”. The local government has been taking proactive measures to such concern, strongly focusing on accelerating key infrastructure projects, especially highways.

FDI inflows recovering after the pandemic

Despite some negative comments, Vietnam continues to attract foreign investors, with 48% of businesses expecting to raise their company’s FDI in the next quarter. However, a total of 40% of companies express no plans for elevated FDI, which is a 4% increase from the previous BCI.

Nguyen Chi Dung, Minister of Planning and Investment of the Vietnam government, said that FDI inflows into Vietnam have gradually recovered since the end of COVID-19 pandemic, according to a report in the Government’s recent meeting.

He stated that in July, Vietnam has received over US$2.8 billion of FDI, a nearly 9% increase year on year, raising the total amount in the first seven months of 2023 to US$16.24 billion, with increase in 4.5%. Of the total, US$11.58 billion had been disbursed, a rise of 0.8% over the same period last year.

Minister Dung stated that Vietnam will continue to complete mechanisms and policies to give non-tax support and incentives to foreign investors in the context of the global minimum tax rate application.