European firms’ confidence in Vietnam's business climate slightly delcine

Accordingly, the BCI slipped by 4.5 points in terms of European business confidence towards the Vietnamese market, with the current score of 43.5.

Commenting on the BCI, Gabor Fluit, chairman of EuroCham, emphasised that the country’s economy relies heavily on manufacturing and exports, with it taking a major hit from the tough global situation. This decline occurring in exports and orders has had a major impact on European businesses and the overall business community, with the BCI clearly reflecting this current gloomy outlook.

"To address these challenges, the Vietnamese government has swiftly taken practical steps, particularly by expediting key infrastructure projects. We commend these efforts, which will surely bring a substantial long-term boost to the economy,” he said.

However, he underlined the necessity for the Government to come up with long-term plans to address the recent power shortage problem, considering its cyclic nature.

“By taking prompt and comprehensive action we can not only attract foreign investment but also ensure a resilient economy capable of overcoming future obstacles. Time is of the essence, and we must act decisively to secure a prosperous future for Vietnam. Rest assured, EuroCham is fully committed to providing support through ongoing dialogue and policy consultations every step of the way," he noted.

Moderate Increase in Economic Optimism

The report delivers moderately reassuring news as it reveals a marginal 2% increase in the proportion of businesses anticipating economic stabilisation or improvement ahead, thereby bringing the total up to nearly one-in-three respondents. 

Outlook Amidst Growing Caution and Strategic Planning

The BCI reveals a challenging outlook moving forward, with a significant 10% increase in negative responses regarding the current business situation. This growing sense of caution is further reflected in a 6% rise in terms of negative sentiment for the upcoming quarter.

However, amidst these challenges, there is also a glimmer through some encouraging news. The report shows a 9% increase in the number of business leaders who assess their business prospects positively for Q3 of 2023 compared to their assessment for Q2 of 2023.

Firms are prudently assessing the landscape, focusing on optimising revenue and orders, with a marginal increase of 4% in the proportion of companies anticipating a decline in these areas. Additionally, they are implementing a proactive approach as 7% more companies plan to carefully manage investments in the upcoming quarter. It is intriguing to note that despite these issues, workforce planning remains stable, duly reflecting a resolute commitment to maintaining stability regardless of the prevailing conditions. 

Drivers of Growth: Regulatory Reforms and Skilled Labour

Amid the current cautious business climate, respondents highlighted regulatory reforms and the availability of skilled labour as crucial drivers for their companies' growth. Regulatory reforms are deemed to be the primary factor contributing to the growth of the service sector, while the manufacturing sector places significant emphasis on the availability of skilled workers.

Challenges with Visas and Work Permits for Foreign Workers

Securing visas and work permits for foreign workers continues to pose persistent challenges, with over 80% of surveyed businesses encountering various difficulties at some level. The prolonged processing time for obtaining visas and work permits emerges as the most pressing issue. Additionally, nearly half of surveyed companies struggled with justifying the hiring of foreign workers, a factor hindering knowledge transfer to Vietnamese personnel in three-quarters of the companies surveyed.

Impact of Power Shortages on Operations

The report highlights the pressing concern of power shortages that have significantly impacted enterprises during the reviewed period. Although there has been some relief gained due to recent rainfall, around 60% of respondents experienced repercussions of these shortages on their own operations. This manifested in reduced operational efficiency, decreased productivity, and disruptions in production and services. Ensuring long-term solutions in order to address power supply stability remains a priority for sustaining business performance and overall economic resilience.

Perception of Inadequate Infrastructure Development

Furthermore, the report highlights the perception among European business leaders of inadequate infrastructure development in the nation, with 53% expressing their view that it is currently "very inadequate" or "lagging behind". However, the Vietnamese Government has been taking proactive measures aimed at addressing this concern, with there being a strong focus on accelerating key infrastructure projects, particularly in the area of highways. 

Vietnamese Appeal to Foreign Investors

Despite the challenges, the nation continues to attract foreign investors, with 48% of respondents expecting an increase in their company's foreign direct investment (FDI) in the country next quarter. However, a total of 40% of firms expressed no plans for elevated FDI, marking a 4% increase from the previous BCI. Nevertheless, the Vietnamese market remains firmly positioned among the top five investment destinations for over one-third of enterprises, underscoring its enduring appeal.

Barriers to Foreign Direct Investment

Respondents highlighted the importance of improving the regulatory environment, developing infrastructure, and ensuring access to financing as a way of enhancing the country’s overall attractiveness for further FDI. The report also emphasises that unclear regulations and onerous administrative procedures are the primary barriers which hinder FDI, with 53% and 50% of businesses, respectively, citing them as the most significant regulatory obstacles impeding their operations in the nation.

Relocation of Operations from China to Vietnam

Intentions and actual relocation of operations from China to Vietnam are subdued, with the majority, 81%, of companies not having relocated any operations. Among them, only a marginal 3% are currently considering relocation, while 2% have actively planned for the move.

Concerns on Global Minimum Tax and Personal Data Protection

The report further highlights concerns expressed by close to 40% of surveyed respondents regarding the forthcoming implementation of the global minimum tax. Similarly, around 42% of businesses report inadequate understanding of Vietnam's Personal Data Protection Decree, indicating the need to delve further into this matter.

Awareness and Perceptions of the Carbon Border Adjustment Mechanism (CBAM)

Awareness of the Carbon Border Adjustment Mechanism (CBAM) is demonstrated by 27% of respondents, with only 43% perceiving CBAM as relevant to their business activities. Compliance requirements, bureaucratic procedures, and the necessary adaptation of business processes stand among the top concerns expressed regarding CBAM.

Benefits and Challenges of the EU-Vietnam Free Trade Agreement (EVFTA)

The survey reveals that over half of the businesses surveyed have benefited from the EU-Vietnam Free Trade Agreement (EVFTA). Among these beneficiaries, 35% of business leaders have reported gains from tariff reductions. Despite these gains, firms continue to face challenges in fully capitalising on the agreement, with administrative procedures coupled with a lack of understanding remaining the main barriers to full capitalisation.