Vietnam's business confidence gains traction in Q4 amid challenges: EuroCham

While this rise signals gradual stabilisation, it's vital to highlight that the BCI has remained below the midpoint since Q4 of 2022.

As Vietnam’s business landscape has transitioned from Q3 to Q4 2023, subtle yet telling shifts in sentiment have emerged. While there was a slight two percentage point dip in overall optimism for economic stability and growth, this was more than offset by a drop of 14 percentage points in expectations of an economic downturn. 

The last quarter of 2023 witnessed a marked increase in terms of satisfaction among businesses, with firms confident in their current situation rising from 24% in Q3 to 32% in Q4. The outlook for Q1 of 2024 is also positive, with 29% of enterprises viewing their prospects as 'excellent' or 'good', with this being a sign of diminishing concerns, particularly as extreme worries fell from 9% to 5%.

Looking ahead, Vietnam's business sector is poised for growth as 31% of companies plan to expand their workforce in Q1 of 2024, whilst 34% intend to increase their investments, representing a clear uptick from 2023. These statistics therefore signal a strong momentum for growth and opportunity as Vietnam starts the new year.

According to the report, the country has emerged as rising star in global investment. In Q4 of 2023, the country’s status as an investment hotspot increased significantly. An impressive 62% of those surveyed ranked Vietnam among their top 10 global investment destinations, with 17% placing it at the very top. This strong endorsement is  matched by 53% of respondents anticipating increased foreign direct investment in the country by the end of Q4.

The survey also highlighted its strategic position within the ASEAN region. While only a small fraction at 2% consider it to be an 'industry leader', a noteworthy 29% rank it among the 'top competitive countries' in the bloc. The majority at 45% view the nation as a competitor, albeit acknowledging certain challenges, with this perspective emphasizing the country’s growing influence and potential for further advancement within the ASEAN economic landscape.

The report outlined that 40% of respondents view the local workforce as moderately proficient, indicating a blend of basic and intermediate skills.

Furthermore, 50% rate the workforce's availability as moderate which reflects the challenges in finding qualified candidates. These results thereby suggest that further development and training could further enhance workforce proficiency and availability in a bid to better meet the demands of the global market.

Most notably, 54% of respondents called for 'administrative and bureaucratic streamlining', indicating that the easing of bureaucratic processes could significantly enhance the local business environment. Additionally, 45% stressed the importance of 'strengthening the legal system and regulatory environment'; while 30% see 'infrastructure development, including roads, ports, and bridges’ as essential for FDI attraction.

With regard to the EU-Vietnam Free Trade Agreement (EVFTA), by Q4 a significant 27% of companies reported experiencing 'moderate' to 'significant' benefits from the agreement, a marked increase from just 18% in Q2. The foremost advantages of EVFTA include 'tariff reductions or eliminations' at 42%, 'increased market access to Vietnam' at 27%, and 'improved competitiveness in Vietnam' at 25%, indicating substantial economic impacts.

However, the survey also revealed challenges faced in fully leveraging the EVFTA's potential. About 13% of respondents cited 'Uncertainty or lack of understanding of the agreement' as a primary obstacle, suggesting a need for more clarity and education around the agreement's provisions.

Moreover, 9% pointed to 'Opaque and lengthy customs clearance procedures' as a hindrance, highlighting inefficiencies which could ultimately dampen the benefits of the trade agreement.

Gabor Fluit, chairman of EuroCham, said, “Confidence among the foreign business community in Vietnam is clearly on the rise. New data for 2023 support this. Last year, foreign direct investment reached US$36.61 billion, jumping 32.1% from 2022. This is a clear illustration of growing faith in Vietnam's economy.”

“Tourism also rebounded strongly. By welcoming over 12.6 million visitors in 2023, Vietnam has more than tripled international tourist numbers from the year before. This global spotlight on Vietnam as a top destination for business travelers and tourists also signals broader economic recovery,” Fluit noted.

“While these figures are indeed promising, it's crucial to maintain a cautious outlook. It's noteworthy that the BCI still remains below the midpoint, and more than one-third of businesses still expect to underperform,” he added.

“Given the intense economic competition in the region, Vietnam should stay vigilant. It's crucial for the country to keep refining its policies and strategies to draw and maintain European foreign direct investment. One vital area to focus on is simplifying administrative procedures, a well-known obstacle for businesses. At the same time, investments in infrastructure to reduce logistics costs and upgrading the skills of the workforce are equally essential. This will help Vietnam stay competitive and maintain its growth trajectory,” he assessed.

He also underscored the importance of leveraging the EVFTA and the nation’s various bilateral and regional trade pacts, which are expected to play a key role in transforming the current economic recovery into long-term and balanced growth.