Business environment in Vietnam looking up: EuroCham

EuroCham’s Business Confidence Index (BCI) for Vietnam recovered to 45.1 in the third quarter of 2023, the first growth since Q1/2022.

The index, an indicator of the business sentiment among European companies operating in Vietnam, fell from 73 in Q1/2022 to 68.6 in Q2/2022, 62.2 in Q3/2022, 48 in Q4/2022, 48 in Q1/2023, and 43.5 in Q2/2023.

The latest recovery in Q3/2023, while it is still below the 50-point milestone for four quarters in a row, shows emerging positive economic momentum, EuroCham said.

With 41% of businesses expressing optimism regarding economic stabilization and improvement in Q3/2023, up from 30% in Q2/2023, sentiment has moved to a more positive outlook, EuroCham noted. Meanwhile, the ratio of firms that thought the economy will deteriorate in the next quarter dropped from 37% to 32%, further reinforced this sentiment, EuroCham added.

Regarding Vietnam’s foreign direct investment (FDI) outlook, the BCI showed that 63% of surveyed firms positioned Vietnam in their top 10 FDI destinations, 31% ranked Vietnam in the top three, and 16% viewed Vietnam as their foremost investment destination. In line with these figures, over half of the surveyed firms plan to increase their FDI in Vietnam by year-end.

However, challenges remain with 59% of firms saying administrative difficulties are the main problem. Other issues are uncertainties in rules and regulations, hurdles in permit acquisition, and strict visa and work permit requirements for foreigners.

To improve the FDI attractiveness, Vietnam should streamline its bureaucracy, according to 58% of survey respondents, enhance the regulatory environment (48%), upgrade transport infrastructure (33%), and ease visa and work permit requirements (22%).

Regarding the EU-Vietnam Free Trade Agreement (EVFTA), businesses said the pact has had a positive impact on Vietnam’s business landscape. Over 60% of firms called the deal beneficial, including tariff cuts, improved competitiveness, reduced trade barriers, strong partnerships with local firms, and better access to the Vietnamese market. However, there remain challenges of discrepancies in customs valuation, opaque and protracted customs clearance procedures, technical obstacles to trade, and others.

“It’s clear: Team Europe stands firmly behind Vietnam,” EuroCham chairman Gabor Fluit commented on the latest BCI. “Nearly one-third of our members ranking Vietnam as a top-three investment location sends a powerful message about our faith in this partnership,” he added.

“While we saw promising Q3 GDP and FDI growth, issues persist – especially with exports and real estate,” Fluit pointed out. “To progress, addressing administrative burdens, unclear regulations, and permitting hurdles is crucial. We remain committed to open dialogue to effectively tackle these issues together,” he said.