EuroCham Vietnam’s business confidence index falls, DPPA offers hope

The EuroCham’s Business Confidence Index (BCI) for Vietnam fell to 51.3 in the second quarter of 2024 from 52.8 in Q1/2024, despite the country’s strong economic growth of 6.93% in Q2/2024.

The decrease marked the end of three consecutive improvements in the index, which offers a nuanced perspective on the economic landscape for European enterprises in Vietnam, one of Southeast Asia’s most dynamic markets, the EuroCham stressed.

The 51.3 score is still above the mid-point (50) score and close to the 52-point mark for Q4/2019, prior to the Covid-19 pandemic.

The decline in the BCI underscored the necessity for ongoing policy adjustments to maintain momentum, the EuroCham added.

“Vietnam’s economic potential is undeniable, and the European business community remains confident in its long-term growth,” said Dominik Meichle, chairman of EuroCham Vietnam.

“While our survey points to areas for improvement, we believe that by working together to address administrative and regulatory hurdles, we can create a more efficient and attractive business environment that benefits both the European and Vietnamese business communities,” the chairman added.

Carbon neutrality progress is key to attracting quality European FDI

The latest BCI revealed a growing commitment to sustainability among European businesses in Vietnam, with 7% having already achieved carbon neutrality. An impressive 37% have set targets to reach this goal by or before 2050, while an even more ambitious 18% aim to achieve carbon neutrality by 2030.

However, there remain problems toward net-zero emissions, the survey showed. They include customer resistance to paying premium prices for sustainable products, inadequate government incentives and regulations to promote sustainability, limited access to clean energy sources and effective waste management infrastructure, financial constraints in implementing sustainable practices, lack of employee awareness and engagement with sustainability initiatives, and difficulty measuring emissions and ensuring supply chain compliance.

On a positive note, the recent issuance of the Direct Power Purchase Agreement (DPPA) decree offers a ray of hope, the EuroCham highlighted. Swift and successful implementation could address some of these challenges, particularly by improving access to clean energy sources and potentially providing better sustainability incentives, the business chamber expressed.

Challenges in visa, work permit, licensing

The survey also pointed out the strengths-resilience and weaknesses of the economy. Regarding current business conditions, a majority of 68% still maintain a neutral to positive outlook regarding their own business conditions, suggesting an overall sense of stability.

For immediate outlook, the overall sentiment towards Vietnam’s economic outlook in Q3/2024 is cautiously optimistic (45%), individual businesses are more hesitant about their own prospects for the quarter, with 45% remaining neutral and 23% expressing concerns.

About long-term outlook, the EuroCham hailed the robust long-term confidence, with nearly 70% of businesses expressing optimism about Vietnam’s economic growth over the next five years. This confidence is further reflected in the fact that a comparable percentage would recommend Vietnam as an investment destination.

To improve FDI into Vietnam, members of the EuroCham recommended that the country can streamline administrative and procedural processes, enhance clarity and precision in laws to reduce arbitrary interpretation, develop core infrastructure (roads, ports, bridges, and other), simplify visa and work permit procedures for foreign experts, and ensure political stability and security.

According to the EuroCham, a challenge is work permits and visas for foreigners. Despite the introduction of Decree 70/2023 issued in September 2023 to streamline work permit and visa procedures for foreign workers, only 3.3% of respondents report significant improvements. While half acknowledge some progress, a quarter indicate no change. Enhancing this process is crucial for attracting international talent and fostering knowledge exchange, the EuroCham stressed.

Another issue is the Personal Data Protection Decree. The recently implemented Personal Data Protection Decree, designed to safeguard personal information, has inadvertently caused uncertainty among businesses.

A quarter of survey respondents admit to not fully understanding the decree’s requirements, and only a third feel confident in their ability to comply. This highlights the need for clearer guidance and support from authorities to ensure a smooth transition and compliance.