European businesses still cautious over Vietnam investment: EuroCham

European business leaders remain prudent but have seen signs of improvement in Vietnam's economy, according to the Business Climate Index (BCI) published on Tuesday by EuroCham.

The quarterly report confirmed that the Southeast Asian country, as a global manufacturing hub, remained a top destination for foreign investors, but weaker global demand and domestic political and regulatory uncertainty have kept business managers cautious.

"To strengthen Vietnam's appeal as a dynamic investment locale, participants in the BCI reinforced the need for improvements in political stability, regulatory frameworks, and tax and tariff regimes," EuroCham said.

The first-quarter study shows that 36% of those surveyed ranked Vietnam either first, within their top three, or within their top five investment destinations globally.

Despite this, foreign businesses in Vietnam continue to grapple with regulatory opacity, administrative inefficiencies, and visa and work permit issues, with 51%, 44%, and 31% of surveyed firms, respectively.

There has been an observable upward trend in the number of respondents pointing out inadequacies in anti-corruption legislation, with 25%, up from 19% from Q4/2022.

To strengthen Vietnam's appeal as a dynamic investment locale, participants in the BCI reinforced the need for improvements in political stability, regulatory frameworks, and tax and tariff regimes. These measures would go a long way in addressing the concerns of foreign businesses and bolstering investor confidence in the country's economic prospects.

Tourism has emerged as a top sector poised for growth, with 38% of respondents, followed by food and beverage with 21% and renewable energy with 21%.

The BCI also highlights the importance of talent development programs in Vietnam. Though the country has a rich pool of human resources, only one-third of surveyed businesses expressed satisfaction with the availability and quality of Vietnamese clients.

The index, which indicates the sentiment of the European business and investment community in Vietnam with feedback from 1,300 EuroCham members, remained steady at 48 in Q1/2023, unchanged from Q4/2023.

"Though it remains at the same level it registered as 2022 drew to a close, there are promising indications that European business stakeholders are witnessing a positive shift in their economic outlook," the release noted.

The number of respondents who are sanguine about the nation's economy has risen by eight points in Q2/2023 from Q1/2023, signaling a growing faith in its prospects.

Additionally, the number of individuals expecting a downturn in the economy decreased by 6%, while the number of those forecasting an upturn in revenue and orders increased by 7%.