Vietnam offers great investment opportunities, and European businesses are very excited about the country's prospects in the medium- to short-term, says Alain Cany, chairman of EuroCham Vietnam.
“Vietnam will certainly be in a better position in two or three years, demonstrating its place among the most exciting and dynamic business and investment destinations,” Cany said in a release from the chamber Monday.
European business confidence in Vietnam's business climate slipped further to 62.2 in the third quarter in the wake of a worsening global economic downturn but still remains strong, according to the release.
Although Vietnam's economy grew at a record 13.67 percent year-on-year in Q3, the EuroCham's Business Climate Index (BCI) declined for the second consecutive quarter, dropping 6.4 index points from Q2 and 10.8 points from Q1.
“This comes at a time when global economic conditions remain unstable due to the escalating conflict in Ukraine, persistent inflationary pressures, a labour shortage worldwide, and stagnant global growth,” the release notes.
In the midst of the current global economic uncertainty, the BCI is still 10.2 points higher than its pre-pandemic level of 52.0 in Q4/2019, and 1.2 points higher than Q4/2020, when Vietnam was easing its pandemic-related restrictions.
The latest BCI sent out questions to 2,259 business leaders of over 1,000 members of the EuroCham in Vietnam and 231 delivered their answers, or 10.2%.
The BCI’s results also showed a decline in optimism among European business stakeholders. Approximately 42% of participants anticipate that the economy will stabilise or improve in Q4/2022.
This is an 18-point decrease from the previous quarter, when 60% held this view. Similarly, the percentage of those anticipating economic deterioration increased by seven points to 19%.
When asked whether they were optimistic about the prospects for their own businesses during Q4, 45% responded positively, down only four points from last quarter. Furthermore, respondents expect investment planning, orders, and revenues to remain relatively stable compared with the previous quarter. The outlook here appears to be more optimistic than that for the economy as a whole.
As for foreign direct investment, 42% anticipate that their firm will increase FDI flows to Vietnam by the end of 2022. The respondents indicated that Vietnam could bolster these FDI levels by reducing administrative difficulties (68%), improving infrastructure (53%), developing human resource capacity (39%), and reducing visa barriers for foreign experts (39%).
While only 2% of BCI participants reported that they have relocated a significant portion of their operations from China to Vietnam, this suggests that there is still considerable room for growth. In the event that these aforementioned obstacles are resolved, Vietnam would be well positioned to attract more foreign firms relocating from China.
Despite a quarter of respondents identifying green growth as a key factor in attracting FDI to Vietnam, the number of respondents who rated Vietnam's green potential positively decreased from 44% to 32%.
To accelerate green development, participants in the BCI recommended that Vietnam improve its legal framework (92%), its infrastructure (87%), and its investment incentives (86%).
As August 2022 marks the two-year anniversary of the implementation of the EU-Vietnam Free Trade Agreement (EVFTA), the perception of its benefits has declined by four percentage points in comparison to the previous quarter.
Administrative procedures were cited as the primary reason for this (38%), followed by a lack of understanding of the agreement (18%), and technical barriers to trade (16%).
“It is true that we are less optimistic now than we were at the beginning of 2022 due to external factors slowing global growth. The fourth quarter will also likely be less positive than the second or third quarters of the year. Still, these BCI results are encouraging,” said Cany.