Vietnam climbed 12 places from last year in the Economist Intelligence Unit's (EIU) latest business environment rankings, the strongest growth globally. However, another high-profile report indicated low business confidence in the country.
According to the EIU's latest ranking released on Thursday, other countries that recorded impressive growth included Thailand, rising 10 places; Belgium, up seven places; and Sweden, India and Costa Rice all climbing six places.
The worst performers were China, down 11; Bahrain and Chile, down nine; and Slovakia, down seven, according to the London-based organization.
The EIU attributed the development of Vietnam and Thailand to their favorable policies for foreign investors and gains from firms pursuing a “China plus one” policy. The policy is a strategy in which companies avoid investing only in China and diversify their businesses to other destinations.
Vietnam’s score also rose thanks to its improving economic outlook, the EIU added.
China was the “biggest loser” in this edition of the ranking due to regulatory changes stemming from the statist direction of economic policy and rising local costs weighing on its business environment. China is now below Malaysia, Thailand, Vietnam, and India.
Singapore scored highest on the ranking with 8.7 out of 10, followed by Canada with 8.45, Denmark with 8.45, and the US with 8.37.
Business confidence remains low
However, another high-profile report showed the business confidence in Vietnam has been low. The annual Provincial Competitiveness Index (PCI) 2022, released by the Vietnam Chamber of Commerce and Industry (VCCI) and USAID early last week, shows that only 35% of surveyed private domestic businesses said they would expand their operations in the next two years.
The rate of firms seeking to reduce or close their businesses remained at 10.7%, a high level since the beginning of the Covid-19 pandemic.
Regarding business efficiency, only 42.6% of firms reported profits last year, much lower than 63% in 2019. The figure for firms reporting losses was 35.3%, versus 23.4% in 2019. The two results indicate private firms in the country have experienced hardships.
Only 5.1% of companies added more capital and 4.9% expanded their workforce last year, lower than 8.3% and 11.5% in 2019, respectively, according to PCI 2022. The average capital of a typical private company was VND15.6 billion ($665,100) with 21 employees in 2022, lower than VND22.3 billion ($950,800) and 23 staff in 2019.
For foreign-direct-investment (FDI) firms, PCI 2022 pointed out that only 33% plan to enlarge their operations, worse than 47.7% in 2021. These figures never fell below 45% between 2014 and 2019.
According to the Business Climate Index (BCI) published on April 11 by EuroCham, European business leaders remain prudent but have seen signs of improvement in Vietnam's economy. 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.
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.