Members of EuroCham Concerned about their Business in Vietnam

According to a press release put out by EuroCham in Vietnam, the results of the 8th quarterly Eurocham Business Climate Index (BCI) survey, conducted in July 2012 and released Thursday 2nd August, 2012, shows that business confidence and outlook among European businesses in Vietnam has fallen below the “neutral” index midpoint of 50 for the first time. EuroCham members that participated in the survey expressed an increasing concern about their current business situation and outlook as well as the overall macroeconomic outlook in Vietnam.

Danish EuroCham Chairman, Preben Hjortlund commented on the survey.

“During 2012, EuroCham’s BCI has declined from 56 to 48 points, indicating a declining confidence in Vietnam as an investment destination. For the first time since we started this survey in the 3rd Quarter 2010 the index has dropped below the mid-point of 50 pointing towards an overall negative business sentiment! It appears that businesses are losing their patience and this further underlines the urgency with wich Vietnam needs to improve its competitiveness and attractiveness as a place to do business.”

EuroCham Executive Director, Pail Jewell added that “The further drop of EuroCham’s BCI is caused by slow progess on many of the issues that were addressed in the last year’s Whitebook. Despite some progress on inflation, there is a torrent of new ongoing issues that are eroding confidence in the business environment in Vietnam: Macroeconomic troubles, lack of adequate infrastructure and administrative burdens continue.”

The EuroCham Business Climate Index dropped 5 points further to 48.

38% of the businesses that participated in the survey are active in the services industry, about 30% in manufacturing and the rest in trading or other activities.

Unease about current business situation

Compared to our last survey, there was a 7% drop in respondents assessing their current business situation as ‘good’ from 34% to 29%, down from 43% one year ago. Only one percent of respondents described their current situation as ‘excellent’. The neutral assessment of the current situation remained constant at around 30%. But worryingly, there was an increase in the number of businesses viewing their current business situation ‘very poor’ to 10%. A total of 39% have a negative view of their current situation.

Mixed attitude towards investment plans

When asked about their investment plans for 2012, Very Poor respondents are roughly split in thirds about whether to increase their investment, maintain the same level, or reduce their investment in Vietnam. Only 32% of respondents were looking to increase their investment in the country. That is a slight fall from 36% in the last survey and a plunge from the 52% that were planning to do so one year ago. A staggering 33% of businesses in this survey are planning to reduce their investments with 20% of them stating that they will ‘significantly reduce’ their investments in Vietnam this year. In EuroCham’s survey one year ago, only 4% of respondents anticipated a significant reduction of their investment in Vietnam. This shows a continuation of the trend that businesses are getting more cautious about investing and some are starting to plan a reduction of their activities in Vietnam. The number of companies that are looking to maintain their current level of investment slightly dropped, but remained relatively constant at 31%.

Anxiety and confusion about new Labour Code

The new Labour Code coming into effect on the 1st May 2013 is causing uncertainty and concern among European businesses in Vietnam. The vast majority of 42% expected the new Labour Code to have a negative effect on their business. 28% stated they were unsure what the new legislation would entail, hinting at a lack of information available about the new legislation and what exactly it will mean for day-to-day business. 5% thought the new Labour Code will positively affect their business.

73% of companies concerned about tighter restrictions on foreign workers

When asked what aspects of the new Labour Code are the biggest concern to them, the most cited concern was tighter restrictions on foreign workers (73%) followed by an increase in maternity leave (46%) and new overtime work limitations (34%). EuroCham will continue recommending that employers should be allowed to select the right candidate based on their own discretion and internal processes.

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