EuroCham Vietnam’s Business Confidence Index for Q2 2024

The European Chamber of Commerce in Vietnam (EuroCham) has published its Q2 2024 Business Confidence Index (BCI) report. This report shows a positive outlook among European businesses towards Vietnam’s market, though it also underscores the necessity for further policy and regulatory enhancements to improve the business environment.

Overview of the BCI Survey

The BCI survey is distributed quarterly to leaders of over 1,400 EuroCham member companies. For Q2 2024, 212 business leaders responded, yielding a response rate of 9.5 percent. Since its inception in 2011, the BCI report has been a crucial tool for tracking the evolving business climate in Vietnam, one of Southeast Asia's most dynamic markets. EuroCham leverages these insights to facilitate dialogue with Vietnamese officials and EU policymakers, aiming to identify growth opportunities and bolster Europe-Vietnam business relations.

Business Sentiment in Vietnam

Current Sentiment

The BCI index saw a slight decline to 51.3 in Q2 from 52.8 in Q1 2024. Despite this drop, sentiment remains generally positive, with 68 percent of respondents holding a neutral to positive view of current business conditions in Vietnam. However, there is an increase in concern about potential economic decline, with 13 percent of respondents fearing deterioration in the next three months, up from 10 percent in the previous quarter.

This modest decline in confidence follows several quarters of upward trends, suggesting a possible slowdown that warrants a more cautious business approach in future quarters. Businesses also show hesitation about their short-term prospects, with 45 percent remaining neutral and 23 percent expressing concerns.

The BCI findings indicate that Vietnam’s economic recovery is still tentative. While there are improvements in consumer spending and business activity, the recovery is uneven. This has led businesses to adopt a cautious stance, influenced by mixed signals and ongoing uncertainties.

Short-Term Outlook for Q3 2024

Thue Quist Thomasen, CEO of Decision Lab, presented a detailed view of Vietnam’s business landscape, noting that firms are slightly more cautious about the short-term business conditions. This calls for timely solutions to maintain the previous positive trend.

Key Findings

• Procedural Delays: Businesses face delays at the central government level and in acquiring local permits.

• Optimistic Outlook: 31 percent of business leaders are optimistic about the next three months, driven by strong developments in private sectors such as retail and private hospitals.

• Neutral Perspective: 45 percent of respondents cited regulatory challenges as their primary concern, seeking clear and stable policies for long-term investments.

• Negative Outlook: 23 percent of respondents have a negative outlook for the next quarter, citing cash shortages, increased borrowing, and insufficient improvements in tax authority and central bank regulations.

While there is optimism in specific sectors, the overall business environment is marked by caution regarding regulatory stability and procedural efficiency.

Long-Term Outlook

Despite short-term caution, the robust GDP growth of 6.42 percent in H1 2024, along with nearly 70 percent expressing long-term optimism, reflects an underlying confidence in Vietnam’s economic future. Dominik Meichle, Chairman of EuroCham Vietnam, highlighted the need for mutual efforts to address administrative and regulatory challenges to create a more efficient business environment.

Vietnam as an Investment Destination

Although enthusiasm has slightly tempered, Vietnam remains a preferred investment destination, with nearly 70 percent of business leaders endorsing it as their top choice. This confidence continues to attract new foreign investments.

Challenges for European Businesses

The BCI survey points out persistent regulatory challenges that hinder growth and investment for European businesses in Vietnam, including:

• Ambiguous regulations and varying interpretations

• Burdensome administrative processes

• Difficulties in obtaining licenses and permits

• Challenges in securing visas and work permits for foreign workers

• Inconsistent approvals across government levels

Specific areas with pronounced regulatory hurdles include work permits and visas, as well as the recently implemented Personal Data Protection Decree (PDPD). Businesses have reported a need for clearer guidance and support from authorities to navigate these regulations effectively.

Solutions for Improvement

To attract more FDI and promote economic growth, businesses recommend:

• Streamlining administrative and procedural processes

• Clarifying laws to reduce arbitrary interpretations

• Developing essential infrastructure

• Simplifying visa and work permit procedures

• Ensuring political stability and security

EVFTA Implementation

Since its implementation on August 1, 2020, the EU-Vietnam Free Trade Agreement (EVFTA) has boosted EU-Vietnam trade relations. More businesses are now confident in its benefits, with an increase in those experiencing moderate to significant advantages from the agreement. However, there are areas needing improvement, such as regulatory compliance, international standards recognition, customs valuation, and customs clearance procedures.

Commitment to Sustainability

European businesses in Vietnam are increasingly committed to sustainability, with 7 percent having achieved carbon neutrality and more setting targets to reach this goal. Despite obstacles like customer resistance, inadequate incentives, and financial constraints, recent developments like the Direct Power Purchase Agreement (DPPA) offer hope for improving access to clean energy and sustainability incentives. EuroCham Vietnam is organizing the Green Economy Forum & Exhibition (GEFE) 2024 to promote sustainable practices and equip businesses with necessary tools and connections.

Conclusion

The Q2 2024 BCI report provides a snapshot of European business sentiment in Vietnam, showing overall optimism tempered by caution. As businesses look to Q3 2024 and beyond, they should monitor the implementation of EVFTA, progress towards sustainability, market conditions, and regulatory changes to support continued growth.