Bottlenecks in the property market
The 9th quarterly EuroCham Business Climate Index (BCI), conducted by a survey in October 2012, fell to a record low with only 45 points, a 3-point drop quarter-on-quarter.
EuroCham members participating in the survey, over 50 percent of which are active in the services industry, 30 percent in manufacturing and the rest in trading or other activities, have expressed increasing concern about their current business situation and outlook as well as the impact of increased taxes, fines and official scrutiny.
Compared to the last survey, there was a further drop in respondents assessing their current business situation as positive (‘good’ or ‘excellent’) from 30 percent to 26 percent. More than a third of businesses continued to have a negative view of their current situation.
Meanwhile, the neutral assessment of the current situation grew to 37 percent, up by 7 points compared to last quarter.
The business outlook also continued its negative trend, with 35 percent of respondents assessing their business outlook as ’not good’ or ’very poor’.
Additionally, this quarter saw a further decrease in businesses having a ‘good’ or ‘excellent’ outlook - down from 31 percent last quarter to 26 percent.
When asked about the macroeconomic outlook for Vietnam over the next 6 months, a staggering 72 percent of respondents think that they will see a further deterioration of an already difficult economic situation.
This is a rise by 12 points since last quarter and it shows that the measures taken to stabilize the economy do not ease the concern of the business community about the macroeconomic outlook.
The fact that only 28 percent think that the situation will stabilize and gradually improve is likely to be linked to the concerns about the banking situation.
Concerns about inflationary trend, taxation persist
Concerns about inflation remained high with 50 percent of companies expecting inflation to have a significant impact on their business in the medium-term.
Members were also asked to indicate what they think the rate of inflation will be an the average came to 5.63 percent, representing a slight drop from last quarter’s 5.82 percent, and considerably lower than the forecast a year ago, where the average inflation rate was predicted at 7.83 percent.
The current downturn in the economy impacts Vietnamese government tax revenues, which has resulted in cases of increased fines, auditing visits, customs duties in which 72 percent of respondents have experienced a form of increased scrutiny.
Some 10 percent of the respondents found that this threatens their business in Vietnam. Increased official scrutiny and fines have certainly played a role in terms of this quarter’s overall decline of the BCI and it is therefore of utmost importance that these issues are addressed.
When asked what aspects of the official scrutiny are of biggest concern to them, the most cited concerns were labor issues (39 percent), licensing issues and new interpretation of the tax law (both at 36 percent) and increased auditing visits (31 percent).
Upsides - investment plans
However, when asked about their investment plans for 2012, the percentage of respondents planning to increase their investments has grown.
Since last quarter there has been an increase of 7 points to 39 percent. Furthermore, there has been a reduction in the percentage of businesses aiming to reduce their investments ‘significantly’ in 2012 - only 13 percent - down from 20 percent last quarter.
This showed a change towards businesses’ plans to invest in Vietnam.
The number of companies that are looking to maintain their current level of investment remained relatively constant at 32 percent.
This development probably reflected the medium term optimism linked to the recent improvements in macroeconomic stability of Vietnam.
On the other hand, when asked about their expected number of orders and revenue in the medium-term, the answers were mixed.
At 44 percent the share of companies expected revenue to increase experienced a small drop, down 1 point as compared to last quarter, while a relatively consistent 20 percent of respondents expected revenue to remain the same in the medium term.
However, approximately a third still expected their orders to decline, much in line with last quarter’s survey and significantly higher than previous years, where the numbers have been much lower.
The respondents’ recruitment plans have improved, with 40 percent of respondents expecting to hire more staff in the medium-term and 33 percent expect to maintain the same level.
The percentage of businesses planning to reduce their staff in Vietnam slightly decreased, down by 3 points to 23 percent.
“During the past 12 months, EuroCham’s BCI has declined from 56 to 45 points - a drop of 11 points. This indicates a declining confidence in Vietnam as an investment destination for European business,” said EuroCham Chairman, Preben Hjortlund.
“We remain hopeful that recent developments such as the beginning of negotiations for the FTA between Vietnam and the EU will encourage Vietnam to improve its competitiveness and attractiveness and turn around the declining business climate,” he added.
