Vietnam’s Business Climate Stabilizing: EuroCham Q4 Survey

January 9, 2024 Posted by Mark Barnes Written by Dezan Shira and Associates Reading Time: 3 minutes

EuroCham Vietnam’s Business Confidence Index for the fourth quarter of 2023 has been released. Here’s what it reveals about the current business climate in Vietnam for firms doing business with Europe.

EuroCham’s Business Confidence Index survey has recorded marginal growth in the fourth quarter of 2023, reaching 46.3 points up from 45.1 points in Q3. This is still below its post-COVD peak of 73 points in the first quarter of 2022, however, it does suggest that the environment may have stabilized somewhat.

That said, the report also reveals a slight dip in confidence with 39 percent of respondents agreeing with the statement that the ‘economy is more likely to stabilize and improve next quarter’. This was down from 41 percent in Q3.

Conversely, only 18 percent of respondents said they believed the economy was more likely to deteriorate next quarter, whereas in Q3 that figure had been 32 percent.

Furthermore, the index recorded that optimism among respondents also improved in Q4.

A total of 32 percent of those surveyed said that the current business situation of their enterprise was either good or excellent. This was up from 24 percent in the quarter before. Similarly, 39 percent said the situation of their business was not good or very poor, down from 41 percent.

As for headcount planning, the survey found that 22 percent of businesses foresaw a moderate to significant increase in their workforce in the first quarter of 2024. This was down from 27 percent the quarter before. Likewise, whereas in Q3 18 percent of respondents had said they were looking at a moderate to significant reduction in their workforce, in Q4 that number increased three percentage points to 21 percent.

In orders and revenue, it was a similar story. In the third quarter of 2023, a moderate to significant increase in revenue and orders was foreseen for 41 percent of businesses, in Q4 2023, that number had fallen to just 39 percent.

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Notably, this is in line with the increase in consumer spending in Western markets in anticipation of the Christmas and New Year holiday period, and the subsequent slowdown afterward.

In addition, firms surveyed also showed an increased interest in increasing their investment in Vietnam.

In the third quarter of 2023, 47 percent of respondents had said they expected to see their firm’s investment in Vietnam increase. In Q4, however, it was 53 percent of respondents. Furthermore, the percentage of firms that had said they did not see their investment increasing at all dropped from 48 percent in Q3 to 33 percent in the fourth quarter.

That said, though improvements were recorded, the three biggest obstacles to doing business in Vietnam remained the same. These were: administrative burdens and bureaucratic inefficiencies, rules and regulations that are unclear and subject to varying interpretations, and issues obtaining the necessary licenses, permits, and approvals. These three factors were listed as significant obstacles for 52, 34, and 22 percent of respondents respectively.

On that note, the survey also found that most firms thought that to make Vietnam more attractive to foreign investors, it needed more administrative and bureaucratic streamlining, a stronger legal system and enhanced regulatory environment, and core infrastructure development including roads, ports, and bridges. These three criteria were listed among the top responses for 54, 45, and 30 percent of respondents, respectively.

The survey also found an increase in the number of firms benefiting from the EU-Vietnam Free Trade Agreement (EVFTA). In the second quarter of the year, the survey had recorded 31 percent of respondents as seeing no benefits from the landmark agreement, but in the fourth quarter that number had dropped to just 23 percent. Moreover, over the same period, the percentage of firms that said they were benefitting significantly from the agreement jumped from 6 to 9 percent.

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These benefits, EuroCham found, were mostly realized in tariff reductions, increased market access, and improved competitiveness. These three responses were most popular among 42, 27, and 25 percent of respondents, respectively.

There was also a slight difference in sectors benefiting from the EVFTA. Whereas at least 75 percent of manufacturing firms said they had at least marginally benefitted from the agreement, just 71 percent of businesses in the service sector said the same.

EuroCham’s Business Confidence Index is completed quarterly and in Q4, 2023 was drawn from 193 responses.

European firms looking to capitalize on this improved business environment should contact the business advisory experts at Dezan Shira and Associates.

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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at vietnam@dezshira.com or visit us at www.dezshira.com