The quarterly EuroCham Business Climate Index survey shows that business confidence and outlook among European businesses in Viet Nam fell for a fourth consecutive quarter to almost reach the "neutral" midpoint of 50.

EuroCham members who participated in the survey done earlier this month and released on Thursday remained cautious about their business outlook and current situation as well as Viet Nam's overall economic outlook.

The index dropped 11 points to 52.

Around half of the businesses that took part in the survey are active in the services industry, a third in manufacturing, and the rest in trading and other activities.

There was a 14 per cent drop since the last survey to 32 per cent in respondents assessing their current business situation as "good" or "excellent". It had been 64 per cent in the first quarter.

No respondents described their current situation as "excellent".

The shift was mainly towards a neutral assessment of the current situation, with a 7 per cent rise to 45 per cent.

The number of businesses with a negative view of their current situation rose from 16 per cent to 22 per cent.

There was a larger downward shift in companies' business outlook.

Only 27 per cent said the outlook was "good" or "excellent". This is a significant drop from the 42 per cent last quarter and a vast drop from the 72 per cent in the 1st quarter.

A neutral outlook again topped, with a rise from 37 per cent to 43 per cent.

Businesses with a negative outlook rose from 20 per cent last quarter to 27 per cent now.

When asked about their investment plans for 2011, respondents were more cautious than in previous surveys, with only 36 per cent looking to increase their investments in Viet Nam, a significant fall from 52 per cent last quarter. This showed a continuation of a trend of increasing caution.

Moreover, all 22 per cent were looking to reduce their overall investment in the country, up from 13 per cent last quarter and a mere 6 per cent at the start of 2011.

When asked about their expected number of orders and revenues in the medium term, the answers were mixed.

For the first time since the index was created, the majority of respondents – 36 per cent, up from 24 per cent – expected their revenues to remain the same.

A third expected a slight increase in the medium term, or a decrease of 10 per cent.

In line with this were the respondents' recruitment plans – 45 per cent expected to hire more staff in the medium term, 34 per cent expected to maintain the same level, and 15 per cent planned to cut back.

But companies seem to have been coping with the pressures of inflation, with only 48 per cent compared to 56 per cent expecting inflation to have a significant impact on their business.

Asked to forecast the rate of inflation this year, respondents came up with an average figure of 7.83 per cent.

Asked about the macro-economic outlook for Viet Nam over the next six months, two-thirds of respondents saw a further deterioration while the rest thought the situation would stabilise and gradually improve.

Clearly, the Government's measures to stabilise the economy have yet to ease business community's concerns about the economy.

Decree 46 will impact foreign businesses

Asked about Decree 46 on the recruitment and management of foreign employees in Viet Nam, 79 per cent said it would affect their business in Viet Nam, including 31 per cent who feared it would affect them "significantly".

The rest said it would have no effect on their business.

The decree mandates that to extend the work permit of a foreign employee, a company had to enter into an apprenticeship contract with a Vietnamese employee who would later replace the foreigner.

Asked for what jobs they hired foreigners in Viet Nam, 87 per cent replied it was mainly in leadership and managerial roles, while 46 per cent employed foreigners for their technical expertise, with the two overlapping in many instances.

EuroCham chairman Alain Cany said: "Over the last quarters, EuroCham's BCI has declined from 78 to 52 points, indicating a declining confidence in Viet Nam as an investment destination.

"Coupled with the 28 percent drop in FDI through the first nine months of 2011 and inflation rates of over 20 per cent, it is fair to say that European companies are increasingly concerned about the business and investment environment in Viet Nam."

EuroCham executive director Matthias Duhn added: "The further drop of EuroCham's BCI is caused by slow progress on many of the issues that were addressed in last year's Whitebook, coupled with some new issues that are eroding confidence in the business environment in Viet Nam.

"Macroeconomic troubles, high rates of inflation, lack of adequate infrastructure, and administrative burdens continue. At the same time, a number of new ‘market access' issues, such as restricting the import of goods into Viet Nam, price controls, and decreasing transparency have not contributed to a better perception of the business climate in Viet Nam."

VNS