VietNamNet Bridge – Business confidence and outlook among European businesses in Viet Nam is improving slightly, the quarterly EuroCham Business Climate Index Survey done last month shows.

Workers at the French wholly invested FLD company in Suoi Dau Industrial Zone, Khanh Hoa Province. Confidence among European firms in Viet Nam is improving.

The index has risen from a recent record low of 45 points to 48, but remains below the halfway line, and EuroCham members participating in the survey continued to express general concern about their current business situation and outlook as well as the impact of increased taxes, fines, and official scrutiny.

Slightly less than half of the businesses that participated are in the services industry, a quarter in manufacturing, and the rest in trading and other activities.

There was a relatively large increase — from 26 per cent to 40 per cent — in respondents assessing their current business situation as positive. Respondents holding a neutral view remained stable at 36 per cent.

The increase was possibly linked to improved business during the Tet season.

The business outlook also improved slightly to 30 per cent while those reporting a neutral view remained stable at 42 per cent.

Investment positive

Reported investment plans however seem to be stabilising. While the ratio of companies intending to significantly increase investment was down from 11 to 7 per cent, those intending to cut investments also fell from 27 to 24 per cent.

A majority of companies — 73 per cent —either expected to keep their investment at similar levels to 2012 or increase it slightly, indicating a continued faith in Viet Nam's medium-term future.

Hopes were also up with regard to number of orders and revenues in the medium term.

While the proportion of companies expecting revenues to increase remained constant at 45 per cent, those expecting a drop in orders fell from 32 to 23 per cent, a significant improvement.

But recruitment plans moved in the opposite direction, with 68 per cent expecting to either maintain or decrease headcount, compared with only 56 per cent in the last quarter.

Just 29 per cent expected to increase headcount compared with 40 per cent in the last survey.

This seemed to dovetail with other surveys and reports that said companies are responding to the recent downturn by looking for efficiencies and keeping their fixed costs as low as possible in an uncertain environment.

Inflation fears ease

Concerns about inflation declined slightly though still 45 per cent of companies expected inflation to have a significant impact on their business in the medium term.

Members were also asked to predict the inflation rate, and the average came to 5.12 per cent. This was significantly less than a year ago when the rate predicted was 7.83 per cent.

Respondents' appreciation of the macroeconomic situation also improved. While in the last quarter a massive 72 per cent expected a further deterioration in conditions, the number fell to 57 per cent his time.

But only 43 per cent expected stabilisation and improvement.

Asked what aspects of the official scrutiny were of biggest concern to them, the most cited in the past were labour issues.

But that has been overtaken by new interpretations of tax laws and auditing visits as the major worries, with fully 85 per cent of respondents citing tax-related areas as being of concern to them.

There have been increased fines, auditing visits, and customs duties.

A similar number (70 per cent) of respondents reported experiences of increased scrutiny.

EuroCham chairman Preben Hjortlund said: "It is encouraging to see EuroCham's BCI increase slightly. This is welcome news and reflects a perceived stabilisation in the macroeconomic situation.

"However we must remember that the index is still on the wrong side of 50 and is well down on the 79 level achieved only two years ago.

"We need now to see continued efforts by the Government to improve the underlying structural problems of the economy. It is only solutions to these difficult structural issues that will result in a return to the optimism of the past."

EuroCham executive director Paul Jewell said: "In EuroCham's recent white book we have analysed, suggested, and prioritised solutions to the structural problems in Viet Nam.

Source: VNS