Photo: Viet Tuan.
▪ THU TRANG11:23 (GMT+7) - Friday, March 23, 2012
Business confidence and outlook among foreign business in Vietnam has stabilised and concerns about the existing business situation appear to have eased slightly
Business confidence and outlook among foreign business in Vietnam has stabilised and concerns about the existing business situation appear to have eased slightly.
The business environment in Vietnam during 2011 was challenging in many sectors because of the macro-economic situation, primarily high inflation and high interest rates, which had an adverse impact on many business. It was not all doom and gloom, however, and many export sectors recorded significant growth both in volume and value that helped to reduce the country's trade deficit.
Positive outlook
According to a recent report from HSBC, Vietnam's growth momentum has been impressive given fourth quarter GDP growth of 6.1 per cent year-on-year due to robust exports and higher domestic demand. GDP growth was 5.9 per cent for 2011 as a whole and HSBC expects it to be 5.7 per cent in 2012 while the government's target is 6 to 6.5 per cent.
Early this year EuroCham released its Business Climate Index Vietnam, conducted in January, which increased four points to 56 with 40 per cent of 240 respondents being active in the services industry, about a quarter in each manufacturing and trading, and the remainder in other activities.
Compared to its previous survey, there was little change in respondents assessing their current business situation as "neutral", down slightly from the 45 per cent in the last survey. A "good" or "excellent" view of their current business situation was held by 36 per cent or respondents, up slightly from 32 per cent last quarter but still much lower than the 64 per cent who were content with their current business situation this time last year. The number of businesses holding a negative view on their current situation has remained nearly unchanged since last quarter, but at 26 per cent it is 14 per cent points higher than a year ago.
Over recent years Vietnam has been selected to be part of the focus of many MNCs because of some key factors.
First of all, it is one of the fastest growing economies in Southeast Asia, with an average of 8 per cent over the last several years.
Secondly, it is currently undergoing rising industrialisation, inspired by huge investment flows into building infrastructure and the modernisation process in its cities.
Thirdly, having rich natural resources, especially oil and gas, as well as a young workforce, there will be a pressing need for energy and energy efficiency technologies. Additionally, the policies of economic reform since 1986 have tremendously changed the business environment, creating more opportunities for private economic sectors as well as supporting foreign investment.
The commitment of the government to restructuring the banking sector and SOEs will definitely have a positive impact on the business environment from 2012 onwards because it will create a level playing field in many sectors.
The Year of the Dragon also brings slight optimism in business outlook, with 39 per cent believing "good" or "excellent". This is a 12 per cent increase over last quarter, but is put into perspective by the 72 per cent of respondents that had a positive business outlook this time last year. "EuroCham remains bullish for Vietnam and believes that the outlook for the medium and long term is excellent," said EuroCham Chairman Alain Cany. "We believe that if Vietnam successfully tackles the short-term issues and concentrates on the big topics, it will be successful in growing into an industrialised country by 2020."
Challenges remain
The business community believed it was a combination of slow progress on many of last year's issues coupled with some new issues that are eroding confidence in Vietnam's business environment. For example, high rates of inflation coupled with difficult access to credit, lack of adequate infrastructure and administrative burdens continue.
What is worrying is Vietnam's struggle with maintaining price stability this year. The government has taken much-needed steps to tighten fiscal and monetary policy. While potential electricity hikes and regional food supply shocks will likely stoke inflationary pressures, experts at HSBC expect inflation to reach single digits by the end of 2012 due to a high base effect. "As such, the State Bank of Vietnam is likely to decrease the interest rate in the first quarter 2012 from 14 per cent to 13 per cent and thereafter to 9 per cent by end of 2012," the HSBC report said.
Meanwhile, 53 per cent of European companies in Vietnam expect inflation to have a significant impact on their business and 36 per cent expect to be impacted in some way. Eight per cent stated that inflation was actually threatening their business in the country.
According to Mr Ken Atkinson, Managing Partner at Grant Thornton Vietnam, the most important factors that will help improve the business environment are a continued fall in inflation followed by a fall in domestic interest rates and exchange rate stability. "In addition, there needs to be an improvement in transparency, a reduction in administrative bureaucracy and continued investment in infrastructure with private sector participation through PPP," he added.
Furthermore, corruption is still affecting many investors in Vietnam. When asked whether corruption had ultimately reduced or delayed their investment in Vietnam, opinions were split roughly in thirds. About 39 per cent stated a slight impact, and 25 per cent said corruption had not affected them at all, while 34 per cent said that corruption had "significantly" reduced or delayed their investment in Vietnam. This is an increase from 28 per cent last quarter and indicates that corruption is still a serious problem and features prominently in investors' considerations about the country.
Mr Cany said that the slight increase in the EuroCham Business Climate Index to 56 points shows a halt in the downward trend in business confidence he saw in 2011. But business confidence is still far below 2010's level. "This shows that uncertainty among investors remains," he said. "Key structural issues have not been resolved, such as the equitisation of State-owned enterprises and stabilising the macroeconomic environment, to give two examples."
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