Third quarter business confidence index improves slightly

While this increase signals stability, it should be noted that the BCI will remain below average through Q4 2022. Additionally, more than a third of businesses still anticipate underperformance, underscoring the cautious outlook amid continued market weakness.

European business confidence on the rise

The BCI is a quarterly survey that provides an overview of European investor sentiment in Vietnam. Conducted since 2011, the BCI surveys over 1,400 EuroCham members across a wide range of sectors, providing a time-lapse view of the ever-evolving dynamics of this vibrant Southeast Asian market.

The final quarter of 2023 saw a marked increase in business satisfaction. Business confidence in their current situation increased from 24% in Q3 to 32% in Q4. The outlook for Q1 2024 was also positive, with 29% of businesses rating their outlook as “excellent” or “good”. In a further sign that concerns are easing, the level of extreme anxiety among businesses fell from 9% to 5%.

Vietnam’s business sector is poised for growth. The survey found that 31% of companies plan to expand their workforce in Q1 2024 and 34% intend to increase their investment. These statistics signal strong growth momentum and opportunities for Vietnam in 2024.

“There is definitely a positive trend. Although we are still a long way from a full recovery, businesses are feeling more optimistic,” said EuroCham Chairman Gabor Fluit, commenting on the BCI for Q4. “The European business community believes that we have passed through what was arguably the most challenging and difficult economic period,” he added.

Vietnam - the rising star of global investment

In Q4 2023, Vietnam’s position as an investment destination increased significantly. An impressive 62% of respondents ranked Vietnam among the top 10 global investment destinations, with 17% placing Vietnam in the top position. This is evidenced by the fact that 53% of respondents predicted that foreign direct investment into Vietnam would increase by the end of Q4.

The survey also highlighted Vietnam’s strategic position in the ASEAN region. While only a small proportion (2%) considered Vietnam an “industry leader”, a remarkable 29% ranked Vietnam among the “top competitors” in ASEAN. The majority (45%) considered Vietnam a strong competitor, although some challenges remain. This view underscores Vietnam’s growing influence and potential for further growth in the ASEAN economic landscape.

In terms of the workforce, the statistics show a mixed picture: 32% of respondents said that the workforce is quite well-qualified, but still needs to improve skills and expertise. Similarly, 24% of respondents were satisfied with the availability of the workforce, but sometimes this availability does not fully match the specific requirements or scale desired by international businesses.

Through the survey, EuroCham received valuable insights into the regulatory challenges facing the business community in Vietnam. 52% of respondents identified “administrative burden and inefficiency” as one of the top three barriers, highlighting the impact of bureaucracy on business operations. In addition, 34% of businesses highlighted “unclear and differently interpreted rules and regulations” as a major challenge, emphasizing the need for clarity and consistency in the legal framework.

Securing the necessary permits and approvals was a concern for 22% of respondents, citing procedural barriers to doing business. Additionally, 19% of companies found “visa regulations, work permits and labor regulations for foreigners” to be a challenge…

In terms of solutions, the survey identified key areas for improvement to increase Vietnam’s attractiveness to foreign direct investment. Fifty-four percent of respondents called for “streamlining the administrative apparatus,” suggesting that reducing processes could significantly improve the business environment. In addition, 45 percent highlighted the importance of “strengthening the legal system and regulatory environment,” while 30 percent considered “developing infrastructure, including roads, ports, and bridges,” as essential to attracting FDI.

EVFTA: Achievements and challenges in 2023

In 2023, the potential of the Vietnam - EU Free Trade Agreement (EVFTA) is increasingly attracting the attention of businesses. By the fourth quarter of 2023, 27% of companies reported receiving “moderate” to “significant” benefits from the agreement, a significant increase from 18% in the second quarter. The most important advantages of the EVFTA are “reducing or eliminating tariffs” (42%), “increasing market access to Vietnam” (27%) and “improving competitiveness in Vietnam” (25%), indicating a significant economic impact.

However, the survey also revealed challenges in fully exploiting the potential of the EVFTA. Some 13% of respondents cited “uncertainty or lack of understanding about the agreement” as a major obstacle, suggesting the need for clearer information sharing about the terms of the agreement. Nine% cited “unclear and lengthy customs clearance procedures” as a barrier, suggesting that such inefficiencies could undermine the benefits of the trade agreement.

“Vietnam’s long-term economic trajectory shows a promising growth path. In the short and medium term, Vietnam is demonstrating its trademark ability to provide a stable business environment even in difficult times, as we can see from the 5th consecutive quarter of the measure’s results in the 40-50 range. Stability and potential for improvement in 2024 will underpin continued foreign direct investment in Vietnam,” said Decision Lab Director Thue Quist Thomasen.