European business stakeholders' perception of Vietnam's business climate fell to 48.0 in the fourth quarter of 2022, according to the Business Climate Index (BCI) published by the European Chamber of Commerce in Vietnam (EuroCham) and produced by YouGov Decision Lab. This was a drop of 14.2 points compared to three months ago and 25 points from the first quarter of the year.
Though Vietnam's economy grew by 5.92 percent in the fourth quarter of 2022 year-over-year and 8.02 percent for the whole year, this data comes amid continued global economic volatility resulting from a perfect storm of factors including a slowdown in global growth, interest rate hikes, sustained inflation and bruised consumer confidence.
The BCI is the leading indicator of the European business and investment community in Vietnam. To better understand the Vietnamese market, EuroCham invites its 1,300 members, who represent virtually all sectors of the Vietnamese economy, to provide quarterly feedback on Vietnam's business environment and forecasts for their own businesses in Vietnam.
With only 27 percent of respondents anticipating economic stabilisation or improvement in the first quarter of 2023, the BCI results also suggest a growing sense of pessimism. As compared to projections for the fourth quarter of 2022, when 42 percent shared this sentiment, this is a 15-point decline. Over the past quarter, the number of people who anticipated an economic downturn also doubled.
Vietnam as a Global Investment Destination
41 percent of respondents stated their company is shifting operations from China to Vietnam, up from 13 percent in the third quarter. Furthermore, approximately 35 percent of respondents ranked Vietnam among the top five global investment destinations for their company, with 12 percent stating that Vietnam was their firm's top investment site internationally.
FDI Attraction and Retention
The three most significant regulatory barriers to foreign companies operating in Vietnam were identified as a lack of clarity regarding rules and regulations (51 percent), administrative issues (41 percent), as well as visa and work permit difficulties (30 percent).
In spite of these difficulties, 58 percent of BCI respondents were satisfied with the attention policymakers pay to business needs when setting relevant policies.
In terms of what Vietnam should do to improve its FDI attraction prowess, reducing administrative difficulties (70 percent) retained the top spot. This has been the case since this question was first raised with BCI respondents in the second quarter of 2022. Meanwhile, the issue of reducing visa difficulties for foreign experts has become increasingly pertinent, increasing 8 points from the third quarter to the fourth.
Commentary on the Q4 2022 Business Climate Index
Commenting on the BCI, EuroCham Chairman Alain Cany said:
“Things were definitely less positive in the fourth quarter of 2022 than they were earlier in the year.”
“Although the situation is very likely to continue in this direction in 2023, this shouldn't be viewed as a cause for concern. In fact, Vietnam's economic opportunities continue to exceed those of its regional and international peers. This is evident from the fact that so many of EuroCham's members consider Vietnam central to their global investment strategies.”
“It is also encouraging to see that foreign direct investment from Europe and around the world remains high and continues to grow, especially in Vietnam's green industries and manufacturing. It is clear that, with this FDI, Vietnam's strong economic fundamentals, and its commitment to sustainability, the country is still among the top investment destinations in the world. As a result, the European business community remains confident in the Vietnamese market."
CEO of Decision Lab Thue Quist Thomasen added:
“Q4 2022 shows an acceleration of the decline that started in Q2, when global indicators of volatility, inflation and slowing growth began to have an impact on the sentiment in Vietnam. Q4 has seen domestic volatility in banking and real-estate sectors especially and this may have affected the sentiment of foreign investors to the extent where they are now slightly pessimistic about the future economic environment. Not all sectors share this sentiment though and sectors directly relying on local consumption are generally more positive in their outlook.”