The quarterly Business Confidence Index (BCI) recently released by the European Chamber of Commerce Vietnam (EuroCham) nudged up to 45.1 in the third quarter of 2023, from 43.5 in the previous quarter, offering a glimmer of hope for the Vietnamese business environment after a turbulent year.
The BCI, conducted by Decision Lab, serves as a regular barometer of the business sentiment among European companies operating in Vietnam.
While still below the 50-point threshold for four straight quarters, this small rise indicates emerging positive economic momentum.
Between the second and third quarter, there was a three-percentage point drop in pessimism regarding the current situation, while positive and neutral perspectives increased by six and four percentage points, respectively.
The quarter-three survey also revealed a shift in projections for the quarter to come. Compared to responses in the quarter-two survey, there was an 11-percentage point rise in businesses anticipating economic stabilization and growth for the upcoming quarter.
On the other hand, businesses projecting a negative trend reduced by five percentage points.
Though Vietnam's gross domestic product in the third quarter grew a promising 5.3 percent year-on-year, companies continue to be cautious.
Expectations regarding increased revenue or orders remained stable, with no change from the previous quarter.
Just 22 percent of companies plan to expand their operations in the fourth quarter, while only 16 percent expect an increase in investments.
Besides, the Southeast Asian nation’s global investment appeal remains strong.
A notable 63 percent of surveyed businesses positioned Vietnam within their top 10 foreign direct investment (FDI) destinations.
Even more striking, 31 percent ranked Vietnam among their top three, while an impressive 16 percent hailed it as their foremost investment destination.
Reflecting this confidence, over half of those surveyed plan to increase their foreign direct investment in Vietnam by the end of the year.
Yet hurdles persist. A substantial 59 percent cited administrative difficulties as their main challenge when operating in Vietnam.
Challenges such as uncertainties in rules and regulations, hurdles in permit acquisition, and strict visa and work permit requirements for foreign workers also stood out as prominent barriers.
To improve the nation's FDI attraction, 58 percent of respondents said streamlining bureaucracy is key, 48 percent advocated for enhancing the regulatory environment, and one-third called for upgrading transport infrastructure.
Some 22 percent emphasized easing visa and work permit requirements for foreign experts.
Sustainability is rising as a priority for European companies in Vietnam, with 80 percent citing ESG alignment as highly or moderately important.
However, major obstacles remain when translating priorities into practice. Regulatory uncertainty, infrastructure gaps, and insufficient government support were pinpointed as hindrances to implementing sustainability measures locally.
Additionally, only 20 percent of firms are proactively preparing for impending EU green regulations, such as the Carbon Border Adjustment Mechanism.
Meanwhile, 38 percent currently have no plans for alignment. This distinct lack of preparedness not only poses challenges domestically but can hinder international competitiveness, especially in the crucial EU market.
"Vietnam now shows signs of recovery and resilience," said Decision Lab CEO Thue Quist Thomasen.
"Retail and tourism have grown strongly, helping drive the economy forward. Resumed FDI growth also offers optimism, reinforcing Vietnam's status as a global business hub."
“While the BCI still indicates a slightly negative sentiment, it is positive to note the continued stability in the quarterly measurement. Following a three-year period of high volatility, this new stability indicates that European business leaders can now predict the year ahead and better plan for future investments. This is a positive development in itself.”
“Team Europe stands firmly behind Vietnam," said EuroCham chairman Gabor Fluit, commenting on the BCI.
"Nearly one-third of our members ranking Vietnam as a top-three investment location sends a powerful message about our faith in this partnership,” Fluit said.