Cautious Optimism amid Administrative Hurdles

The European Chamber of Commerce in Vietnam (EuroCham) released its Q2 2024 Business Confidence Index (BCI) report, revealing a complex picture of the economic environment for European businesses in Vietnam. Despite strong GDP growth in the first half of the year, the BCI dipped slightly from 52.8 in Q1 to 51.3 in Q2 2024, indicating the need for continued policy enhancements to sustain economic momentum.

The BCI survey, managed by Decision Lab and distributed to EuroCham's 1,400 members, serves as a crucial gauge of sentiment among European businesses in Vietnam, offering real-time insights into this dynamic Southeast Asian market.

"Vietnam's economic potential is clear, and the European business community remains optimistic about long-term growth," said Dominik Meichle, Chairman of EuroCham Vietnam. "Our survey highlights areas needing improvement, and by addressing administrative and regulatory challenges, we can create a more attractive business environment that benefits both European and Vietnamese enterprises."

"This survey, reflecting our members' experiences, informs our discussions with Vietnamese officials and EU policymakers. By bringing our members' perspectives to the forefront, we can identify key growth areas and strengthen the Europe-Vietnam partnership through dialogue and collaboration," said Meichle.

Thue Quist Thomasen, CEO of Decision Lab, provided additional context: "While 68% of respondents report neutral to positive current conditions, there is a slight increase in short-term caution. However, with a strong 6.42% GDP growth in the first half of 2024 and nearly 70% expressing long-term optimism, the underlying confidence remains robust."

The survey presents a mixed view, showcasing both resilience and ongoing challenges. While fewer companies rate the economic situation as "very poor" (down from 8% to 6%), those describing it as "not good" increased slightly (from 24% to 26%). Nonetheless, 68% maintain a neutral to positive outlook on their business conditions, indicating overall stability. Sentiment towards Vietnam's Q3 2024 economic outlook is cautiously optimistic (45%), though individual businesses are more hesitant about their prospects for the quarter, with 45% remaining neutral and 23% expressing concerns. Despite short-term uncertainties, long-term confidence is strong, with nearly 70% of businesses optimistic about Vietnam's economic growth over the next five years. A similar percentage would recommend Vietnam as an investment destination.

While European businesses are optimistic about Vietnam's potential, the survey identifies persistent regulatory challenges that hinder growth and investment. Key issues include ambiguous regulations open to varying interpretations, burdensome administrative processes, difficulties in obtaining licenses, permits, and approvals, challenges with visas and work permits for foreign workers, and duplicate or inconsistent approvals across government levels.

Specific regulatory challenges include work permits and visas. Despite Decree 70 in September 2023 aiming to streamline procedures for foreign workers, only 3.3% of respondents report significant improvements. Half acknowledge some progress, while a quarter see no change, highlighting the need for further enhancements. The new Personal Data Protection Decree (PDPD), aimed at safeguarding personal information, has caused uncertainty among businesses. A quarter of respondents do not fully understand the requirements, and only a third feel confident in their compliance. Clearer guidance and support from authorities is needed.

To attract more foreign direct investment (FDI) and stimulate economic growth, businesses suggest focusing on streamlining administrative and procedural processes, enhancing clarity in laws to reduce arbitrary interpretations, developing core infrastructure (roads, ports, bridges, etc.), simplifying visa and work permit procedures for foreign experts, and ensuring political stability and security. EuroCham's 2024 Whitebook offers detailed recommendations to address these challenges, providing a roadmap for creating a more competitive and welcoming business environment in Vietnam.

The survey highlights a growing commitment to sustainability among European businesses in Vietnam. Seven percent have already achieved carbon neutrality, 37% aim to reach this goal by or before 2050, and 18% target carbon neutrality by 2030. However, businesses face several obstacles, including customer resistance to premium prices for sustainable products, inadequate government incentives and regulations, limited access to clean energy and effective waste management, financial constraints in implementing sustainable practices, lack of employee awareness and engagement with sustainability initiatives, and difficulty measuring emissions and ensuring supply chain compliance. The recent Direct Power Purchase Agreement (DPPA) decree offers hope by improving access to clean energy and providing better sustainability incentives.

To further address these challenges, EuroCham Vietnam is hosting the Green Economy Forum & Exhibition (GEFE) 2024 from October 21-23 in Ho Chi Minh City. This event includes conferences, a green technology exhibition, and discussions with European and Vietnamese leaders. It aims to prepare businesses for sustainable growth in Vietnam's changing business environment.

By Giang Tu, Vietnam Business Forum