Business confidence falls on high interest rates, credit strain

High interest rates, credit tightening and wage inflation have dampened business sentiment in Vietnam though confidence here remains higher than in other regional countries, according to Grant Thornton’s latest survey.

The Grant Thornton International Business Report released on Wednesday indicated that business optimism fell dramatically to 54% in the second quarter of this year from 80% of the businesses holding a positive view about Vietnam’s prospects.

Grant Thornton found the result after conducting telephone interviews with chief executive officers, managing directors, chairpersons and other senior executives at 2,697 privately held businesses in 39 economies from May to June.

Of the 39 economies, the survey result showed the 17th position for Vietnam in the second quarter of this year, compared to the seventh place in terms of overall levels of business optimism in the first quarter of 2011.

Kenneth Atkinson, managing partner of Grant Thornton Vietnam, attributed the decline in business confidence to internal and external factors, but acknowledged that certain sectors were faring well.

“Some sectors are still performing well (export) and others are struggling (real estate),” Atkinson told the Daily. “But across the board many businesses are being hurt by high interest rates, tightening credit policy and wage inflation.”

Atkinson had a sound reason to point out wage inflation as among the factors for the business confidence slide, and this was also supported by results of a survey named “HR strategies during inflation” unveiled just last month by Navigos Search, the leading executive recruitment firm in Vietnam.

According to Navigos Search, 54% of the 116 surveyed companies operating in Vietnam reported their average salary increment rate for staff-level up 11%-15% in 2011, and 62% have increased the salary for professional-level by at least 11% this year.

Nguyen Thi Van Anh, managing director of Navigos Search, said while the salary budget was limited, the majority of companies would have to adjust the salaries for critical employees to retain them.

“This means that companies have been practicing ‘differentiation’ in their human resources management. Differentiation is assessing employees, categorizing them into different groups and treating/rewarding them differently based on their value creation and contributions to the companies,” Anh said.

Experts attributed price inflation partly to salary increases as well as the year-on-year rise of 30.3% in Vietnam’s export revenue to US$42.3 billion in the first half of this year. “However, whilst headline numbers are up for exports we have to bear in mind part of this is price inflation and therefore in some cases volumes maybe down,” Atkinson said.

Atkinson noted that there was also renewed uncertainty about the possibility of a double dip recession in the United States and Europe, which are major export markets for Vietnam. Therefore, he urged a need for caution and careful planning.

What was why the respondents of the Grant Thornton survey chose a fall in orders in the list of the concerns for Vietnam, which includes financial availability, a skilled workforce and infrastructure bottlenecks.

Despite the aforesaid issues, businesses are more confident about Vietnam’s future than some of the other ASEAN countries including Thailand (48%) and Malaysia (16%). The report showed the Philippines was in the lead in the region with 76%, followed by Singapore 64%.

Inflation is a major problem for not only Vietnam but other countries. However, Atkinson said the Vietnamese authorities had reacted positively to deal with this and help the availability and flow of finance, and they were keeping a close watch on the performance of the local currency.

“If their plans are successful we should see inflation under control and a growth in confidence return later in the year,” Atkinson commented. – SGT

Tags: Vietnam banking industry, Vietnam finance, Vietnam financial, Vietnam interest rates