EU firms positive on VN regardless of inflation

Confidence among European businesses in Viet Nam has fallen due to increasing concerns about inflation and the weakness of the Vietnamese dong, but the overall response as well as the current business outlook remained largely positive, according to a Eurocham Business Climate Index survey released yesterday in HCM City.

Results of the survey conducted in mid-April showed that the mood had shifted downward with a fall to 70 from 79 index points.

The index ranges from 0 to 100 index points, representing the lowest and highest confidence levels. The survey questions companies’ predictions about each business quarter.

Alain Cany, chairman of Eurocham, said the survey on the second quarter of this year had the lowest figure among three conducted surveys.

Matthias Duhn, executive director of Eurocham, said the proportion of respondents who assessed their current business situation as “good” or “excellent” fell from 64 to 56 per cent.

As for investment plans this year, 51 per cent of businesses want to increase their investment, but those that want to “significantly increase” their investment sank from 32 per cent to 18 per cent.

Businesses were also optimistic about their sector growth in the second quarter as 47 per cent of them expected growth to exceed 8 per cent, showing overall confidence in economic development in Viet Nam.

Significant salary increases are foreseeable this year. According to the survey, 59 per cent said salaries would rise by more than 10 per cent this year for skilled employees compared to 54 per cent of the respondents in the previous survey.

High inflation was still a major concern for European companies in Viet Nam this year. At least 72 per cent of the respondents predicted inflation would reach more than 10 per cent.

As for the VND/USD exchange rate, 52 per cent expected the VND to depreciate by 6-8 per cent or remain unchanged by mid-2011, while 57 per cent expected the currency to depreciate 8 per cent or more against the USD by the end of this year.

In the survey, 74 per cent of respondents have been affected by recent power cuts.

Eurocham members would welcome a Viet Nam-EU Free Trade Agreement (FTA) as 60 per cent of European businesses surveyed stated that they would see a positive impact on their business from the Viet Nam-EU FTA.

Duhn said Eurocham members were increasingly concerned about the volatile macroeconomic environment in Viet Nam.

Eurocham believes the key challenges for Viet Nam’s leadership this year will be maintaining investors’ confidence in macroeconomic stability, in particular, by carefully balancing growth and inflation, and emphasising growth in value-added industries.

Alain Cany said: “Viet Nam is in the minds of European businesses. However, a lot of question marks about time, inflation, cost of production and stability of the dong have confused investors and made them more hesitant to come to Viet Nam.”

As a result, many investment projects had been left behind and were not moving as fast as they could, he added.

“Viet Nam will see a big impact in FDI if there is not any improvement in the coming time. It will cause negative results for Viet Nam’s business prospects since European companies frequently bring quality and long-term investment, which Viet Nam really needs for sustainable development,” he noted.

EuroCham executive board member Peter Born pointed to the impressive changes in Government policy and economic improvement in Indonesia, noting that the Vietnamese Government should focus on macroeconomic stability, monetary policy and inflation, as Indonesia has done.

The Eurocham Business Climate Index is an internet-based survey. All Eurocham member companies are sent a link to the online questionnaire every quarter.

The survey poses 18 questions about current business issues, business outlook, investment plans, expected inflation and growth of the company’s business sector in Viet Nam. — VNS

Tags: invest in Vietnam, Vietnam FDI, Vietnam FDI 2011, Vietnam investment