Vietnam's business climate continues to worsen: European firms

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European businesses in Vietnam have continued to lose confidence in the country as a sound investment destination for the fourth quarter in a row, a new survey found.

The European Chamber of Commerce in Vietnam (EuroCham) said its latest quarterly Business Climate Index neared the neutral index midpoint of 50, compared to 63 points three months ago.

"Over the last quarters, EuroCham's BCI has declined from 78 to 52 points, indicating a declining confidence in Vietnam as an investment destination," EuroCham Chairman Alain Cany said.

"Coupled with the 28 percent drop in foreign direct investment through the first nine months of 2011 and inflation rates of over 20 percent, it is fair to say that European companies are increasingly concerned about the business and investment environment in Vietnam," he said.

There was a 14 percent drop in respondents assessing their current business situation as "good" or "excellent", from 46 percent in the previous quarter, EuroCham said, noting that no company described their situation as "excellent".

European businesses are getting more cautious about investing in Vietnam, with 22 percent looking to reduce their overall investment, compared to only 6 percent at the start of 2011, the survey found.

The answers were mixed when it came to the expected number of orders and revenue in the medium term, EuroCham said. The majority of respondents expected their revenue or orders to remain the same, while 34 percent expected a slight increase. Nearly half of the respondents expected to hire more staff in the medium term, it added.

As in the previous quarter, high inflation remains a major concern for businesses, but businesses seem to have been coping with the pressures. The survey found that 48 percent of companies expect inflation to have a significant impact on their business, down from 56 percent in the previous quarter.

EuroCham Executive Director Matthias Dühn said the business environment in Vietnam continued to be affected by macroeconomic troubles, high rates of inflation, lack of adequate infrastructure and administrative burdens.

A number of new "market access" issues, such as restricting the importation of goods into Vietnam and price controls have not contributed to better perception of the business climate, he said.

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