Nov 13, 2012

Vietnam - Investors still in a funk

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Dark clouds continue to converge over Vietnam’s overall economic prospects.

Thomas Bo Pedersen, director of garment maker Mascot International Vietnam, outlined the stark reality to VIR by saying Vietnam’s declining economic and business situation had forced the company to put a new factory, in northern Hai Duong province, on ice.

“If conditions had not deteriorated, we would have been able to offer 4,000 new jobs in Hai Duong by the end of this year. We are now looking elsewhere in the region to expand our investment,” Pedersen said.

He said the company’s situation was also mirrored in the European Chamber of Commerce to Vietnam’s 9th Business Climate Index Vietnam (BCI) survey conducted over 200 Vietnam-based European companies in October and released this month. The BCI has declined from 56 points in this year’s first quarter to 45 points in the last quarter.

“This indicates a declining confidence in Vietnam as an investment destination for European business,” said EuroCham chairman Preben Hjortlund.

A staggering 72 per cent of respondents held that they would see a more difficult economy, when asked about Vietnam’s macroeconomic outlook for the next six months.

“This is a rise by 12 points since last quarter and it shows that the measures taken to stabilise the economy do not ease the concern of the business community about the macroeconomic outlook,” said a BCI press release in which half of companies expected inflation, which remained high, to have a significant impact on their business in the medium-term.

“I agree that the survey reflects the opinion of the European business community in Vietnam. This has been a very clear trend in all surveys made within the past 12 months,” Pedersen said.
HSBC’s Purchasing Managers’ Index, which surveyed 300 manufacturing companies in Vietnam in October and also released in early this month, said Vietnamese manufacturing production decreased for the seventh successive month in October, still standing below a neutral level of 50 points. Companies generally linked lower levels of output to declining inflows of new business, especially from export clients. One-third of the companies surveyed reported a reduction in new work received during October.

According to the “Recession & Growth Opportunity” report released in mid October by TNS Vietnam, Vietnamese people’s confidence in the country’s economic prospects over the next 12 months had dropped substantially since 2011.

Specifically, the rate of those saying Vietnam’s economy had worsened climbed from 13 per cent last year to 34 per cent this year. The rate of those saying the economy had slashed from 58 per cent in 2011 to 32 per cent this year.

Besides, the rate of those with worsened employment increased from 20 per cent in 2011 to 44 per cent in 2012, while that of those saying their employment had become better reduced from 36 per cent in 2011 to 26 per cent in 2012, according to the report.

Australian freelance senior economist Raymond Mallon told VIR: “I would agree that there is an overall negative sentiment about the business environment from both foreign and domestic investors.”

He ascribed the reasons for the negative sentiment to Vietnam’s macroeconomic instability, bursting of the credit/property bubble leading to downturn and uncertainty in the banking, capital market, property, construction, and construction material sectors.

“The property and construction slump will remain a problem into 2013 with negative wealth affects for those impacted. The full extent of the problems in the financial sector remains unknown.

“If sentiment is to improve in 2013, the Vietnamese government will need to act quickly to improve information on the situation with banks, restructure insolvent banks, and improve corporate governance, especially governance of the state corporations, banks, and state enterprises,” Mallon said.

Thanh Thu |

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