Vietnam - European firms ‘wait and see’ over investment plans

A recent EuroCham Business Climate Index survey shows a “wait and see” attitude among European companies towards investment plans of in Vietnam. The Saigon Times Daily had an interview with EuroCham Chairman Alain Cany regarding whether the coming time will see a decrease in European investments.

Excerpts

The Saigon Times Daily: Relating to the latest Eurocham business climate index, what are major reasons behind such a continued fall in business confidence among European businesses in Vietnam?

Alain Cany: It is true that the business confidence and outlook among European businesses in Vietnam has continued to fall and has now almost reached the "neutral" index midpoint of 50. But it is important to understand that 52 points is still in the positive half of the spectrum and we hope that it will not fall below the neutral point. The main reason for the further decline seems to be the macroeconomic situation: When asked about the macroeconomic outlook for Vietnam over the next six months, 70% of our members think that they will see a further deterioration of an already difficult economic situation against only 30%, who think that the situation will stabilize and gradually improve. This shows that the measures taken to stabilize the economy have so far failed to ease the concern of the business community about the macroeconomic outlook.

In coming months, in your opinion, is there an obvious decrease in investment of European companies already operating in Vietnam as well as new FDI from the EU?

- According to our latest business climate index, our European members seem to be taking a "wait and see" attitude towards investment plans. When asked about their investment plans for 2011, respondents have shown to be more cautious than in previous surveys. 38% want to maintain their level of investment and only 36% are looking to increase their investments in Vietnam, a significant fall from 52% last quarter. This shows a continuation of the trend that businesses are getting more cautious about investing. 22% of businesses are looking to reduce their overall investment in the country, up from 13% last quarter and only 6% at the start of 2011. These figures point towards a possible decrease of European investment. However, as European investors are committed long-term investors, we hope that this will not materialize. Generally, I am not too concerned about existing and future EU investment in Vietnam

Besides a fall in the business climate index, does the current debt crisis in Europe have any impacts on EU’s investment in Vietnam?

- As the debt crisis is expected to continue in Europe, some European companies are probably reducing investment in Vietnam. Others may increase their investment in Asia despite the crisis, as the EU is not growing, and Asian markets offer more opportunities. We have particularly observed more European investment in Indonesia, and Vietnam should pay attention to the regional competitors such as Indonesia. But I also note that it is hard to define a trend in investment from quarter to quarter, as most European investment is long-term and not affected by short-term turbulences. I also note that even where the debt crisis has shaken market confidence, it has also strengthened the case for Vietnam and South-East Asia as a long-term investment destination: Stable growth prospects, young populations and relatively sound government policies mean the region will likely emerge in the medium term as a more attractive place in which to invest compared with Western developed economies.

Would you have any suggestions for the Vietnamese Government to have quick improvement to encourage EU investment in Vietnam?

- Overcoming inflation has rightly been the focus of Government policy since early March, with the introduction of Resolution 11. The Government has also shown the required leadership in pursuing this course through implementing some difficult measures: high interest rates; limitations on credit growth; caps on deposit rates; encouragement to use Vietnam dong instead of the US dollar or gold - these are just a few. EuroCham supports the strategy being pursued, and with stable prices and currency, Vietnam will have a solid platform off which to achieve strong and productive growth in the future.

More generally, EuroCham believes that to attract more and better-quality foreign investment, the Vietnamese government should focus its efforts in 2012 on removing all unnecessary restrictions to market access that affect the freedom of trade. Employers should be allowed to select the right candidates based on their own discretion and internal processes. The Vietnamese government should also continue tackling red-tape and corruption.

Moreover, EuroCham believes that it is now essential that the new Administrative Procedure Control Agency (APCA) closely monitors that no unnecessary new APs are created, while implementation of Project 30 is being finalized. Finally, and most importantly, Vietnam has to accelerate the equitization of State-owned enterprises. If they don't tackle this key structural problem, inflation will come back with recovering growth.

Reported by Hung Nguyet

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