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European enterprises will increase FDI inflows into Vietnam by the end of 2022

EuroCham’s Quarterly Business Environment Index (BCI).

The European Chamber of Commerce in Vietnam (EuroCham) has just released the results of the Doing Business Index (BCI) based on the results of a survey of 1,200 member businesses, representing most economic sectors. Decision Lab YouGov is the unit that conducts research and aggregates BCI data.

Accordingly, although in the third quarter of 2022, Vietnam's economy got a record growth of 13.67% over the same period last year, but BCI decreased by 6.4 points compared to the second quarter and decreased by 10.8 points compared to the first quarter of 2022.

According to EuroCham, this is because global economic conditions remain unstable due to the escalating conflicts in Ukraine, persistent inflationary pressures, worldwide labor shortages and sluggish global growth.

Even so, this quarter's BCI results are still 10.2 points higher than the pre-pandemic level of 52.0 in the fourth quarter of 2019 and 1.2 points higher than in the fourth quarter of 2020, when Vietnam was easing social distancing measures related to the pandemic.

Evaluating BCI in the third quarter of 2022, Mr. Alain Cany, President of EuroCham, said that BCI in the third quarter of 2022 was less optimistic but due to external factors slowing down the global growth rate. Therefore, he forecasted, the fourth quarter of 2022 may also be less positive than the second or third quarter of the year.

Therefore, the results of BCI also show a slight decrease in the confidence of European businesses. About 42% of survey respondents predict that the economy will stabilize or improve in the fourth quarter of 2022. The proportion of those who predict a recession rose 7 points to 19%.

According to Thue Quist Thomasen, CEO of Decision Lab, the deteriorating global economic environment is affecting the optimism of European business leaders in Vietnam.

However, by curbing inflation, improving credit rating and continuing to grow GDP, Vietnam's story becomes less pessimistic globally. BCI dropped, but this is still above average, showing that businesses still remain optimistic about future development prospects.

Evidence for the above statement is that when European business leaders were asked about their business prospects in the fourth quarter of 2022, 45% answered positively, down only 4 points compared to the previous quarter. Moreover, investment plans, orders and revenue expectations of enterprises remained relatively stable compared to the previous quarter.

For foreign direct investment, 42% predict that their companies will increase FDI inflows into Vietnam by the end of 2022. European businesses also indicate that Vietnam can increase this level of FDI. by easing administrative difficulties, improving infrastructure, developing human resource capacity and reducing visa barriers for foreign professionals.

While 2% of BCI respondents said they have moved a significant part of their operations from China to Vietnam, this shows that there is still plenty of room for growth. According to EuroCham, in case the above obstacles are resolved, Vietnam will be well positioned to attract more foreign companies to relocate out of China.

In addition, European businesses in Vietnam also said that green growth is a key factor in attracting FDI into Vietnam. Therefore, businesses recommend that Vietnam needs to improve its legal framework, infrastructure and investment incentives.

Commenting on the effectiveness after 2 years of implementing the Vietnam - EU Free Trade Agreement (EVFTA), European businesses assessed that the main barrier to the EVFTA not being fully exploited is due to administrative procedures, the lack of understanding of the agreement and technical barriers to trade.

Also on this issue, Mr. Alain Cany said Vietnam offers great investment opportunities for European businesses and we are excited about the country's prospects in the medium and short term. Through the EVFTA and joint commitments, Vietnamese and European companies have a lot of growth potential. BCI results in Vietnam today are very encouraging, Vietnam will certainly be better positioned in the next 2-3 years as one of the most dynamic business and investment destinations.