While Vietnam’s macro-economy in 2023 may not have maintained the robust performance observed in 2022, the country is still seen as an attractive investment destination, with more than 60 per cent of European businesses considering it within their top 10 destinations, according to the Business Confidence Index (BCI) from the European Chamber of Commerce in Vietnam (EuroCham), conducted by Decision Lab and released on January 8.

According to the survey, 53 per cent of respondents anticipate increased FDI in Vietnam by the end of the fourth quarter of 2023.

The survey also highlights Vietnam’s strategic position in the ASEAN region. While only a small fraction (2 per cent) consider it an “industry leader”, a noteworthy 29 per cent rank it among the “top competitive countries” in ASEAN. The majority (45 per cent) view Vietnam as a competitor, albeit acknowledging certain challenges.

This perspective emphasizes Vietnam’s growing influence and potential for further advancement within the ASEAN economic landscape.

The fourth quarter of 2023 also saw a marked increase in satisfaction among European businesses. While there was a slight 2 ppts dip in overall optimism for economic stability and growth, this was more than offset by a drop of 14 ppts in expectations of an economic downturn.

Firms confident in their current situation rose from 24 per cent in the third quarter to 32 per cent in the fourth. The outlook for the first quarter of 2024 is also positive, with 29 per cent of businesses viewing their prospects as “excellent” or “good”; a sign of diminishing concerns, as extreme worries fell from 9 to 5 per cent.

Looking ahead, Vietnam’s business sector is poised for growth. Thirty-one per cent of companies plan to expand their workforce in the first quarter of 2024, and 34 per cent intend to increase their investments; a clear uptick from 2023. These figures signal strong momentum in growth and opportunity as Vietnam begins 2024.

Notably, the survey sheds light on the European business community’s nuanced assessment of Vietnam’s workforce. The figures reveal a complex picture: while 32 per cent of respondents recognize good proficiency in the workforce, the number indicates that a majority perceive room for improvement in skills and expertise.

Similarly, the 24 per cent satisfaction rate regarding workforce availability suggests that while there is a pool of talent, it might not fully align with the specific requirements or scale desired by international businesses.

The findings also show that 40 per cent of respondents view Vietnam’s workforce as moderately proficient, indicating a blend of basic and intermediate skills. In addition, 50 per cent rate the workforce’s availability as moderate, reflecting some challenges in finding qualified candidates. These results suggest that further development and training could enhance workforce proficiency and availability to better meet the demands of the global market.

Through the survey, valuable insights emerge regarding the regulatory challenges perceived by the business community in Vietnam.

Topping the list, a significant 52 per cent of respondents identify “administrative burdens and bureaucratic inefficiencies” as one of the top 3 hurdles, spotlighting the impact of red tape on business operations. Following this, 34 per cent of businesses highlight “unclear and variably interpreted rules and regulations” as a major challenge, emphasizing the need for clarity and consistency in legal frameworks.

Securing necessary licenses, permits, and approvals is a concern for 22 per cent of respondents, pointing to procedural barriers in business activities. Moreover, 20 per cent cite the “lack of qualified local expertise in specialized fields” as a critical issue, suggesting a talent gap that needs addressing.

Furthermore, 19 per cent of companies find “visa regulations, work permits, and labor rules for foreign employees” challenging, reflecting the complexities of managing an international workforce under the current legal system.

On the solutions front, the survey highlights key areas for improvement to boost Vietnam’s attractiveness for FDI.

A notable 54 per cent of respondents call for “administrative and bureaucratic streamlining”, indicating that easing bureaucratic processes could significantly enhance the business environment. Additionally, 45 per cent stress the importance of “strengthening the legal system and regulatory environment”, while 30 per cent see “infrastructure development, including roads, ports, and bridges”, as essential for FDI attraction.

In 2023, the potential of the EU-Vietnam Free Trade Agreement (EUVFTA) was increasingly recognized by businesses. By the fourth quarter of 2023, a significant 27 per cent of companies reported experiencing “moderate” to “significant” benefits from the agreement, a marked increase from just 18 per cent in the second quarter of 2023.

The foremost advantages of the EUVFTA were “tariff reductions or eliminations” (42 per cent), “increased market access to Vietnam” (27 per cent), and “improved competitiveness in Vietnam” (25 per cent), indicating substantial economic impacts.

However, the survey also reveals challenges in fully leveraging the EUVFTA’s potential. About 13 per cent of respondents cited “Uncertainty or lack of understanding of the agreement” as a primary obstacle, suggesting a need for more clarity and education around the agreement’s provisions.

On top of that, 9 per cent pointed to “Opaque and lengthy customs clearance procedures” as a hindrance, highlighting inefficiencies that could dampen the benefits of the trade agreement.

According to Mr. Gabor Fluit, Chairman of EuroCham, confidence among the foreign business community in Vietnam is clearly on the rise. New data for 2023 support this. Last year, FDI reached $36.61 billion, jumping 32.1 per cent from 2022. This is a clear illustration of growing faith in Vietnam’s economy.

Tourism also rebounded strongly, he went on. In welcoming over 12.6 million visitors in 2023, Vietnam more than tripled international numbers from the year prior. This global spotlight on Vietnam as a top destination for business travelers and tourists also signals broader economic recovery.

While these figures are indeed promising, it is crucial to maintain a cautious outlook. It is noteworthy that the BCI still remains below the midpoint, and more than one-third of businesses still expect to underperform.

Mr. Fluit said that given the intense economic competition in the region, Vietnam should remain vigilant. It is crucial for the country to keep refining its policies and strategies to draw and maintain European FDI. One vital area to focus on is simplifying administrative procedures; a well-known obstacle for businesses. At the same time, investments in infrastructure to reduce logistics costs and upgrading the skills of the workforce are equally essential. This will help Vietnam stay competitive and maintain its growth trajectory.

“Considering this, as we look towards the future, the importance of Vietnam leveraging the EUVFTA only increases,” Mr. Fluit noted. “This agreement, together with Vietnam’s various bilateral and regional trade pacts, is expected to play a key role in transforming the current economic recovery into long-term, balanced growth. Throughout this ongoing process, EuroCham Vietnam remains wholeheartedly committed to playing a supportive role.”

Mr. Thue Quist Thomasen, CEO of Decision Lab, said Vietnam’s long-term economic trajectory suggests a promising path of continued growth. “In the short and medium term, Vietnam is showing its trademark ability to deliver a stable business climate even in turbulent times, as we observe the fifth quarterly measurement within the range of 40 to 50 index points,” he added. “Continued stability and potential improvement in 2024 will underpin the case for further FDI in the country.”