BCI to reach 52.8 in Q1/2024, highest since 2022

The Business Confidence Index (BCI) reached 52.8 in the first quarter of 2024, the highest level since 2022 - a clear sign of growing confidence among the European business community in Vietnam, according to data recently released by the European Chamber of Commerce in Vietnam (EuroCham).

BCI đạt 52,8 trong quý I/2024, mức cao nhất kể từ năm 2022

Optimistic about Vietnam's economy

BCI surveys more than 1,400 EuroCham members across a wide range of sectors, providing time-based observations on the ever-evolving dynamics of this vibrant Southeast Asian market.

“This positive trend underlines the European business community’s view of Vietnam as a dynamic market with excellent growth prospects. Continued efforts to enhance stability and predictability will further enhance Vietnam’s global competitiveness and help it reach its full potential,” said EuroCham Chairman Dominik Meichle.

“The hard data from BCI paints a clear picture – investor sentiment is steadily improving. Vietnam certainly has the potential to become a preeminent investment destination in the region, and proactive, focused policies will further accelerate Vietnam’s development,” said Thue Quist Thomasen, CEO of Decision Lab, which conducts the BCI survey.

European businesses are optimistic about Vietnam’s economy, both in the short and long term. While a third of businesses are optimistic about their own Q2 prospects and nearly 40% are neutral, some key indicators point to a promising trajectory.

For example, sentiment turned positive for the economy as a whole in the coming quarter, with optimism rising 6 points from the previous quarter to 45%, while pessimism was just 10%. In addition, the number of businesses saying they plan to cut spending in the coming quarter has now dropped to 15% (compared to 23% previously), indicating increased investment confidence.

Revenues are also expected to be higher, with more than half of respondents predicting higher orders and revenue in Q2 2024. Employment prospects are also firmer, with 40% of businesses planning to expand their workforce in Q2. Looking longer term, this optimism is reinforced, with 71% of businesses feeling positive about their long-term prospects in Vietnam over the next five years.

Vietnam’s highly skilled workforce is a major attraction for European investors, with 75% of EuroCham members reporting that they hire 76% or more of their staff locally. While the BCI Q4/2023 survey found that only 40% of businesses rated the workforce’s skills as average, this strong hiring trend suggests a solid talent base for future growth.

Legal barriers and solutions

While there is high optimism, businesses also report facing regulatory barriers in Vietnam that hinder market entry and long-term investment. Key concerns include: Administrative burdens (with more than half of respondents citing this as a major obstacle to setting up and expanding operations); Regulatory ambiguity (36% said they struggle with regulations, creating uncertainty and hindering strategic planning); Licensing and licensing difficulties (28% said they face costly delays in obtaining approvals, discouraging new ventures and adding risk to investors); and regulatory barriers that restrict the transfer of skills and expertise.

To attract more foreign investment, businesses identified a number of important reforms: 37% called for streamlined procedures and simplified management to ease market entry; 34% emphasized clear and consistent laws to create a predictable investment environment; 28% supported improving infrastructure, including roads, ports and bridges to support trade and logistics.

“Vietnam has huge economic potential and addressing regulatory challenges is key to fully realising that potential,” said EuroCham Chairman Dominik Meichle. “Simplifying procedures and establishing more transparent regulations will help both Vietnamese and foreign businesses succeed. This will help Vietnam become a leading investment destination in the region, benefiting domestic businesses, attracting international capital and strengthening economic partnerships.”

EuroCham's recent White Book 2024 provides detailed recommendations to streamline regulations and create a more investment-friendly environment.

The BCI Q1 survey also found that businesses are closely monitoring a number of upcoming regulatory changes that could significantly reshape their operating environment. Key areas businesses are monitoring include: Power Development Plan (PDP) VIII; significant impacts from changes to the pharmaceutical regulatory framework under the Pharmaceutical Law; and the impact of the recently passed Land Law (amended).

In addition, businesses are also monitoring developments in the Carbon Border Adjustment Mechanism, Direct Power Purchase Agreements, General Data Protection Regulation... These regulations have the potential to affect industries from manufacturing to technology.

In addition, supply chain risks were highlighted by businesses. Recent disruptions to key shipping routes such as the Red Sea have negatively impacted three-fifths of respondents, highlighting the vulnerability of global supply chains. This underscores the importance of Vietnam taking all possible measures to mitigate the impact of such external risks on the economy.

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