The EuroCham Business Climate Index (BCI) survey, released on November 2, also showed a further drop in respondents assessing their current business situation as positive from 30 per cent to 26 per cent.

More than a third of businesses continue to have a negative view of their current situation. At the same time the neutral assessment of the current situation grew to 37 per cent - up by 7 points compared to last quarter.

“During the past 12 months, EuroCham’s BCI has declined from 56 to 45 points - a drop of 11 points. This indicates a declining confidence in Vietnam as an investment destination for European business,” said EuroCham chairman Preben Hjortlund.

“We remain hopeful that recent developments such as the beginning of negotiations for the FTA between Vietnam and the EU will encourage Vietnam to improve its competitiveness and attractiveness and turn around the declining business climate,” he added.

EuroCham executive director Paul Jewell said the further drop of EuroCham's BCI was caused by slow progress on many of the issues that we have flagged in the past.

Half of surveyed European companies remain expecting inflation to have a significant impact on their business in the medium-term. Meanwhile, 72 per cent of respondents think that they will see a further deterioration of an already difficult economic situation. This is a rise by 12 points since last quarter and it shows that the measures taken to stabilize the economy do not ease the concern of the business community about the macroeconomic outlook.

In addition, European companies said that the current downturn in the economy impacts Vietnamese government tax revenues, thus resulting in cases of increased fines, auditing visits and customs duties. More than two third of respondents have experienced a form of increased scrutiny and 10 per cent of the respondents find that this threatens their business in Vietnam.

“Increased official scrutiny and fines have certainly played a role in terms of this quarter’s overall decline of the Business Climate Index and it is therefore of utmost importance that these issues are addressed,” EuroCham said in a statement.

By Bao Tram - Vietnam Investment Review - November 06, 2012