Businesses low on confidence

Two new surveys show that Vietnamese enterprises are uncertain about future growth

According to a survey conducted by Petro Vietnam Finance Investment and Consultancy Company (PVFC Invest) and US-based World Vest Base Financial Intelligence Service (WVB Vietnam), the business confidence index dropped eleven points to 126 points in the last quarter of 2010. This is the biggest quarter-to-quarter drop since the third quarter of 2008.

Just under 76 per cent of enterprises are confident of better economic prospects over the next 12 months, down from 84.35 per cent in the third quarter of 2010.

The latest survey ran from mid-December last year to the first week of this January and involved the participation of 233 companies across 11 primary sectors and industries in Vietnam. Seventy-five per cent of the respondents were from small and medium enterprises.

A recent survey of Grant Thornton also showed optimism was down among Vietnamese enterprises, with the figure dropping from 72 per cent a year ago to 62 per cent this January.

Both surveys reveal the extent to which rising inflation and high lending interest rates have taken their toll on business confidence.

“We witnessed how rising inflation negatively impacted on economic growth two years ago, and this is threatening everyone and every enterprise again this year,” said Tran Dinh Thien, director of Vietnam Economic Institute.

Inflation reached 11.75 per cent last year and analysts forecast further rises, at least for the first quarter this year. Sixty per cent of enterprises say that rising inflation is affecting their business.

“When firms lack confidence, they are reluctant to investment or expand. As a result, growth this year could be weaker than expected,” said Nguyen Minh Phong, head of the Hanoi Institute of Economic and Social Research and Development’s Economic Research Department.

Vietnam economy grew 6.78 per cent last year and the government is targeting growth of 7-7.5 per cent in 2011.

But Phong said the government needed a new approach to monetary policy which would slow inflation and prevent lending interest rate increases over the next six months if the government wanted to meet this target.

Annual lending interest rates at local banks are currently running at around 18-19 per cent, putting an enormous strain on small and medium enterprises, which employ 50 per cent of the country’s workforce and contribute 40 per cent of State budget.

Cao Sy Kiem, chairman of Small and Medium-sized Enterprises Association, admitted that many enterprises were being forced to hold off on investments because of the difficulty involved in accessing credit from banks.

Just over half of enterprises say they are planning to up their levels of investment over the next twelve months. This number is down 8.09 per cent against the third quarter last year, according to the PVFC Invest and WVB Vietnam survey. Meanwhile, 45.06 per cent of businesses say they will maintain the current operations and 3.87 per cent say they aim to cut back on investments.

The survey shows that enterprises are also less confident about their turnover and profit this year. Only 68.24 per cent believe their turnover will increase while 65.67 per cent expect to see a rise in profit in next twelve months. The figures for the previous survey were 74.05 per cent and 72.53 per cent, respectively.