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  Business

Business outlook more upbeat for next year

Vietnam’s business outlook failed to beat expectations in 2004 but its prospects appear to be brighter over the next several years, according to a business sentiment survey unveiled by the Vietnam Business Forum Secretariat (VBFS) on Monday.

Vietnam’s business outlook failed to beat expectations in 2004 but its prospects appear to be brighter over the next several years, according to a business sentiment survey unveiled by the Vietnam Business Forum Secretariat (VBFS) on Monday.

"Vietnam’s business outlook remained stable in 2004, which is below the expectation of our 2003 survey and in-line with our findings from the last three years: that expectations are always more optimistic than actual performance," the VBFS said.

The survey was conducted with co-operation from the VBFS, the Ministry of Planning and Investment, the World Bank and the International Finance Corporation. The survey queried 30 business associations and 195 companies (115 foreign and 80 local firms).

The results showed that respondents were optimistic about the future of their businesses in Vietnam and were predicting even more optimistic business outlooks between 2005 and 2006.

Eighty-three per cent of the companies surveyed said they planned to expand in the next three years, attributing their optimism to Vietnam’s positive long-term outlook, growing local markets and political stability. This number was slightly higher than last year’s 77 per cent, the VBFS report said.

"Apparently, existing investors are comfortable expanding because of this year’s FDI figures, which shows that half of the new FDI in 2004 comes from capital increases in current projects," VBFS said.

In a separate report, the Japan Business Association in Vietnam (JBA) said on Monday that it has detected a strong increase in additional capital investment in existing Vietnamese enterprises.

"This reflects the fact that existing enterprises have a stronger desire to expand their businesses to meet with the economic growth in both Vietnam and its export countries," the JBA said in a statement.

The participants that did not plan to expand cited uneven rules and regulations, bureaucracy and poor legal enforcement as the main discouraging factors.

Regarding the business environment, more than 40 per cent of respondents wanted to see simpler start-up and administrative procedures, and put less emphasis on access to land, financing and law enforcement.

Improvements in administrative procedures and operating costs were more noticeable when compared to 2003, which was partly attributed to a reduction in personal income taxes. Domestic companies were also generally more optimistic.

Asked what actions should be taken to improve the business environment, the respondents said prevention and control of corruption were most important this year.

The second priority was enforcing laws evenly and strictly, and third was greater transparency and efficiency for the civil service.

"At this stage, our main concerns are that necessary changes are made to the legal system to allow the Unified Enterprise Law and Competition Law to operate smoothly," said the European Chamber of Commerce in Vietnam (Eurocham).

"Similarly, we trust that there will be minimal exceptions and exemptions, and no more discretionary approval procedures."

Reduction of permits, an eased tax regime, lower utility costs and improved infrastructure were among the popular requests made by businesses.

Decree 105 scrutinised

The survey concentrated also on Decree 105, which in September 2003 introduced a 3 per cent cap ratio for specific businesses and additional procedures for expatriate employment.

The new regulation has generated much discussion among foreign-invested enterprises.

Half of the surveyed companies, mainly found in the service and manufacturing sectors, said they were negatively affected by the Decree.

This was contrary to the fact that 92 per cent of these businesses said they planned to expand over the next three years.

"We remain concerned about the impact of Decree 105, which appears to represent a backward step in Vietnam’s progress toward a level playing field between Vietnamese and foreign enterprises," said Joshua Magennis, the national president of the Australian Chamber of Commerce in Vietnam (Auscham).

The Ministry of Labour, Invalids and Social Affairs has recently proposed an amendment to Decree 105 which would either increase the employment cap in certain sectors or apply an exemption under certain circumstances.

But businesses in the Vietnam Business Forum on Monday did not think the measure was sufficient.

"We think that a much stronger approach should be taken to this issue, like removing the cap completely and allowing market forces to determine the foreign to local staff ratios," said Magennis.

The European Chamber of Commerce (Eurocham) said on Monday it trusts "that the Government will find a WTO-compatible solution to Decree 105."

Nhan Dan - (07/01/2005)


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