VBF says business climate ‘less satisfactory’

Vietnam’s business environment this year is “less satisfactory” for conducting business, foreign and domestic businesses said at the Viet Nam Business Forum (VBF) in Hanoi on Monday.

The situation, coupled with the uncertainty about Vietnam’s current economic situation in the face of the global economic downturn, has affected the country’s rating, at 1.9 in 2008 compared to 2.7 in 2007 on a scale from 4 (excellent) to 1 (poor).

The one-day forum was a regular activity in the lead up to the Consultative Group (CG) Meeting for Vietnam, which is scheduled to take place on December 4 and 5 at the National Convention Center in Hanoi.

The Business Environment Sentiment Survey 2008 was conducted in September 2008 by the VBF Secretariat with responses coming from 254 enterprises, up from 234 last year. Of the 254 respondents, 77% were domestic and the remainder foreign.

“The 2008 survey saw a decreasing number of positive evaluations on the overall business environment in Vietnam,” the survey wrote. “For example, a significant number of respondents expect to face challenges in the short-term future (2009-2010) and have therefore downgraded macroeconomic conditions from ‘good’ in 2007 to ‘satisfactory’ in 2008.

Ashok Sud, head of Banking Working Group (BWG) under VBF, expressed concerns about the implementation of Decree 69 that allows foreign banks to hold shares in domestic banks.

The decree regulates that the total foreign share holding in a local Vietnamese bank should not exceed 30% and within this limit, the maximum share holding permitted to an international bank as a “strategic partner” is 15%, which can be increased to 20% with Prime Minister approval, Sud said at the forum.

However, according to him, there is currently no clarity on when and to what percentage the two caps would be increased.

He raised his BWG recommendation that it is necessary for clarity on quantum and timing of further increases in share holdings as this would enable both the strategic partner and the local banks to plan ahead. “Such clarity will lead to a much more constructive and planned approach for the banking sector in Vietnam,” he proposed.

Given the unfavorable current economic conditions, the percentage of enterprises that reported having no plans for expansion over the next three years has more than doubled in the 2007 survey, from 10% in 2007 to 22% in 2008.

This is clearly indicative of the recent tough economic conditions and their impacts on business perspectives.

The business community also made suggestions that the Government need to take immediate action to enhance legislative preparation, prevent and control corruption, and remove unnecessary permits/licenses. (SGT)