Foreign business associations have urged the Government to loosen and make more transparent the economic needs test (ENT) that foreign retailers have to pass to establish their second and subsequent outlets.
With a population of nearly 90 million, rapid economic growth, and a youthful population eager to keep up with the latest trends, Vietnam is a potential gold mine for retailers, Hong Sun, secretary general of the Korea Chamber of Business in Vietnam, told a consultation and dialogue held with businesses on ENT criteria in Ho Chi Minh City on March 28.
"But foreign distribution companies have not been able to fully penetrate the market due to the ENT process – an effective tool the Vietnamese Government has used to control the development of foreign distribution networks in Vietnam," he said.
During the ENT process, the licensing authority examines the suitability of the retail outlet in an area based on factors like population density, number of existing retail outlets there, market stability, and local zoning plans.
"With ENT, the licensing authorities in Vietnam have been able to disallow foreign distributors from opening a second and subsequent distribution outlets if they conclude that the new outlets are not necessary," Hong said.
But the Ministry of Industry and Trade last year issued a circular to relax conditions, allowing an ENT exemption for foreign retailers establishing an outlet of 500 sq.m or less in an approved area with complete infrastructure.
Csaba Bundik, executive director of EuroCham Vietnam , said Vietnam opened its distribution market to 100 per cent foreign ownership as part of its WTO commitments, but the ENT criteria causes difficulties for foreign retailers seeking to expand their networks.
The ENT is vaguely defined and there is no nation-wide implementing legislation to clarify the ENT criteria, resulting in unpredictable, discretionary, and varied interpretation by different local authorities, he said.
He called for a clear definition and criteria for ENT, adding that the Ministry of Industry and Trade and other relevant ministries need to provide clear guidance for investors and licensing agencies and to ensure that the criteria are applied consistently by local authorities.
Vo Van Quyen, director general of the Domestic Market Department, said: "Because of the very poor starting point for its retail sector, the country obtained a very important agreement from WTO members on the application of the ENT in relation to establishment of a retail sale point which is not the first one."
Distribution is a highly regulated sector for foreign investors, and this was the premise based on which the country opened its doors to them, he explained.
Authorities collected feedback from involved parties like foreign direct investment retailers and regulating organisations to draft ENT regulations to ensure transparency, he said.
But the implementation of the regulations is inconsistent, he admitted and promised that efforts would be made to improve the situation and smoothen things for foreign retailers.
Dinh Thi My Loan, chairwoman of the Vietnam Retailers Association, said: "In reality, Vietnam opened its market earlier than committed with the WTO.”
"The ENT is not at all a barrier for foreign investors to enter Vietnam 's retail market," she said, adding that the changed regulations make it easier for foreign retailers to open small outlets.
The more than 700 supermarket and megamarket outlets and over 100 shopping malls in the country account for only 25 percent of the distribution in Vietnam, meaning there is plenty of opportunity left for foreign investors, she said.
Hong Sun said: "A more wide open market will attract more foreign investors to the distribution sector in Vietnam . At the same time, domestic companies need not worry since they have better access to traditional distribution channels and have a better understanding of domestic consumers."
But foreign investors are not willing to make a substantial investment to open one retail outlet without some level of confidence that they would be permitted to open additional outlets in the future, he said.