New Draft Proposal May Create Investment Barriers

December 16, 2010 Posted by Vietnam Briefing Reading Time: 2 minutes

Dec. 16 – Foreign investors fear that Vietnam’s draft proposal to develop its retail sector may, if enacted, erect barriers to invest from abroad.

Last week, the Ministry of Industry and Trade floated its draft in an effort to generate feedback before submitting a final proposal to government.

Wholly foreign-owned firms (WFOEs), which have been able to operate in Vietnam since 2009, anticipate sweeping changes in the country’s regulatory framework.

Professor Robert A. Rogowsky of the Center for Asia-Pacific Economic Cooperation told Thanh Nien Weekly that, while the development of the domestic retail industry could play an important role spurring the growth of rural regions, the new draft proposal fails to achieve this.

Instead, Rogowsky fears that the new proposal will simply require foreign retailers to fill out a mountain of paperwork from an array of government agencies.

The most complicated procedure under the new plan will be the process of obtaining a license for a second retail facility, he believes.

Under the new proposal, domestic investors in retail facilities larger than 1,000 square meters will have to undergo a consultation process with government officials and economic advisors to determine market need.

Foreign retailers seeking to open more than one store, regardless of the size, must undergo the same process, also known as an Economic Need Test, or ENT.

“It [the economic need test] is just another barrier to entry and a way for officials to slow down and control economic growth,” said president of the French Association of Retail Marketing and Strategy, Francois Bobrie.

Bobrie said one of the questions on the ENT is: “Will new entrants create too much competition for those already in the market given the amount of floor space, number of customers and growth of the market?”

Under the proposal, foreign firms would be excluded from the test if their second retail facilities are franchised or licensed by Vietnamese-owned businesses.