Foreign investors in Vietnam seeking to establish retail outlets are often subject to Economic Needs Test (ENT) criteria. Several investors cited this requirement as a hindrance to the business environment, adding to bureaucratic problems and delays. Although the government has recognized the problem and may reconsider the requirement in the future, the ENT criteria have been removed in some free trade agreements.
What is ENT?
The ENT is a test which conditions market access to the satisfaction of certain economic criteria and applies to the establishment of the second point of sale and the following ones, in accordance with Decree 09.
The ENT does not apply to points of sale of less than 500 m2, located in shopping centers, and not categorized as mini-markets or convenience stores. The ENT also does not apply to the first retail store, which only requires a store establishment license.
ENT criteria include:
- The effect of the point of sale on the scale of the geographical area;
- Number of retail outlets operating in the geographic area of the market;
- Impact of the point of sale on market stability and the functioning of other retail outlets and traditional markets in the geographic area;
- Impact on traffic, environmental sanitation and fire prevention in the geographic area of the market;
- Contributions of the retail trade to the socio-economic development of the region through the creation of local jobs, the development of the region’s retail trade, the improvement of the environment and living conditions of local populations, and contributions to the state budget.
Decree 9 states that any outlet established under the same name or brand with another outlet in Vietnam belonging to other EIAs will be treated as an additional outlet and will need the necessary licenses to operate. As a result, the franchise model, which is currently used by some chain stores or giant chain stores, will likely have to pass the ENT to obtain the corresponding licenses.
The People’s Committee at the provincial level is the authority that examines whether a point of sale passes an ENT or not. This means that for these outlets, the People’s Committee and the Ministry of Industry and Commerce (MoIT) are responsible for approving the establishment application.
Investors deploy different methods to circumvent ENT
To get around the problem, Nikkei Asia reported that South Korean company E-Mart, which operates a supermarket in Ho Chi Minh City, has decided to franchise its stores to the national company Truong Hai Auto Corporation (Thaco) – which assembles and manufactures automobiles in Vietnam. If E-Mart passed the ENT criteria, it would be allowed to operate its own stores. While this was a solution for E-Mart, other investors such as H&M and Uniqlo complied with ENT to retain control of their stores.
Other investors bypass the ENT by locating their stores in shopping centers and occupy less than 500 square meters. Another way is a joint venture. South Korean supermarket company GS25 has partnered with Vietnamese Son Kim Retail to operate.
Vietnam’s traditional markets have lost popularity as the number of convenience stores in 2020 jumped 6.7% from the previous year and the number of supermarkets increased 3.8%, according to Nielsen . This represents a significant opportunity for investors looking to establish their presence in the retail market.
ENT removed from three free trade agreements
Nonetheless, the government seems to be listening. The Vietnamese government has agreed to remove the ENT for countries that are part of the EU-Vietnam Free Trade Agreement (EVFTA), Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP) and UK-Vietnam Free Trade (UKVFTA). The ENT will be abolished five years after the entry into force of the EVFTA and the CPTPP; for UKVFTA, the Vietnamese government has committed to phasing out ENT five years after the entry into force of EVFTA. For investors not part of these agreements like South Korea, which has a large investment in Vietnam, they are still subject to the ENT.
The business environment in Vietnam
Vietnam has strived to improve its business environment in recent years and continues to remain a magnet for attracting foreign direct investment. While more reforms are needed, the government is listening, it recently eased restrictions on certain requirements for foreigners obtaining work permits. He also took into account the business impact of the closures and movement restrictions and reopened business activities in Ho Chi Minh City and neighboring provinces.
While foreign investors have shared their concerns about the ENT, the responses above show that the government has taken the requirement into account. As Vietnam further liberalizes its economy, it may relax some of these conditions in due course.
Vietnam Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors across Asia from offices around the world, including Hanoi, Ho Chi Minh City and Da Nang. Readers can write to [email protected] for further assistance with doing business in Vietnam.
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