Government eases restrictions for rice exporters
Vietnam’s Ministry of Industry and Trade (MOIT) approved an agreement easing restrictions on rice exporters. Under the previous regulation, the maximum number of rice exporters was capped at 150, who were all required to meet certain standards on storage and factories. Companies holding licenses to export rice were required to have at least one warehouse with a minimum capacity to store 5,000 tons of rice and a rice husking factory with a minimum capacity of 10 tons of paddy per hour. The facilities also had to be in planned areas.
Due to these restrictions, companies developing their own rice were forced to use intermediaries rather than having the ability to export directly. Companies with rice export certificates were required to export at least 10,000 tons of rice per year or 20,000 tons of rice in two years in case the first year quota was not reached. The abolition of the regulations is in line with the government’s plan of removing unsuitable laws as per the Investment Law 2014. The move has been lauded by rice export companies.
The latest issue of Vietnam Briefing magazine, titled “Managing Contracts and Severance in Vietnam“, is out now and available to subscribers as a complimentary download in the Asia Briefing Publication Store.
In this issue:
- Identifying Trends in Vietnamese Labor
- Permitted Contract Structures Under Vietnamese Labor Code
- Contract Termination and Severance Obligations
Vietnam is undergoing a significant transformation in economic development, moving from conventional production of low cost goods towards the output of more technologically intensive products. While presenting significant opportunities for foreign investors, this has simultaneously created a strain on domestic labor markets. With a finite pool of skilled labor, now more than ever before, investors are exposed to issues stemming from the sourcing of qualified talent and the retention of existing workers for the long term.
By Dezan Shira & Associates
Editor: Harry Handley
It is becoming easier to trade across borders from Vietnam, according to the World Bank’s Doing Business Guide. Due in large part to Vietnam’s proximity to China and the country’s access to the ASEAN free trade area, exports of goods added up to over US$170 billion in 2016. The government expects export sales to be one of the key drivers for economic growth in 2017, and is targeting a 6.7 percent increase in the value of exports this year.
The presence of a number of Export Processing Zones (EPZs), which offer tariff-free trade, and low cost labor make Vietnam an ideal location for Export Processing Enterprises (EPEs). Due to their location within EPZs, these businesses benefit from unique tax treatment, which has recently been amended and will be discussed below. Firstly, it is important to understand the definition of an EPE.
Foreign firms join e-commerce bandwagon
Japanese retail company Aeon entered Vietnam’s e-commerce market through its website on January 1st. The website named AeonEshop.com is designed as a business-to-consumer (B2C) platform with most of the products imported from Japan. The company started operations in Ho Chi Minh City and will later expand throughout the rest of country. An English version of the site is expected along with a mobile app version by mid-2017. Apart from its home country Japan, Aeon also has a presence in Malaysia.
Additionally, Lotte also recently launched its e-commerce website in Vietnam and plans to invest US$25 million per year; by 2020, it targets a 20 percent market share in the country. Similarly, Thai based Central Group has taken over e-commerce site Zalora, while Chinese based Alibaba has entered the market by taking a controlling stake in online retailer Lazada Group for US$1 billion. While several foreign retailers still operate through traditional brick and mortar stores, Vietnamese consumers increasingly prefer to shop at grocery stores to make orders and have it delivered to their homes, as this helps in saving time and eliminates the necessity to carry large packages themselves. Analysts have stated that businesses will have to pursue an omnichannel retailing experience, which combines online shopping with traditional stores.
By Mike Vinkenborg
As Ho Chi Minh City battles growing traffic congestion, municipal authorities are considering a range of measures to improve transportation in the bustling city of over eight million. The city is currently debating altering work hours to spread out traffic during peak hours and trimming sidewalks to create more space for vehicles, while also building several new overpasses. These are just a few of the many proposed measures to tackle the gridlock issue that is becoming increasingly problematic.
These are all short-term solutions that fail to tackle the root of the problem, however. Every day, an estimated of 1,000 new motorbikes and 180 new cars are registered in Ho Chi Minh City. In total, 8.5 million motorbikes and 627,000 cars are currently registered in the city, the latter indicating a 500 percent increase compared with the year 2000. And as Vietnam is set to cut tariffs on ASEAN car imports in 2019, thereby reducing car prices by 42 percent, these numbers are poised to increase even more in the future. As a result, cars on major roads didn’t exceed an average of eight kilometers per hour during afternoon rush hours as of 2010, and the situation has not improved since then.
By Mike Vinkenborg
Due to rapid industrialization, energy consumption growth levels have been double that of Vietnam’s already high GDP growth levels, growing on average with approximately 12 percent per year from 2006 to 2015. As a result, almost all Vietnamese receive electricity at home, and the last rural villages are expected to be powered up by 2020.
On 18 March 2016, the government revised the 7th Power Development Plan for 2011 to 2030 and placed a stronger emphasis on renewable energy and the liberalization of the market. Fossil fuels and coal, recently overtook hydropower’s throne by becoming the main supplier of Vietnam’s energy consumption and were scheduled to grow strongly in the 2011 version. In the revised 2016 version, however, the 2030 target for coal production has been cut by approximately 30 percent from 76 gigawatt-hours (GW) to 55GW. Contrary, renewable energy – generated by solar technology in particular – will play a much larger role in 2030 compared to the 2011 estimate.
New Guidelines in Effect for Issuing Work Permits
The Ministry of Labour, Invalids and Social Affairs (MOLISA) issued Circular No. 40/2016/TTBLDTBXH providing guidance on implementation of Decree No. 11/2016/ND-CP, effective December 12, for work permits issued to foreign workers in Vietnam. The key change is the transfer of authorization from The Department of Labour, Invalids and Social Affairs (DOLISA) to MOLISA for certain types of enterprises. MOLISA will be responsible for approving proposals for using foreign laborers, identifying unlicensed foreign workers, reusing and revoking work licenses and deportation of unlicensed foreign laborers.
The organizations under the authority of MOLISA are state agencies, business associations established based on legal regulations, foreign non-governmental organizations, foreign entities in Vietnam, operational offices of international organizations in Vietnam and projects with foreign investment. Public organizations functioning under the ministries, ministerial-level agencies, organizations established by the government and the Prime Minister, also fall under the scope of MOLISA. DOLISA will still be the authority for approving demand for foreign laborers from contractors. Employers are therefore required to inform either MOLISA or the Chairman of the Provisional People’s Committee 30 days prior to hiring foreign laborers or if there is a change in demand for such workers.
Can Tho Officials Award Contract for US$47 million Waste plant
Can Tho city officials have granted China Everbright International Limited, a Hong Kong based environmental services firm, the rights to build a US$47 million waste-to-energy plant. The solid waste disposal plant is being designed to process 400 tons of daily household waste and generate electricity for the national grid. The company would implement its in-house technology including a grate furnace system, gas emission treatment system and leachate treatment system. The construction of the 53 hectare plant in Truong Xuan commune (to be located in Thoi Lai District) will commence from February 2017 with operations starting from February 2018. This is the first project in Vietnam funded by China Everbright International.
Vo Thanh Thong, Chairman of the Municipal People’s Committee stated that the company was selected from seven other investors after a visit by the city’s delegation of their Chinese projects. According to Chen Xiao Ping, Director General of China Everbright International, the company currently has 68 waste-to-energy plants with a capacity of 55,000 tons garbage per day and is committed to making this an environmentally friendly project following Vietnam’s environmental standards.
By: Harry Handley
In May 2015, Vietnam became the first nation to sign a free trade agreement (FTA) with the Russian-led Eurasian Economic Union (EEU) – which also includes Armenia, Belarus, Kazakhstan and Kyrgyzstan. Over a year after it was signed, the FTA finally came into force on October 6th, 2016. Previous Russia Briefing and Vietnam Briefing articles have discussed the background of the deal; now, it is important to assess the impact the FTA is having and will have in future.
Which goods does the FTA cover?
At its core, the Vietnam – EEU FTA will reduce tariffs on 90 percent of goods, with the tariff on 56 percent of goods already having been removed completely as soon as the agreement came into effect. Remaining tariffs will be reduced gradually over a number of years. The table below highlights the reductions in a number of key export categories for Vietnamese companies. All changes are effective immediately unless otherwise stated.
Steel industry to continue on its growth trajectory
The Vietnam Steel Association (VSA) announced that the steel industry is projected to grow at a rate of 10-12 percent in 2017. The association stated that steel consumption depends on the country’s GDP; with a GDP growth rate of 6.2 percent this year and the operation of 10 steel projects next year the industry is likely to further expand. However, the local industry faces competition from Chinese steel imports, which are cheaper. The industry also faces strict technical standards for exporting steel. To counter Chinese imports, the VSA has asked the government to impose anti-dumping measures.
The VSA has sent amendments to Vietnam’s Ministry of Industry and Trade (MoIT), which has made a draft plan of the steel sector until 2025 and extendable to 2035. The VSA has proposed a slew of measures, including less government intervention in the industry. The issuance of investment certificates, it said, should also be done with the relevant ministries rather than just the MoIT. In addition, it noted that the draft is not complete as it does not have a development plan for hot rolled and high quality steel, as these are 100 percent imported. Reports say that Vietnam will need to spend approximately US$15 billion a year to import steel.