Removing bottlenecks to garment industry

The garment sector is one of Vietnam’s best performers in terms of export value, with revenues in 2015 estimated at US$27.5 billion, contributing to more than 10% of total industrial output.

The sector employs over 2.5 million workers, of which more than half are working at garment factories run by around 5,000 enterprises throughout the country, making a significant contribution to transitioning the economic structure from agriculture to industry.

However, the garment sector’s growth mainly relies on the manufacturing of end products while other stages of the value chain are controlled by overseas and foreign-invested companies.

Photo for Illustration (Pho to: Thai Thien)

Although the export value has seen a continuous rise in recent years, especially as Vietnamese garments are shipped to the US, the position of Vietnam’s garment industry in the global value chain remains stagnant. Vietnam and other developing countries only focus on doing contract work to manufacture clothes, shoes, bags and so on for foreign brands, so the real value the sector brings home is very low.

Despite impressive export growth figures, Vietnam’s garment sector is facing a great challenge with up to 80-85% of raw materials including fibres, leather, premium sewing threads, buttons, metal zips, among others needing to be imported. Garment exports earned US$27.5 billion last year but the sector had to spend more than half that amount to import materials for manufacturing at home. As a result, the real earnings were much smaller than the total export value.

According to the Vietnam Textile and Apparel Association, as of 2014, Vietnam had 5,028 enterprises operating in the garment industry, of which 4,424 manufacture clothes; 497 textiles; 5 filaments; 96 staple fibres; 2 synthetic fibres; and 4 cotton.

While the demand for cotton is around 900,000 tonnes a year, the production capacity is just 5,000 tonnes. The sector also needs 6.8 billion square metres of textiles, but domestic companies can only provide 800 million and the remaining 6 billion has to be imported. These problems have restricted the sector’s manufacturing capacity.

As such, Vietnam’s primary goal in the coming years is to develop cotton growing areas to satisfy part of the demand, gradually increase the proportion of materials in the pricing structure, enhance the added value of domestically made fibres, textiles and clothes, reduce imports and facilitate the sector to become more proactive in securing materials.

In addition, Vietnam needs to promote value chain-based linkages, develop industrial clusters to manufacture materials, and address bottlenecks in treating wastewater from the dyeing process and other pollutants. At the same time, incentive measures are needed to encourage investment in materials production such as lowering land, VAT and corporate income tax.

The government should also establish support funds to provide cheap credit to manufacturers that use more than 50% domestically produced materials, among other measures, to make the garment industry more competitive in the future.

(Source: NDO)