VN apparel sector achieves only US$12.76 bn export revenue in first 6mnths

Vietnam textile and apparel sector posted export revenue of only US$12.76 billion in the first six months, growing 4.72% year-on-year representing just 41% of the full-year target. Again, the growth was mainly driven by foreign direct investment (FDI) firms as the domestic peers struggled to find new orders in the period, said Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association (VITAS), at a press conference in Hanoi last week.

According to VITAS, finding new orders would continue to be tough and that some small and medium enterprises could be forced out of business. If the situation does not improve, the industry would find it hard to obtain outbound sales of US$29 billion this year.

Speaking at the press conference, VITAS vice chairman Nguyen Xuan Duong pointed out three main negative factors for the local textile and garment industry.

First, Vietnam’s foreign exchange policy has kept the Vietnamese dong currency stable compared with the U.S. dollar while the currencies of major markets such as the EU, Japan and China have fallen by 8-18% against the greenback. At the same time, ASEAN countries, India, and Bangladesh have seen their currencies down by 10-20%.

The annual region-based minimum wage raise has also sent production costs of local textile and garment firms up and undermined the competitiveness of Vietnamese garments.

Besides, lending rates of 8-10%, two to three times higher than in other countries that are Vietnam’s apparel export rivals, have placed another financial burden on local companies. As a result, prices of Vietnamese textiles and garments are 20-30% higher than in other countries.

Moreover presently, global economic woes are presenting an extra headwind to the industry. Particularly, many UK textile and garment enterprises operating in Vietnam have plans to shut down following the Brexit vote to leave the European Union last month.

There are also signs of buyers shifting their orders from Vietnam to other countries to benefit from lower costs. Mainly because Cambodia and Bangladesh enjoy tariff incentives offered by the U.S and Europe while wages in Myanmar, Bangladesh, and Sri Lanka are lower than in Vietnam. Vietnamese enterprises are not as competitive as exporters from other parts of Asia.

Recently, China has also lowered social insurance premiums from 20% to 18% in the context that many of its textile and garment companies have been shuttered.