Domestic textile industry is unstable in the face of FDI wave

Largely dependent on imported raw materials, Vietnamese textile and garment enterprises are vulnerable to market fluctuations.

Illustration photo, source Internet

Foreign capital pouring into our country's textile and garment industry since the beginning of 2015 has helped to rapidly increase the industry's scale and export volume, but from the perspective of domestic enterprises, we cannot help but feel sad and uncertain before the wave of FDI enterprises increasing investment.

Since 2014, a wave of FDI investment in textiles and garments has begun to anticipate major trade agreements that Vietnam has participated in, with 83 FDI projects, total registered capital of 1.64 billion USD. When the negotiation process of the Vietnam - EU FTA and the Trans-Pacific Partnership Agreement (TPP) ended, the wave of FDI in textiles and garments became even stronger. In the first 6 months of 2015, the textile and garment industry attracted more than 50 FDI projects, with total registered capital of 1.12 billion USD and is expected to exceed 2 billion USD for the whole year of 2015. This is a record high investment capital ever.

At the 5th Congress of Vitas, assessing the development period of the textile and garment industry in the period of 2011 - 2015 and orientation for the period of 2016 - 2020, the Executive Board of Vitas frankly admitted that in the period of 2016 - 2020, although a series of important FTAs ​​were signed and came into effect, all with textile and garment as the core benefit, with tax rates in many markets at 0%, the domestic textile and garment industry still had to face many problems, stemming from the incomplete development characteristics of the industry. According to the Vietnam Textile and Apparel Association (Vitas), FDI capital poured into Vietnam in this period was quite different from previous years. Although the number of projects was small, the total investment capital was large, typically there was a project licensed in early 2015 of up to 660 million USD, many projects had investment capital of 300 million USD.

“Although exports are growing rapidly, the supporting industry is underdeveloped. Imported fabrics currently account for 80%, of which 40% are imported from China, continuing to create a “bottleneck” at the weaving and dyeing stage, creating unbalanced development and making domestic enterprises vulnerable,” said Vitas Chairman Vu Duc Giang.

In 2014, textile and garment exports reached 24.5 billion USD, but according to statistics, up to 70% of total export revenue was through processing. Exports by self-supplying raw materials and exporting products to partners accounted for 20%, the remaining 10% were produced by ODM (original design manufacturing).

Meanwhile, looking at the amount of foreign currency spent on importing raw materials for the production of textiles and garments for export, one cannot help but feel dizzy. To achieve the export level of 24.5 billion USD, in 2014, the cost of importing raw materials and accessories reached 15.461 billion USD, an increase of 11.3% compared to 2013. Of which, the largest import was fabric, approximately 9.5 billion USD, cotton also reached 1.45 billion USD, fiber 1.559 billion USD, raw materials of all kinds more than 3 billion USD...

Ms. Nguyen Thi Doan, Deputy Director of Kinh Bac Garment Joint Stock Company, said that as an export enterprise, with 90% of products produced for export to Korea, although the rate of taking advantage of tax incentives when exporting goods to Korea is higher than other markets in the TPP and the EU market, Kinh Bac Garment Company still has to compete hard with Korean FDI enterprises in Vietnam, because they have the advantage of a closed production chain. According to Ms. Doan, currently only about 70 Vietnamese textile and garment exporting enterprises take advantage of tax incentives, because the procedures for certifying origin are still quite complicated.

The textile and garment industry’s export target of 28 billion USD in 2015 is almost reached. After 11 months, textile and garment exports have brought in 25.58 billion USD. However, according to Vitas, the industry’s estimated expenditure on imported raw materials for the whole year of 2015 will reach 17.566 billion USD.

According to Investment