Nghe An: Textile and garment industry's added value is low due to lack of supporting industry

Low value-added manufacturing

The textile and garment industry is a major contributor to employment and export turnover. Up to now, enterprises have created about 40 thousand jobs, production value reached 4,186.4 billion VND, average growth rate reached 19.9%/year. Garment products 60 million products/year; Fiber 18,000 tons/year.

Textiles and garments have always been a sector with large export turnover in Nghe An. In the first 9 months of 2022, this item ranked third in the province with 331.8 million USD, an increase of 12% over the same period last year. The item has quite active export participation of 33 enterprises, exporting goods to more than 20 markets in the world, including: Korea, China, the United States, Japan, ... Of which, Minh Anh Do Luong Garment Joint Stock Company and Kido Vinh Company Limited have the largest export turnover with turnover of 80 million USD and 52 million USD respectively.

Most of the textile and garment production lines in Nghe An province are doing outsourcing work, with low value. Photo: Thu Huyen

According to the Department of Industry and Trade, Nghe An province's supporting industry has been moving in recent years thanks to attracting a number of large-scale FDI projects, especially in the field of manufacturing and supplying electronic components for the electronics and information technology manufacturing and assembly industry. However, according to the assessment, the quality of Nghe An's industrial growth is generally still weak and lower than the national average, and industries with high added value are still limited.

Regarding the textile and garment industry in particular, this industry is still too dependent on imports, passive in production, low added value, using a lot of labor, and low labor productivity. Although the human resources in the garment industry are large, their training level is still low, mainly unskilled labor; college and university degrees account for only about 18.24%, lacking engineers and technical workers. Currently, Nghe An only has 1 yarn factory of Hoang Thi Loan Textile and Garment Joint Stock Company, with an output of 20,000 tons of yarn/year; 1 embroidery facility (Lac Son Industrial Park, Do Luong District) with a workforce of 150-200 people embroidering accessories for garment factories; and a number of other hand-woven facilities.

Produced at Trong Phuc Garment Company Ltd., Dien Chau district. Photo: Thu Huyen

Sharing about this issue, Mr. Phuc Liem - Deputy Director of Trong Phuc Garment Company Limited, Dien Chau district said that Vietnamese textile and garment enterprises are facing fierce competition with countries with large textile and garment export experience such as China, Bangladesh, Turkey, India... Meanwhile, the rules of origin from yarn and fabric onwards are the weak link of Vietnamese textile and garment when having to import up to 80% of fabric for export garments.

“Our company receives 70% of its orders for processing, so the proportion of imported materials varies depending on the order. However, most of the input materials such as fabric and accessories for buttons and zippers must be imported from China and Korea; the domestic market can only meet some of the needs for needles and sewing threads…” - Mr. Phuc said.

This is also the same situation in textile and garment enterprises today. In general, we mainly focus on garment processing for export; we are weak and lack focus on weaving and dyeing, and the industry of manufacturing auxiliary products. Difficulties in raw materials cause the textile and garment industry to remain in a vicious cycle of importing cotton to spin yarn, then selling yarn and then importing fabric.

The garment industry is having to import about 70% of raw materials, most of which are imported from the Chinese market. In the photo: Sewing line of Kido Vinh Company Limited. Photo: Thu Huyen

Mr. Tran Duc Long - Officer of Kido Vinh Co., Ltd. said that the garment industry is having to import about 70% of raw materials, most of which are imported from the Chinese market. We are strong in yarn and sewing but weak in weaving and dyeing, so for a long time, we have been exporting yarn to China and then importing fabric. This problem has caused the textile industry of the whole country in general, and Nghe An in particular, to have to import a large amount of fabric materials.

Strengthening supporting industries

According to the assessment of the representative of the Department of Industry and Trade, the production linkage between domestic enterprises and foreign-invested enterprises is still weak, most domestic enterprises have not participated in the supply chain of corporations operating in Vietnam. Meanwhile, the province's specific policies to encourage and promote the development of supporting industries are still lacking and inconsistent. The human resource training policy still has many shortcomings, failing to meet the needs of the labor market, especially the lack of high-quality human resources such as management staff and technical workers.

Cotton fiber - the main raw material for yarn production - is currently imported from abroad. Photo: Thu Huyen

Every year, the provincial budget has allocated 2-2.5 billion VND to support supporting industry enterprises; The total support from the local budget for projects implemented to date has reached 6.34 billion VND. In general, the Central Government's preferential policies for supporting industries are still difficult to access. The local budget allocated for supporting industry development activities every year is still low and difficult to implement.

According to the Department of Industry and Trade, in the coming period, Nghe An will focus on promoting the development of supporting industrial products to serve existing manufacturing industries in the province and the national market, which has high demand. For the textile industry, the demand for finished fabrics for the garment industry from now to 2030 will increase by 2,500 million meters, while most of the fabric products supplied to the garment industry are currently imported mainly from China, a country that is not a member of the CPTPP Agreement.

Therefore, to take advantage of the opportunities brought by CPTPP and EVFTA, enjoying 0% tax incentives will encourage businesses to invest more in the production of raw materials and inputs, which is a large market to supply fiber products for the textile industry to develop. For Nghe An, the potential for raw materials to produce fibers from cellulose such as bamboo, rattan, and mettan in the province is large because it has the largest area in the country, of which forested land accounts for 53.3%; the potential for manufacturing artificial fiber products from post-petrochemical materials from Nghi Son Oil Refinery Complex, Thanh Hoa.

Most of the materials for the textile industry such as needles, threads, etc. must be imported from abroad. Photo: Thu Huyen

There are currently about 8,000 garment enterprises nationwide, with more than 60 factories in operation in Nghe An province alone, and this number is expected to continue to increase. Most of the factories currently produce mainly according to the outsourcing model for foreign customers, which is the lowest value stage, so many enterprises are planning to deploy the production of FOB products (enterprises are self-sufficient from raw materials to cutting and sewing), ODM (enterprises are self-sufficient from design, raw materials, cutting and sewing). This is an opportunity to attract and develop supporting industrial products for the garment industry. The labor force in Nghe An province is abundant and has quite good skills. The rapid development of digital technology and big data opens up opportunities for enterprises to participate in the value chain from the design and production of raw materials.

Mr. Le Duc Anh - Deputy Director of the Department of Industry and Trade said: The textile and garment supporting industry in our province is lacking and weak. Most of our enterprises mainly do low-cost processing, lacking leading enterprises. The problem is to produce raw materials for the industry, protect the environment and form textile - garment - accessories chains. Increasing the localization rate will ensure that enterprises can master production, reduce costs, and improve competitiveness.

Currently, the new generation of free trade agreements CPTPP, EVFTA set requirements on rules of origin, yarn and fabric must be produced in Vietnam, used in Vietnam or in FTA countries to be certified for rules of origin and enjoy preferential taxes. This requires textile and garment enterprises to focus on chain development; Connect with domestic garment enterprises, form a chain of links across the entire value chain...

Thu Huyen