The wave of investment in Vietnam's textile industry is becoming increasingly active as the free trade agreement (FTA) is going to reach final negotiation rounds. However, while domestic enterprises have difficulties finding financial resources, it is hard for foreign ones to search for site plans.
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The wave of investment in Vietnam’s textile industry is becoming increasingly active as the free trade agreement (FTA) is going to reach final negotiation rounds. However, while domestic enterprises have difficulties finding financial resources, it is hard for foreign ones to search for site plans.
If there are no changes in policies, Vietnamese textile products will not enjoy preferential tariffs when reaching the United States or Canada as stated in FTA.
Domestic enterprises: strong focus on materials development
With the most stable financial capacity, the Vietnam National Textile and Garment Group (Vinatex) is now known as the leading domestic firm in investment activities in the textile industry. Therefore, Vinatex, with the goal of achieving US$5 billion in export turnover in 2016, is trying to reach the progress schedule, as it planned to invest in 57 projects in 2014. In a total of 57 projects, 2 projects of cotton farms, 15 projects of fabrics, 8 projects of textile and 24 projects of garment were implemented. Particularly, investment procedures of some projects with significant investment capital are completed by this group so those projects can be carried out soon.
For example, complex project to weave, dye and sew with a total investment capital of VND2,200 billion is expected to be deployed at the end of the first quarter in 2014 or fabric manufacturing plants which produce up to 60 million metres of fabric, fibre manufacturing plants up to 200,000 bunches of fibre. When these projects are completed, Vinatex can increase by 7,000 tonnes of fibres, 4,000 tonnes of knitted fabrics and over 20 million metres of woven fabrics.
Mr Le Tien Truong, Vinatex’s Standing Deputy General Director, said that 2014 is an important year for businesses to complete the implementation of projects in order to enhance the capacity of raw material supply and to grasp opportunities from FTAs, especially the Trans-Pacific Strategic Economic Partnership Agreement (TPP). Therefore, investment capital of Vinatex’s projects also had a five-fold increase, mainly focused on raw materials which account for 80 percent of capital and the other 20 percent for sewing project.
Mr Pham Xuan Hong, Vice President of the Vietnam Textile and Apparel Association (Vitas) said that the investment in dyeing textile materials requires not only a huge of capital, but also high technology requirements and strict environmental protection standards. Paradoxically, many firms want to invest in the textile dyeing industry but they face many barriers due to strict environmental protection standards.” If there are no changes soon, Vietnamese textile products cannot enjoy preferential tariffs when importing into the United States or Canada as TPP agreements. Therefore, the state should introduce appropriate policies to support Vietnamese enterprises such as lending interest rate cuts for investment projects of garment and footwear industry. Simultaneously, it needs to make up a detailed plan to create industrial zones for textile dyeing projects”, said Mr Hong.
Foreign companies: rushing to build factories in Vietnam
Once TPP has been signed, import tariffs of textile products into the market of member countries, particularly the US (Vietnam’s biggest textile export market) will be reduced from 17 – 32 percent to 0 percent. Thus, a series of foreign investors have flocked to set up factories in Vietnam to take advantage of this attractive tariff.
Texhong Group has inaugurated a textile factory in Quang Ninh with investment capital of US$300 million. In 2006, Texhong also built a textile factory in Dong Nai province’s Nhon Trach district with a total invested capital of over US$200 million. Unisoll Vina Company of Hansol Textile Ltd, Korea has also been licensed to build the garment, leather and fur manufacturing plant with a capacity of 90 million pieces per year and total investment capital of US$50 million. TAL – a corporation specializing in textile of Hong Kong- plans to invest in Vietnam market through garments, fabrics, weaving and sewing manufacturing projects with a total investment capital of US$200 million in phase 1. In a recent meeting with textile companies, Mr Uong Tien Thinh, Executive Manager of Vinatex stated that foreign invested enterprises are going to expand their markets throughout Vietnam and in many areas, from garments to fibres, weaving and dyeing. Some Chinese companies are also exploring and shifting production to Vietnam to take advantages of TPP. According to the Ho Chi Minh City Association of Garment, Textile, Embroidery and Knitting, corporations such as Toray International and Mitsui (Japan), Lenzing (Australia) and Sunrise (China) also come to Vietnam to seek investment opportunities when TPP takes effect.
Still barriers
If there are no changes soon, Vietnamese textile products will not enjoy preferential tariffs when being imported into the United States or Canada as stated in FTAs.
According to Ms Dang Phuong Dung, Vice President and General Secretary of Vitas, the FTAs that Vietnam is negotiating are significant and will push the development of the textile industry: “This is a turning point, so from 2013 and especially from the beginning of this year, many foreign business delegations have come to Vietnam to learn about policies, investment conditions, costs, labour and market stability with the aim of making investment decisions. However, while sewing projects have small capital which is easy to call in, projects of weaving and dyeing require huge capital, thus, investors need to take more consideration.”
Even though foreign investors have strong financial resources, they still consider carefully and only make investment decisions when there are favourable conditions in policy and infrastructure. Vitas said that many foreign investors have decided to invest, but many local authorities are afraid of environmental pollution and poor wastewater treatment so they did not give priority to investors in the textile industry. This fact troubled many foreign investors looking to find a conductive investment destination, with wide and suitable site plan for projects.
Meanwhile, Vinatex is struggling with the problem of investment capital mobilisation. Representatives of this group said that just in 2014, capital investment required for the project is VND9,722 billion, but the expected disbursement is only VND4,915 billion. Moreover, the total investment in 2015 is about VND20 trillion, while the charter capital is just about VND4 trillion, so this will be the biggest barrier to Vinatex in implementing the target of increasing localization rate to 60 percent in 2015.
(Source: VCCI)
