Keeping the Upper Hand in Material Sources

 

After a five-year implementation (2001-2005) of a strategy speeding the growth of the garment industry, the localisation target, raising locally sourced components from 20 per cent in 2000 to 50 per cent in 2005, failed as cotton fibre and shuttled textile output increased too slowly. After 2005, the localisation ratio was only 30 per cent. The total current shuttled material is 680 million square metres and 38,000 tonnes of towels a year. Worse, domestic materials failed to meet export requirements. The cloth for export and for production for export now accounts for some 13-14 per cent.

 

To overcome such weak points to make Vietnam a world top ten exporter of garments and textiles by 2010, Vietnam Textile and Garment Group (Vinatex) is promoting a strategy increasing the output of cloth for export garment production to one billion square metres by 2010. The problem is how to draw the huge investment capital needed into the garment and textile industry, where capital recovery is slow. To realise the above target, Vinatex is estimated to need VND30,000 billion (US$1.85 billion) for 2006-2010, which can be raised from the state budget, private and FDI sources, Mr Le Quoc An, Chairman of Vinatex said. Of the sum, 60 per cent will come from loans, the remainder from Vinatex members’ equity.

 

The US-based International Textile Group (ITG) recently signed an agreement in commercial cooperation and technical assistance with Vinatex, planning to upgrade facilities for Vinatex. The Malaysia-based Pamatex Berhad Group has finished investment licence application for a US$100-million textile, dyeing and garment complex for exports, in Tam Hiep Industrial Zone of Chu Lai Open Economic Zone. This project, started in August 2005, is scheduled for operation this year, creating jobs for some 10,000 worker and churning out 6,000 containers of products a year. Previously, Daewoo (South Korea), Formusa and Chung Shing (Taiwan) have invested hundreds of millions of US dollars in Vietnam.

Under a Ministry of Finance decision, import tax on fibres and artificial fibres was increased to 5 per cent from September 15, 2006. However, the Vietnam Textile and Apparel Association (Vitas) disagreed with this decision requested the Prime Minister void it. According to Vitas, Vietnam has to import almost 100 per cent of these types of materials; hence the import tax rise will negatively affect the price of input materials and production costs, blunting the competitiveness of Vietnamese products. Nevertheless, domestic fibre producers have a different point of view. A representative from Hung Nghiep Formusa Co. Ltd affirmed that four companies in Vietnam are manufacturing fibres. Formusa alone invested up to US$280 million to turn out 260,000 tonnes per annum. Together with other producers, fibre output is able to meet domestic demand. However, domestic textile and garment firms dislike domestic fibres. As a result, Formusa is now only operating at some 40-50 per cent of its designed capacity.

 

Regarding this issue, the Ministry of Finance said the tax policy aims to gradually reduce reliance on imported materials and encourage domestic production in line with the Garment and Textile Sector Development Strategy from now until 2010. In fact, fibre producers in Vietnam have asked for a higher import tax of 7-10 per cent. Therefore, the 5 per cent rate is a suitable option although it does not fully satisfy either side.

 

At a recent meeting, Mr Diep Thanh Kiet, Vice Chairman and Secretary General of Ho Chi Minh City Association of Textile, Garment, Embroidery and Knitting, said domestic fibre production now meets 50 per cent of demand. He explained that domestic fibre demands include different sizes and types, some of which local producers cannot make. Meanwhile, the Ministry of Finance affirmed the tax rise is only applied to products that local manufacturers can make. In the meantime, local firms also support the import of products that Vietnamese firms cannot make.