Textile, footwear, wood, and electronics are the billion-dollar export industries of Vietnam. However, these industries are dependent mainly on the import of raw materials. In the context of the Covid-19 pandemic, businesses are facing more and more difficulties, forcing them to find solutions.

The leather, footwear and textile industry still imported more than US$8 billion
of raw materials in the first four months of 2021. Photo: H.Diu

Material problem

According to the Vietnam Textile and Apparel Association (VITAS), most textile and garment enterprises have orders until the end of June, even until July and August.

The main export markets are still Europe, the US, and Japan. These markets are even more favorable when Free Trade Agreements (FTAs) come into effect like the EVFTA. According to the Vietnam Leather, Footwear and Handbag Association (LEFASO), the Covid-19 pandemic is still complicated, negatively affecting the leather and footwear industry, especially the supply of raw materials and labor. LEFASO said that currently, the supply of raw materials and accessories for the leather and footwear industry is dependent on 60% of imports. In the context of the Covid-19 pandemic, disruptions in the supply chain of imported raw materials will greatly affect Vietnamese footwear manufacturers.

According to the General Department of Customs, in the first four months of the year, the total import turnover of this group of goods reached US$8.39 billion, a sharp increase of 22% (equivalent to an increase of US$1.51 billion) compared to the same period last year. Of which, China is the largest import market of the group of raw materials and accessories for Vietnam's textile, garment and footwear industry with US$4.19 billion, up by 34% compared to the same period in 2020 and accounting for 50% of the total import turnover of this group.

Experts estimate that relying too much on raw materials not only makes it difficult for businesses to set prices, but also difficult to meet regulations on rules of origin under FTAs.

Regarding prices, the Vietnam Cotton Yarn Association (VCOSA) said that in the first two months of 2021 alone, the price of imported cotton materials to Vietnam averaged US$1,625 per ton, up by 0.87% compared to the same period last year.

As for the rules of origin, typically for the European market, the EVFTA stipulates that Vietnamese enterprises use raw materials (leather, fabric) imported from any country that has an FTA with Vietnam and the EU, provided that the final product is made in Vietnam.

Support to find solutions

It can be seen that the problem of raw materials has been mentioned many times, so in the context of the pandemic, businesses have been looking for solutions to the problem.

Le Tien Truong, Chairman of the Board of Directors of Vietnam National Textile and Garment Group (Vinatex), said that the opportunity to increase exports to Europe has become a driving force for manufacturers of raw materials to boldly invest in factories, prepare and supply more raw materials that are "made in Vietnam".

In fact, recently, many investment projects to expand the production of raw materials for the textile industry have been announced.

For example, recently, Binh Duong Provincial People's Committee awarded a certificate of adjustment to increase by US$610 million to expand the production capacity of polyester synthetic fiber products and cotton spinning products to Polytex Far Eastern Company Limited of Far Eastern Group.

Century Yarn Joint Stock Company has announced the restart of the Unitex synthetic fiber factory project in Tay Ninh. This is a project with a total capacity of 60,000 tons, focusing on the segment of recycled yarn, high quality yarn and special yarn. Viet Tien Garment Corporation also planned to invest in a fabric factory through the establishment of Viet Thai Tech Co., Ltd. Thanh Cong Trading Investment Textile Joint Stock Company (TCM) also plans to invest in a dyeing and knitting factory of Vinh Long project in 2022 to complete the supply chain.

Regarding the steel industry, the price of raw materials has skyrocketed, so the leader of Hoa Phat Group said that the company will quickly complete the legal procedures to be able to start the Hoa Phat Dung Quat 2 Complex Project soon, with the goal of producing 8 million tons of crude steel.

Currently, all of Hoa Phat's iron and steel production complexes have brought into full play their designed capacity to serve market demand. In four months, Hoa Phat Group has produced more than 2.7 million tons of crude steel, increasing by 58% compared to the same period in 2020. Thanks to the initiative in hot-rolled coil (HRC) raw materials, in April, the volume of pipes Hoa Phat's steel sales reached 87,000 tons, up by 44.5% compared to the same period last year. Galvanized steel products grew by 55%.

Talking more about taking the initiative in sourcing raw materials from the enterprise, a representative of CP Vietnam Livestock Joint Stock Company said that the experience of the enterprise is to actively increase the reserve of raw materials for production, avoiding the situation of "living from hand to mouth" in the context of rising raw material prices and the impact of the Covid-19 pandemic.

He said that, especially for the livestock industry, the domestic market also has many raw materials for livestock such as fish and shrimp processing by-products, which businesses can take advantage of, so it is not be too dependent on imported materials.

However, in order to really develop in terms of raw materials, businesses believe that it is necessary to have financial support. Namely, there is a preferential mechanism for financial loans or tax reduction for enterprises investing in supporting industries, which will help businesses have resources to create quality products that are less competitive in terms of price with imported products.