Vietnam's textile and footwear sectors need a raw materials hub to boost sustainability, competitiveness, and growth

Challenges of dependency on imported raw materials

According to Mr. Pham Tuan Anh, Deputy Director of the Industry Agency, the Ministry of Industry and Trade (MoIT), in the first six months of 2024, textile and footwear exports totaled nearly US$30 billion, 16% of Vietnam's export revenue, and created nearly five million jobs, or 22% of the industrial workforce.

"Despite being key export sectors, Vietnam’s textile and footwear industries still primarily operate on a low-value-added basis, heavily reliant on imported raw materials," Anh said.

He further explained that the primary cause of this reliance is the insufficient domestic supply of raw materials. Most materials are imported from China, South Korea, and other ASEAN countries, resulting in higher production costs and a dependence on fluctuating foreign supply chains and prices.

Beyond cost concerns, increasingly stringent regulations from major markets such as the EU, the United States, and other developed countries concerning regional value content and environmental standards are adding significant pressure on enterprises. Many countries have committed to achieving net-zero emissions by 2050, meaning imported products must strictly comply with rules of origin and eco-friendly standards.

Rules of origin in free trade agreements, like the EVFTA, significantly impact domestic businesses and foreign direct investment (FDI) enterprises that manufacture for export in Vietnam. To fully capitalize on tariff exemptions for textile and footwear products, it is essential to develop a robust domestic raw materials industry. Therefore, advancing the development of raw material supplies for the textile and footwear sectors is crucial.

New direction: establishing a raw materials hub

To address these challenges, establishing a raw materials hub for the fashion industry is a necessary and strategic solution to reduce dependence on foreign supplies and create a sustainable, self-sufficient production ecosystem.

Deputy Minister of MoIT Phan Thi Thang, stated: "This hub should have been established a long time ago, but for various reasons, we have not been able to implement it. We need to push the plan forward as soon as possible so that the hub can begin operations by 2025."

Textile industry expert Tran Van Dinh emphasized that the hub will help Vietnam mitigate risks from international market fluctuations and enhance its competitiveness by improving the ability to control product quality from the source.

The hub will bring long-term benefits to the textile and footwear industries. It will strengthen the textile and footwear industries' self-sufficiency, stabilize domestic supply, and reduce risks from global market volatility while optimizing production costs.

Moreover, the hub will create a favorable trade environment for both domestic and international businesses. It will be a center for displaying and trading materials, and a hub for new technologies in raw material production, helping domestic enterprises adopt the latest technologies.

Mr. Pham Tuan Anh emphasized, “we are working with two associations to finalize the hub proposal, including details like name, location, and funding. In October, a survey team is expected to visit successful models in China and other countries to ensure the proposal's feasibility and effectiveness.”

The hub will also help businesses meet traceability, environmental, and social responsibility standards. This will not only help Vietnamese products meet international standards but also expand export opportunities to demanding markets such as the EU and the U.S.

However, for the raw materials hub to be truly effective, support from the government is crucial. Mr. Truong Van Cam, Vice President of the Vietnam Textile and Apparel Association (VITAS), said, "Establishing the raw materials center is not a major issue, but its success largely depends on government policies and support."

According to representatives from VITAS, favorable policies regarding tax incentives, infrastructure investment, and encouraging businesses to participate in the domestic raw material supply chain will be key factors to ensure the center’s effective operation. Additionally, close cooperation between regulatory agencies, associations, and businesses is needed to ensure that the hub is designed to meet the industries’ practical needs. By establishing the raw materials center, Vietnam is moving toward production self-sufficiency and boosting global competitiveness in these industries.