Union Minister for Textiles, Commerce & Industry and Consumer Affairs and Public Distribution, Shri Piyush Goyal has said that Industry and Government are partners in India’s growth story & now, is the time to be a Global Champion in Textiles by taking up bigger & bolder targets. Interacting virtually with the leaders of Textile Industry in India, today, Shri Goyal stated that in this period of the Azadi ka Amrit Mahotsav, we must all collectively put forth our efforts in one direction to realise our goals. Shri Goyal asked the Textile industry to work for achieving the target of $ 100 billion exports in a quick time. Thanking the Pime Minister Narendra Modi and Finance Minister for the decision to defer the increase of tax slab from 5% to 12% for Textiles, taken in the 46th meeting of GST council, Shri Goyal said that this is a new year gift for the Textile Industry. He added that the requests of industry stakeholders was considered in present challenging times when the sector is on the path of recovery. He also expressed his gratitude to the textiles leaders who remain connected with the Ministry with all their grievances regarding raising the GST slab in MMF segment. The Minister mentioned that under Prime Minister, the textile sector has received a new boost to achieve Speed, Skill & Scale. He emphasized that to make India Aatmanirbhar, we need to make our Artisans, Weavers, Farmers & MSMEs Aatmanirbhar. Talking about several transformational reforms to realise vision of an Aatmanirbhar Bharat & solidify India’s position on the Global textiles map, the Minister said that step by step we have strengthened textile ecosystem of the nation to fully utilise our competitive & comparative advantage. He said from weavers to women entrepreneurs, every segment has been empowered by these steps. Shri Goyal called upon the Textiles Industry Leaders to send suggestions for improving and developing the sector further. He also said that collectively with Subka Saath, Subka Vikas, Subka Prayas and Subka Vishwas we will surely achieve all of our targets. The Minister also enumerated and suggested the steps of Vikas and Aatmanirbharta. Referring to PLI Scheme for Textiles, he said that PLI will increase the global footprint of India in MMF & Technical Textiles. He said Rs 10,683 cr scheme will create 7.5 Lakhs direct Jobs. He said approval for 7 PM Mega Integrated Textile Region & Apparel (PM MITRA) Parks will attract cutting edge technology, investment & generate ~1 Lakh direct & ~2 lakh indirect employment per park. Shri Goyal stated that continuation of RoSCTL scheme up to Mar 2024 will boost export competitiveness. He said RoDTEP for Textiles Products other than Apparel & Made Ups have been covered in RoSCTL. Removal of Anti Dumping Duty on several key raw material e.g. PTA, Viscose Staple Fibre, Acrylic, Nylon is a boost to man made fibre based textiles industry, he added. The Minister mentioned that government is trying to get new markets for textiles through FTA. He informed that in all the ongoing negotiations with major countries like UK, UAE, Canada, EU, Australia there is a special focus on getting concessional duties for Textile products. Talking about SAMARTH Scheme, the Minister said that 71 textile manufacturers, 10 industry associations, 13 state govt agencies & 4 sectoral organisations on-boarded to help skill development & training of ~3.45 lakh beneficiaries. Steps have been taken to on-board weavers on GeM platform to enable them to sell their products directly to Govt, ~1.50 Lakh weavers on-boarded, he added. Under Concessional Credit/Weaver MUDRA Scheme, for financial assistance, Shri Goyal said that Margin money assistance @20% of loan amount, (max Rs 25,000) per weaver & @ 20% of loan amount, (max Rs 20 lakh) per handloom organization is provided. Shri Goyal further said that robust export numbers helping us realise the dream of “Local goes Global; Make in India for the world”. He informed that textiles export increased by 45%, to $16.7 bn in Apr-Nov 2021 w.r.t same period in Apr-Nov 2019. Referring to the challenging times of COVID pandemic, the Minister said that we have suffered losses but we have also learned many lessons. He said, “The wise learn many things, even from difficult situations”. We have converted the crisis into an opportunity, he added.
Source: PIB
Goyal also thanked the prime minister for the decision to defer the increase of GST slab from five per cent to 12 per cent for the textiles sector Union Minister Piyush Goyal on Tuesday said the government is making efforts towards gaining access to new markets and getting concessional duties on textile products through free-trade agreements. Interacting with textiles associations, the Minister for Textiles and Commerce and Industry shared that in all the ongoing negotiations with major countries like the UK, the UAE, Canada, the European Union and Australia, there is a special focus on getting concessional duties for textile products. Goyal also thanked the prime minister for the decision to defer the increase of GST slab from five per cent to 12 per cent for the textiles sector while addressing the All India Textiles Association, according to an official statement. "He added that the requests of industry stakeholders were considered in present challenging times when the sector is on the path of recovery. "He also expressed his gratitude to the textiles leaders who remain connected with the ministry with all their grievances regarding raising the GST slab in MMF (manmade fibre) segment," the textiles ministry stated. Referring to the production-linked incentives scheme for textiles, he said PLI will increase the global footprint of India in manmade fiber and technical textiles. He added that the Rs 10,683-cr PLI scheme will create 7.5 lakhs direct jobs. Goyal also said approval for seven PM Mega Integrated Textile Region & Apparel (PMMITRA) Parks will attract cutting-edge technology and investment, and generate around one lakh direct and two lakh indirect employment per park. He added that textiles exports increased 45 per cent to USD 16.7 billion in AprilNovember 2021 with respect to the same period in April-November 2019.
Source: Business Standard
Commerce and Industry Minister Piyush Goyal has recently reviewed the status of Brand India Campaign of India Brand Equity Foundation With the country's outbound shipments all set to cross $400 billion this fiscal year, the Commerce Ministry is planning to launch Brand India Campaign to give momentum to exports of both services and products in new markets, an official said. This campaign would serve as an "umbrella campaign" for promoting goods and services exported by India, the official said.
Source: The Hindu
PM Narendra Modi on Tuesday said that the Northeastern states will become major drivers of India's growth in the upcoming years with Manipur as the main source of the country's growth trajectory. Prime Minister Narendra Modi on Tuesday said that the Northeastern states will become major drivers of India's growth in the upcoming years with Manipur as the main source of the country's growth trajectory. While addressing the inauguration programme of developmental projects here, PM Modi said as Manipur will be completing 50 years of statehood on January 21, the state "will become the main source of India's growth trajectory and will stretch its potential to other parts of India via enhanced road connectivity and infrastructure projects." Adding that the Northeast is all set to become the "new gate of development" for the country, PM Modi said, "The Northeast, where Netaji Subhash Chandra Bose's army hoisted the flag for the first time calling it the gateway to India's independence, is now becoming the gateway to fulfil the dreams of New India." PM Modi inaugurated and laid the foundation stone of several developmental projects here today. PM Modi inaugurated 13 Projects worth over Rs 1,850 crores and laid the foundation stone of nine projects worth around Rs 2,950 crore; spanning across sectors such as Road Infrastructure, Drinking Water Supply, Health, Urban Development, IT and more. He also laid the foundation stone of construction of five National Highway Projects to be built at a cost of more than Rs 1,700 crore, with a cumulative length of more than 110 km.
Source: Business Standard
Ease of Doing Business for MSMEs: In November 2021, the government had notified uniform GST at 12 per cent on man made fibre (MMF), MMF yarn, MMF fabrics and apparel to address the inverted tax structure in the MMF textile value chain. Ease of Doing Business for MSMEs: Urging Commerce Minister Piyush Goyal to withdraw proposed GST hike on textiles from 5 per cent to 12 per cent instead of deferring it, traders represented by Confederation of All India Traders (CAIT) on Tuesday said that the hike would put a ‘big financial burden’ on over 85 per cent of people in India who buys clothes of less than a thousand rupees. At a video conference by the Ministry of Textiles, trade associations under the CAIT umbrella said that the sword of GST hike is still hanging over the heads of textile and related businesses even as they thanked the government for postponing the hike for now. “This increase will affect the country’s textile trade whereas on the other hand more than 85 per cent of the people of the country, who buy clothes of less than one thousand rupees, will have a big financial burden upon them,” CAIT said in a statement citing trade leaders. The government had deferred the GST hike on textiles from 5 per cent to 12 per cent. The decision was taken at the GST Council’s 46th meeting on Friday under the chairmanship of Finance Minister Nirmala Sitharaman. In November 2021, the government had notified uniform GST at 12 per cent on man made fibre (MMF), MMF yarn, MMF fabrics and apparel to address the inverted tax structure in the MMF textile value chain. The changed rates were to come into effect from January 1, 2022. Textiles Ministry had cited in a statement that ‘long pending demand’ from textiles and apparel industry under sales tax earlier and then under VAT and finally under GST regime for removal of inverted tax structure on MMF value chain. The GST on MMF, MMF Yarn and MMF Fabrics were 18 per cent, 12 per cent, and 5 per cent respectively. “The taxation of inputs at higher rates than finished products created a build-up of credits and cascading costs. It further led to the accumulation of taxes at various stages of MMF value chain and blockage of crucial working capital for the industry,” the ministry had said. However, the inverted duty structure would still remain after GST hike as the raw material – purified terephthalic acid (PTA) and mono ethylene glycol (MEG) — required for MMF fibre and filament manufacturers was still capable of 18 per cent GST, according to a draft presentation prepared by the Polyester Textile and Apparel (PTA) Association and shared earlier with Financial Express Online. “The hike would only cover half the portion of MMF industry and left out its backward manufacturing structure which is the basic thing for the government to do first. The government should reduce GST on PTA and MEG also from 18 per cent to 12 per cent so that the whole MMF value chain is covered,” RK Vij, General Secretary, PTA Association had told Financial Express Online. Nirmala Sitharaman addressing a press conference after the GST Council meeting had said that a committee (Tax Rate Rationalisation Committee by GST Council), which is already looking at rate rationalisation, will again review textiles along with other items and submit a report by February. “While the rollback of the GST rate hike proposed on many textile products would benefit the sector, especially SMEs and MSMEs who operate in this employment intensive sector, it would be necessary to find out a solution in future to the problems of inverted duty structure in the textile sector. The decision to roll back the proposed GST rate increase case of the textile products would also make the footwear sector expect similar treatment in future. The proposed recommendations of the rate rationalization committee expected in the next two months would be keenly watched by many sectors, including the textile sector,” said M.S. Mani, Partner, Deloitte India. CAIT said that Goyal has directed Textiles Ministry officials to interact with traders on the issue. On Monday, Tirupur Exporter’s Association President Raja M Shanmugham had also requested Goyal to remove cotton import duty. Shanmugham also informed the minister that Textile Mills Associations, Southern India Mills Association, Tamil Nadu Spinning Mills Association, and Indian Texpreneurs Federation were told to advise their members not to increase the cotton yarn prices disproportionate to increase in cotton prices as that will affect the value-added knitwear garment sector.
Source: Financial Express
Following the High Court censure of AMC and Gujarat Pollution Control Board over lax implementation of pollution-control measures, many industries are facing the heat and looking to transfer units outside the city periphery. These include chemical, textile, Active Pharmaceutical Ingredients (API) and pharmaceutical, engineering, paper, plastic and packaging industries based in Narol, Vatva, Odhav, Kathwada, Naroda, Chhatral, Danilimda, Kalol, Kadi and Changodar. Kiran Patel, who owns a textile and a dyes company in Vatva, said, “We have planned expansion in both the sectors but at a place far from the city as we don’t want to face hassles of environment clearance (EC) in future. “Private parks like Vibrant Industrial Park Ltd (VIPL) in Vataman, 75 km from the city, or Sanand make more sense to us.” Dahej and Saykha in South Gujarat are also being explored. Sachin Patel, who owns an engineering unit within the city, said, “I am looking to expand existing business as well as foray into API. VIPL at Vataman fits the bill and is nearer compared to Dahej and Saykha which are four-five hours away.” According to industry experts, there are 10,000 hectare land parcels occupied by different industries in and around Ahmedabad with cumulative investment of Rs 5 lakh crore. Of them, 40 percent are chemical industries and 20 percent are textiles. Remaining 60 percent include other industries like pharma and API, engineering, paper, packaging, etc. VIPL chairman Sailesh Patwari said, “Around 200 companies from Ahmedabad from varied sectors have already shown interest to establish their units in VIPL. Most of them are looking to expand capacities.” Patwari further said, “Expansion requires environment clearances and adherence to other norms like setting up of Effluent Treatment Plant (ETP). Most companies don’t want to get into the trouble of managing it. VIPL offers plug-and-play model with common ETP.” President of Sanand GIDC Ajit Shah said inquiries have increased from engineering industries in Ahmedabad to establish their units here. This is primarily because of EC, space constraints and real estate price escalation in the city area.
Source: Ahmedabad Mirror
In FY21, India's exports to Australia- comprising refined petroleum, medicaments, railway vehicles including hovertrains, pearls and gems, jewellery, and made-up textile articleswere $4.04 billion, while imports were $8.24 billion. Australia has offered to give tariff concessions to 99% of its traded goods with India under the proposed bilateral free trade agreement in lieu of opening up of India's dairy and agriculture sectors through low or zero tariffs. Canberra is keen to export dairy products, grains, oilseeds and processed food to India. The two sides intend to complete the talks for an interim deal, called early harvest in trade parlance, by the end of this month. "Australia has indicated to make their import duties zero on 99% goods at the time of entry into force of the agreement," said an official. In FY21, India's exports to Australiacomprising refined petroleum, medicaments, railway vehicles including hovertrains, pearls and gems, jewellery, and made-up textile articles- were $4.04 billion, while imports were $8.24 billion. Imports included coal, copper ores and concentrates, gold, vegetables, wool, fruits and nuts and lentils. India's exports of chemicals, fabrics, apparel, footwear and machine tools, among others could get zero-duty benefits. "Dairy and agriculture are sticking points. An interim package can include products where there is mutual consensus while the contentious issues can be taken up later," the official said. Commerce and industry minister Piyush Goyal on Monday said that the interim agreement with Australia will cover "large areas of interest particularly our labour oriented sectors like textiles, pharma, footwear, leather products The two sides have agreed to conclude a long-pending FTA called a comprehensive economic cooperation agreement by the end of 2022. However, industry experts cautioned about opening sensitive sectors like dairy and agriculture as they are huge employers. "Once sensitive sectors like dairy and agriculture are opened for Australia, others like the EU and the UK too will seek market access and make our products uncompetitive," said an industry representative.
Source: Economic Times
According to per capita income level, the Chinese economy belongs to 'upper-middle income' category, argues India India and China have mostly set aside their bilateral differences in order to champion the cause of developing countries at the World Trade Organisation (WTO). That seems to be changing. During the latest round of China’s trade policy review, India questioned its northern neighbour’s claim that it was a developing country, since, going by the World Bank’s definition, its per capita income belongs to that of an upper middle income country. “As per the per capita income level, the Chinese economy belongs to ‘upper-middle income’.
Source: Business Standard
Boosting export infra, striking beneficial trade deals, and focussing on tech-intensive exports is the way forward International trade posted a strong recovery in 2021 on the back of relaxation in pandemic associated restrictions, economic stimulus from governments and rising commodity prices. Globally, trade in goods is expected to reach record levels of $22 trillion in 2021, an increase of 23 per cent as compared to the levels in 2020, and 11 per cent as compared to the pre-Covid levels in 2019. The buoyant global demand also boded well for exports from India. Merchandise exports from India posted a strong recovery in 2021, reaching nearly $354.4 billion during January to November 2021. This was a 104.5 per cent increase over the corresponding period of 2020. The increase was not simply due to a low base-effect as merchandise exports were also an impressive 19.3 per cent higher than the pre-Covid levels in the corresponding period of 2019. During the first three quarters of 2021, merchandise exports far outpaced the pre-Covid levels, and the trend is likely to have continued in Q4 of 2021. Forecast by Exim Bank’s Export Leading Index indicates a likely growth of 39.6 per cent during Q4 2021. Diverse growth patterns Notwithstanding the encouraging trends in global exports, the growth remained largely uneven across sectors. While sectors such as petroleum products, and industrial commodities were buoyed by increasing global demand and rising commodity prices, trade in sectors like automotive and electronics were disrupted by global shortage of semiconductors. Growth in India’s merchandise exports also mirrored this trend, with exports increasing in several traditional areas of competence like petroleum products, engineering goods, drug formulations, gems and jewellery, and textile and garments, but remaining far below pre-Covid levels in the sectors affected by semiconductor shortage such as cars and certain electronic components and electronic instruments. The rising food security concerns in regions such as the Middle East and North Africa also led India to emerge as a reliable supplier of food products. Technology-intensive exports such as two- and three-wheelers, auto components and telecom instruments also recorded remarkable double-digit growth during the year. Unresolved trade tensions Several long-standing issues for India such as negotiations on fisheries subsidies, the highly ambiguous future of the Doha Round and persistent disagreements over reform of the multilateral trading system continued to pose challenges to rule-based trading regime. Moreover, several of India’s trade disputes, both as a complainant and as respondent, remained unresolved due to the failure to reach a decision on appointments to the Appellate Body of WTO for the second consecutive year. Delay in reaching an effective outcome poses a potential threat of backlash against globalisation.
Growing regionalism Promoting trade resilience through regional integration has been a noticeable trend in 2021. The African Continental Free Trade Area became effective from January 2021, and the RCEP also comes into effect from January 2022. While these are likely to boost intra-regional trade, experts have time and again highlighted that the benefits of trade diversion and trade creation will most likely remain skewed in favour of a few, rather powerful member countries. India finds itself in a dichotomy between the urgent need to foster trade relations in an era of growing regionalism and treading cautiously on account of its prior experiences with trade agreements. Driven by both these considerations, India is engaging in negotiations with partner countries for enhancing market access. India has recently entered into an agreement with Mauritius, which is its first trade agreement with an African economy. Besides, negotiations are also underway for an India-EU trade agreement and India-GCC trade agreement, as also for bilateral trade agreements with Israel and Thailand, among others. Going forward, trade deals with top markets such as the UK and the UAE, among others, are also expected to materialise. Trade agreements are therefore expected to increasingly gain salience in India’s trade relations.
Logistics and export infra Notwithstanding the remarkable recovery in global demand, logistics cost and container shortages marked a severe dent on the ability to cater to the demand and led to backlogs in supply. While several short-term measures have been taken by the government to alleviate the challenges associated with container shortage, a long-term priority would be to boost the manufacturing of containers in the country. Currently, container manufacturing is dominated by Chinese and Korean suppliers and building domestic capacities in this area would be crucial for achieving self-reliance. The much-awaited logistics policy could also be a game-changer for Indian exporters, as reduced logistics cost could improve their export competitiveness. The policy needs to be complemented by efforts from State governments to strengthen export infrastructure. States need to enhance the utilisation of support provided under the Centre’s Trade Infrastructure for Export Scheme (TIES) for strengthening export infrastructure. As on March 12, 2021, only 18 States/UTs had projects approved under TIES. The States/UTs that have not availed support under the scheme account for more than onethird of India’s merchandise exports. With improvement in export infrastructure, these States/UTs can further boost their exports.
The way ahead With production likely to outpace consumption growth, commodity prices are expected to gradually ease during 2022. Consequently, exports of petroleum products, metals, and agri-products are likely to moderate, if the scale of exports volumes does not increase substantially to offset the decline in prices. The growth momentum in exports from technology-intensive sectors is likely to be bolstered through the implementation of schemes such as the Production-linked incentive scheme. The likely extension of the Interest Equalisation Scheme for export credit would be a further boost to exporters. Going forward, strengthening export infrastructure through State-level participation, striking mutually beneficial trade agreements, and diversification of exports basket towards technology-intensive sectors would be the core motifs of India’s export growth strategy.
Source: The Hindu Businessline
The textile division of ARISE Integrated Industrial Platform (IIP), based in the UAE, has joined the ITMF as a corporate member. ARISE IIP identifies industrial gaps in African countries to unlock value and create new industries. The aim is to industrialise key sectors by creating transformation, maximising production, efficiency, and cost, which in turn generates local value addition. Arise IIP seeks to boost exports, enable local transformation of raw materials and promote trade by tailor-made special economic zones in Gabon, Benin and Togo. In Benin and Togo Arise IIP will focus at creating value chains for the textile industry – from raw material sourcing to resource transformation through manufacturing, to exporting final products, ITMF said in a press release. The International Textile Manufacturers Federation (ITMF) founded in 1904 is the international forum of the global textile value chain. Its members are from textile and apparel producing countries representing 90 per cent of global production. “By becoming a corporate member of the ITMF, Arise IIP will benefit from a unique international network, the expertise of ITMF, and an international platform for the global textile value chain where international trends and are discussed. Likewise, ITMF and ITMF’s members will benefit from Arise’s activities in West Africa,” said Dr Christian Schindler, director general of ITMF. “By joining ITMF we have access to all major players in the global textile and apparel value chain. The world is getting more and more integrated. Therefore, cooperation along the global textile value chain and understanding its complexity and dynamics are paramount,” Rajaguru Raja, CEO of Arise IIP (Textile Division), said.
Source: Fibre2Fashion
Bangladesh’s import payments have surged by 53.74 per cent year on year to $30.3 billion between July and November—the first five months of fiscal 2021-22, according to statistics from Bangladesh Bank. The rising import bills indicate a steady economic recovery. The settlement of letters of credit stood at $19.72 billion in the corresponding period last year. Yarn, capital machinery and intermediate goods imports had a strong contribution to the bills, which means production lines are kicking and there has been a strong consumer demand at home. However, increasing commodity prices in the international market and rising shipping costs pushed up the import payments, according to a report in a Bangladesh newspaper. In the first five months of FY22, capital machinery import grew by 30 per cent, import growth of intermediate goods was 70 per cent and that of yarn was 103 per cent.
Source: Fibre 2 Fashion
Textile industry says planned move will dent exports, widen trade deficit Textile exporters have expressed serious concern over the planned withdrawal of Textile Policy 2020-25 in the wake of “harsh measures” being taken by the Ministry of Finance to revive the economy and the International Monetary Fund (IMF) loan programme. In a joint statement on Tuesday, Pakistan Apparel Forum Chairman Mohammad Jawed Bilwani termed the move unwise and reckless. “The proposal comes at a time when the textile export industry is in a take-off mode and businessmen are looking to boost exports,” he said. “Withdrawal of the policy will destroy the textile sector, dent exports, slash foreign exchange reserves and encourage businessmen to shift industries to some other country.” He noted that the textile exporters were disappointed and burdened with one adverse decision after another and as a result they were planning to shift their business to foreign countries where they could work and expand their enterprises peacefully. Government’s decision to withdraw the policy would prove to be the “deadliest U-turn” in the history of Pakistan because it would not only sabotage efforts of the value-added textile exporters but would also destroy the textile base. Talking about the issue, Arif Habib Limited analyst Arsalan Hanif told The Express Tribune that the primary purpose of policies should be to steer sustainability in decisions for the next five years. “If there is no consistency in policy, then there will be no new investment,” he voiced concern. Pakistan Knitwear Sweaters Exporters Association Chairman Aitazaz Ahmed Japanwala said that the policy was approved with the consent of Prime Minister Imran Khan, who agreed, in principle, to all recommendations of the textile exporters. “From time to time, the commerce and finance ministries also gave their assurance of complete support in this regard,” he said. “The implementation of the recently approved third textile policy had been pending since 2019 and now it seems that all efforts will prove to be futile.” The Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) called for reversal of the policy withdrawal decision because swift implementation of the policy was vital for new investment in the export-oriented sectors of Pakistan. “Withdrawal of this policy will deal a blow to the value-added garments sector,” noted PRGMEA North Zone Chairman Sheikh Luqman Amin in a letter written to PM Khan on Tuesday. “It is also against the prime minister’s vision of promoting exports.” He lamented that Pakistan was already lagging behind regional countries in terms of exports and withdrawal of the policy would lead to contraction of exports besides widening the already ballooning trade deficit. He was of the view that a long-term policy would give investors a clear signal that the government was ready to support the apparel sector. He stressed the need to introduce a proper policy for the textile sector and cited that the industry contributed about 60% to the country’s total exports, besides providing jobs to millions of people. “At present, the industry is working below capacity and several exporters are refusing export orders,” he said. On the flip side, Arif Habib Commodities CEO Ahsan Mehanti said that the Textile Policy 2020-25 was a burden on the government and other industries were at a disadvantage due to the policy. He noted that the ultimate aim of the policy had been achieved, ie revival of the textile sector. “The government has to fulfill IMF conditions and align the textile policy with the industrial policy to control the fiscal deficit,” said Mehanti. He stressed that attention should be paid to new sectors to maintain or lift foreign exchange reserves and exports once the textile policy was withdrawn. According to him, IT services, cement and agriculture sectors could fill the gap left by reversal of the textile policy.
Source: The Tribune
• As Vietnam transforms into a global manufacturing hub, it has emerged as an effective relocation destination also known as the China plus one strategy. • Major factors driving industry growth are the benefits from multilateral free trade agreements and competitive labor costs. • Despite its development in recent years, the manufacturing sector in Vietnam could develop human resources and leverage its capabilities to enhance competitiveness. As global businesses seek to diversify, increase resiliency and connectivity of their supply chains and decrease reliance on a single country, Vietnam has become a top destination for investment in manufacturing due to its strategic location and advantages in shipping, competitive labor, and production costs. Compared to other Southeast Asian countries, Vietnam stands out with international airports seaports, and rail links facilitating production flow and transportation. In 2020, the manufacturing and processing sector continued to take the lead in the country’s foreign direct investment (FDI), making up 58.2 percent of the total. With its contribution, Vietnam’s economy is forecast to regain momentum and reach GDP growth of 6 to 6.5 percent in 2022. In 2020-2021, due to COVID-19, the manufacturing sector endured significant supply chain disruptions. Temporary business closures, transportation difficulties, and staff shortages all contributed to a reduction in manufacturing output in Vietnam. Meanwhile, the pandemic hindered manufacturing industries due to an increase in input prices, raw material shortages, lack of shipping capacity, and transportation issues. However, following the easing of lockdown restrictions, business activity in Vietnam has been busy again with consumer confidence gradually recovering. According to a report by IHS Markit, Vietnam’s manufacturing purchasing managers’ index (PMI) increased to 52.2 in November from 52.1 in October, attributed largely to higher new orders and government incentives. A score of 50 or more means an expansion in manufacturing. Manufacturing’s key drivers The manufacturing industry is driven by several key factors. Firstly, Vietnam is touted as a low-cost manufacturer with competitive labor costs. On average, Vietnam’s labor costs are half as much as China’s labor costs at US$2.99 (VND 68.000) per hour compared to US$6.50 (VND 148.000) per hour respectively. This contributes to Vietnam’s increasing position as a more cost-effective alternative to its regional counterparts. Secondly, Vietnam has a relatively large, well-educated labor force, making it an attractive hub for production. In addition, the government has provided various vocational education and training sessions to equip the workforce. With the current labor shortage and lack of skilled workers in specific industries such as IT, the government has put additional strategies and programs in place. For example, several incentives have been issued such as the recent approval of the vocational education and training strategy 202-2030 and the issuance of Decision 17 on vocational training support. This highlights Vietnam’s commitment to improving the efficiency of training and education for the labor market. A plethora of free trade agreements (FTAs), such as the EU-Vietnam Free Trade Agreement (EVFTA), the UK-Vietnam Free Trade Agreement (UKVFTA), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also strengthens Vietnam’s competitiveness as a low-cost manufacturing export hub. Such trade agreements allow Vietnam to take advantage of reduced tariffs, both within the ASEAN Economic Community (AEC) and with the EU and US to attract exporting companies to produce in Vietnam and export to partners outside ASEAN. Additionally, Vietnam has benefitted from the fallout of the US-China trade war, as higher US tariffs on a wide range of Chinese exports have driven manufacturers to switch production away from China towards alternative manufacturing hubs such as Vietnam. Vietnam in particular has grown to become an inexpensive and versatile destination for manufacturing outside of China, however, it still needs to develop to fully leverage its manufacturing capabilities. Government incentives in manufacturing The government recently issued Decree No. 57/2021/ND-CP (Decree 57), supporting industries related to supply of raw materials, spare parts, and components to manufacturing industries such as electronics and mechanical engineering industries, garment and textile, leather, and footwear industries, hi-tech industries, and the automotive industry. The tax savings from the application of the Decree will provide financial support to enterprises in their business activities that have been impacted by the pandemic. It will also strengthen confidence in the government’s efforts to reform tax mechanisms and policies, thus promoting a more favorable business environment in Vietnam. According to Resolution No.115/NQ-CP in 2020, the government set a target that by 2025 Vietnamese companies will be able to manufacture products in supporting industries that have a high level of competitiveness, satisfying 45 percent of the essential needs of domestic production and consumption. Further Vietnam has issued several tax incentives and tax holidays for manufacturing projects in the form of corporate income tax (CIT), for large investment projects with capital of more than VND 6 trillion (US$264 million) as well as incentives in high-tech zones, certain industrial zones and difficult socio-economic areas. In addition, incentives are also offered for the high-technology sector as well as textiles and garments, IT, automobiles assembly, and so on. Key industries driving manufacturing Apparel, garment, textile, and footwear Vietnam’s textile and garment industry has witnessed a strong development and plays an increasingly important role in the economic growth of the country, making Vietnam the fourth-largest garment exporter in the world market after China and the EU. According to the Vietnam Textile and Apparel Association (VITAS), in the first nine months of 2021, the total export value of Vietnam’s textiles and garments was estimated at US$29 billion, up by 13.2 percent over the same period of 2020. VITAS also predicts that in 2022, as production gradually returns to normal, the industry should expect to achieve an export value ranging from US$39 billion to US$42 billion. Vietnam has grown to become the second-biggest supplier of footwear and apparel to the US after China. It is also one of Asia’s key manufacturing hubs and produces goods for some of the biggest Western brands in tech, garments, and sportswear. For example, Nike has 200 manufacturing plants while Adidas has 76 factories in Vietnam, of which the latter constitutes Vietnam’s second rank in the global number of factories for Adidas. Statistically, both Nike and Adidas produce more of their core products in Vietnam than in China. After being hit by COVID-19, the government has paid more attention to fastening the recovery of this sector. To restore production, the Ministry of Industry and Trade (MoIT) plans to remove bottlenecks and provide support to help factories resume operations and take advantage of orders for European and US markets. Meanwhile, in response to the current trade bottlenecks at the China-Vietnam border due to China’s preventive measures, the MoIT is suggesting firms consider other transportation besides road transportation such as rail networks. For example, they can look at maritime transportation and redirect trade routes to other provinces to ease congestion. MoIT will also facilitate the implementation of a development strategy for garment, textile and footwear by 2030, with a vision to 2035, and the building of a program on sustainable development of the sectors until 2030. Compared to many competitors, Vietnam’s textile and garment industry has certain advantages in terms of products’ quality, techniques, the ability to meet strict requirements on labor, and tariff preferences due to various FTAs. Overall, the sector expects a longer but steadier recovery with many opportunities for foreign investors in the medium term. Electronic and electrical appliances Despite strong development in recent years, Vietnam’s electronics industry still lags behind the global market, by not having a breakthrough or achievement to compete in the technology field. However, the government is keen to change this by attracting hi-tech industries to further develop and promote the industry. Within 2020-2021, development was mainly reflected in the attraction of large investments from multinational corporations, especially those from South Korea and Japan. In the first eight months of 2021, FDI projects in electronics manufacturing accounted for 95 percent of the total export turnover of the industry, with 33 electrical projects licensed and total registered capital of over US$1.7 billion. Foxconn, a key supplier for Apple, has so far invested in Vietnam US$1.5 billion in 2020 and raised its investment by US$700 million while recruiting 10,000 more local workers in 2021. However, Vietnam currently only assembles simple parts and does simple production processing. When it comes to the production of components or specialized devices, Vietnam is yet to acquire the necessary resources and skilled labor force. Key locations for manufacturing Vietnam’s manufacturing is centralized in four key economic regions (KERs), including the Northern, Central, Southern, and Mekong Delta regions. These regions attract different manufacturing sectors and are distinctive in terms of labor pools, industrial mix, and infrastructure. The Northern KER consists of seven cities and provinces, namely Hanoi, Hai Phong, Quang Ninh, Vinh Phuc, Bac Ninh, Hai Duong, and Hung Yen. The FDI firms in the Northern KER account for more than 80 percent of the region’s total exports. The region is known for heavy manufacturing, oil and gas, and hi-tech industries such as automobile manufacturing. Electronics manufacturing is clustered in the north, especially in the Red River Delta area. Samsung, with one of the largest production bases in Vietnam, focuses on distributing mobile phones and tablets in the North. In 2022, Samsung is planning to relocate its major R&D operations to the west of Hanoi, making Vietnam its largest R&D center in Southeast Asia. The Central KER consists of Da Nang City, Thua Thien-Hue, Quang Nam, Quang Ngai, and Binh Dinh is attractive for the marine economy and agriculture. Food, beverage, and feed processing is more centered in this region than in the North and South. In fact, in recent years, Da Nang has emerged as a hub for seafood, food processing, IT, and manufacturing. Meanwhile, Vietnam’s Southern KER has a wider range of manufacturing and services than the North. The region consists of Binh Duong, Tay Ninh, Long An, Dong Nai, Ba Ria – Vinh Tau, and Ho Chi Minh City. Garments and textile industries are clustered in the South with Ho Chi Minh City being one of the country’s largest garment manufacturers. Out of 6,000 factories nationwide, over 70 percent are located in or near Hanoi and Ho Chi Minh City. Challenges and Opportunities Despite COVID-19, Vietnam is still regarded as a key and growing manufacturing hub, surviving the global supply chain disruption. Vietnam still faces numerous challenges. For example, regarding the size of its labor force of approximately 56 million people, Vietnam has almost 14 times less the number of workers compared to China. Local authorities are also known to scrutinize documents resulting in additional time for approvals, particularly for projects that are outdated and use older technology. Further, legal environment laws can be cumbersome, along with land use limitations. Investors should therefore study the local market carefully and are advised to do their due diligence and seek advice from a professional firm before undertaking a manufacturing project.
Source: Vietnam Briefing
