The country's textiles and apparel sector is showing signs of recovery owing to rupee depreciation, pick-up in domestic demand and progressive policies of the government, Confederation of Indian Textile Industry said today. CITI Chairman Sanjay Jain said the sector which saw a major hit due to demonetisation, implementation of GST, rupee appreciation and high domestic cotton prices, is finally showing some signs of recovery. "Recovery is expected owing to rupee depreciation, picking up of domestic demand and progressive policies of the government," CITI said. According to Jain, the support extended by the government, including Rs 1,300 crore Samarth scheme for skilling, Rs 6,000 crore package for apparel and made-ups along with various state incentives, is expected to create a strong turnaround in textiles and clothing sector, and put the industry back on growth path. He further said policy support by the government is urgently needed for stopping excess imports and refund of all duties and taxes on exports across the value chain. "In the financial year 2018, the imports of textiles and apparel have touched USD 7 billion, which is 16 per cent higher than the last year value of USD 6 billion," he said. Moreover, Jain cited that embedded duties, which are in the range of 4 to 6 per cent across the value chain are not getting refunded, terming it as is one of the key factors for decline in exports apart from blockage of funds due to delay in Goods and Service Tax (GST) refunds. He said the biggest game changer that could transform the industry and put it at par with competitors such as Vietnam and Bangladesh is a free trade agreement with EU, Australia, Canada and Britain for made-ups and garments. He stated that he is very optimistic that government will intervene in the matter and continue to support the textile industry.
Source: Business Standard
Finance Secretary Hasmukh Adhia says GST has stabilized faster than we had thought and even when compared to other countries. The single reworked tax return form under the goods and services tax (GST) may come in by December, said finance secretary Hasmukh Adhia. In an interview, Adhia elaborated how invoice matching with the help of the new tax return forms and the e-way bill system will help in checking tax evasion. Edited excerpts:
How has the one year of GST been? Do you think it has stabilized now?
Yes. I think GST has stabilized faster than we had thought and even when compared to other countries. The experience of other countries has not been that good with Malaysia being forced to shelve GST after three years. The implementation of GST faced a lot of criticism and so did the frequent changes. The problem was mainly because of technological glitches. The GST Council has met 27 times so far and we never shied away from making a course correction whenever it was required. If somebody says that making too many changes is the sign of inefficiency that I will not agree with. It is a sign of dynamism and that we are willing to listen to people and act upon it quickly.
So what will be the next phase of GST?
In the next phase there are two priorities. One is to bring in a single return form. We are hopeful the forms will come in by December. The second priority is to make changes in the law essential for improving the taxpayer experience.
What is the trend of revenue collection and compensation, especially for the manufacturing states? You have talked about how the aim is to collect ?1 lakh crore in GST monthly. All states are gaining, except a few where there is a major shortfall due to some congenital reasons. Himachal Pradesh, Uttarakhand, Punjab and Bihar are some of the states where there is some deficit. But other states, including manufacturing states, because of the large consumer base as well as the service tax base, they have not suffered shortfalls as we had expected. Some states may require to be compensated for a longer period of time but many states will not require to be compensated for five years.
What is the strategy to check tax evasion?
Once the new system of return filing comes, it will be increasingly difficult for anyone to evade taxes. We will be doing invoice-to-invoice matching month by month. Tax evasion will become difficult. E-way bill implementation will also help in tax evasion.
Source: Live Mint
Move to bring significant compliance relief to large businesses and encourage them to buy from unregistered dealers In a small business-friendly move, the Centre has extended the suspension of the reverse charge mechanism on purchases of goods or services by registered dealers from unregistered dealers within the State till September 30. This is not the first time such dispensation is being extended. This suspension was earlier available till end-June 2018, after being extended from March 31 this year. With this move, any registered dealer can purchase goods or services from unregistered dealers without forking out GST under reverse charge till September 30, tax experts said. This move will bring significant compliance relief to large businesses and encourage them to buy from unregistered dealers, they added.
Experts’ opinion
M S Mani, Partner, Deloitte India, said: “The reverse charge on supplies from unregistered dealers was essentially an anti-evasion tool intended to increase the number of registered dealers and its extension signifies that while the government does not want to increase the compliance burden, it reserves the right to re introduce reverse charge after three months if revenues are not as per expectations.’’ Abhishek Jain, Partner, EY’, says: “This extension was much sought for as the industry genuinely wanted some time before adhering to additional compliances envisaged for such procurements.”
Source: The Hindu Business Line
The apparel exporters in Tirupur cluster can heave a sigh of relief as the Central Goods and Services Tax Commissionerate has given permission for exporting units to file the GST refund application with available Export General Manifest (EGM) documents as a ‘temporary measure’.
Difficult to upload
Raja Shanmugam, president of Tirupur Exporters Association, said the new move was a big relief as the exporters were finding it difficult to upload the Statement-3 containing details of export invoices with the EGM details, during the refund application procedures “The concern was that the EGM field in the website accepts only 7 digit numeric values while the EGMs in many cases are issued with four or six numeric digits which the system did not accept. Due to this predicament, the exporters were not in a position to file the GST refund application,” he pointed out.
Gateway EGM
With the new relaxation, the exporters could file the application with available EGMs along with an undertaking that they would get the ‘gateway EGM’ from the seaports and file the same before the final settlement of the claim within two months.
Source: The Hindu
Coimbatore: The Customs Department has denied complaints of garment exporters that GST refunds were being delayed and said that only returns uploaded with incorrect/mismatched codes were delayed. J Mohammed Navfal, Joint Commissioner of Customs, Tiruchi, said the department had cleared 80 per cent of garment exporters’ bills pending under his jurisdiction and released around ₹130 crore. Addressing a meeting organised jointly by the Apparel Export Promotion Council and the Central Board of Indirect Taxes and Customs on ‘Authorised economic operator,’ he said the government has designed the refund mechanism in an appropriate way, but the exporters, while uploading the details continued to commit mistakes, which in turn resulted in delay in processing them. “Of the 5,500 bills received by us, we have cleared around 4,400 so far and released around ₹130 crore. In the remaining cases, the main discrepancies included incorrect EGM number, vessel number (classified under error code SB006),” he said. “During this fiscal, we’ve also cleared subsidies amounting to ₹340 crore to exporters under ROSL, drawback and IGST refunds.” Assistant Commissioner of Central Excise and GST Tirupur Subramanian said ₹118 crore was refunded to the exporters in the knitwear export cluster. Earlier, A Sakthivel, Vice-Chairman, AEPC, said the cash crunch had eased a bit after the refund of claims and release of subsidies, but timely release would help exporters.
Source: Business Line
Well begun, the saying goes, is half done, and this is more than true for the GST which was rolled out on July 1, 2017. To be sure, it was not the perfect structure, with a bewildering array of rates and exemptions and a complicated compliance mechanism that never really took off. But, after a year, the good news is that the new indirect tax levy hasn’t been inflationary as some had feared it would be, based on the experience of some other countries. Moreover, although collections in some months were disappointing and not up to the break-even levels pencilled in by the finance ministry, revenues on the whole have been reasonably robust. Collections for the nine months between July 2017 and March 2018 have come in at Rs 8.2 lakh crore, which is a fairly strong increase of 11.9% over the relevant pre-GST regime numbers. On an annualised basis, this works out to revenues of Rs 11 lakh crore. As Chief Economic Advisor (CEA) Arvind Subramanian has observed, the implied tax buoyancy or responsiveness of tax growth to nominal GDP growth is 1.2, which, by historical standards, is high for indirect taxes. Tax experts who have studied the numbers say the buoyancy earlier was less than one, so it is a big improvement. The CEA has said the collections are surprising for several reasons: the challenges in implementing the new levy, the slowdown in the economy and the cuts in the tax rates on more than 200 items in November. This would suggest that the mechanism, after some initial teething troubles, worked well. The credit must go to the finance ministry for having hand-held companies and chartered accountants through the process. For all their anxieties about the GST and public protestations, the states have not suffered in the least. As Subramanian found in his study, nearly all the states have seen their revenues grow by at least 14%, again, despite GDP growth decelerating and tax rates being trimmed. Better compliance in the future, following the introduction of the e-way bill and a simplified method for filing returns, should help keep revenues buoyant and states might actually report revenue increases of more than 14%. This means that the Centre need not worry about compensation to the states and the latter should now be more amenable to allowing items such as auto fuels to be brought into the GST.However, much more needs to be done to iron out the glitches. As the CEA has pointed out, the rate structure needs to be simplified, and while a single revenue neutral rate of 15% might not be possible just yet, the 28% slab must go. Also, as Subramanian has suggested, the cesses should be coalesced into a single rate. The compliance mechanism is already being fixed. For the moment, only the summary returns and one return form—GSTR1—need to be uploaded. But, the new system, which should be in place soon, will require assessees to file just one return; this too will be system-generated and all that assessees will need to do is upload the invoices. The government must quickly do away with the anti-profiteering authority which is anti-business, and unnecessary. Asking companies to explain costs and expenses is completely unjustified. Companies might be more amenable to paying their taxes without this kind of bullying. That is what the government should really be aiming for.
Source: Financial Express
Surat: The power loom weavers in the country’s largest man-made fabric (MMF) sector are hopeful that the union finance ministry will accept the long-pending demand for the refund of the accumulated input tax credit (ITC). Sources in the power loom industry said that the union ministry of textiles, had appointed Ernst & Young as the consultant to submit the report on the ITC in the textile sector. After studying the facts, the consultant submitted that the demands put forth by the weaving sector for the ITC refund is genuine. Talking to TOI, chairman of Federation of Indian Art Silk Weaving Industry (FIASWI), Bharat Gandhi said, “A delegation of FIASWI and textile industry leaders had met textile minister Smriti Irani in New Delhi last Saturday. As per the report of Ernst & Young, the textile ministry has submitted the request for the refund of ITC to the power loom weaving industry. We are hopeful that our demand will be accepted.” According to Gandhi, there are about 6 lakh power loom machines in Surat. Each machine has an ITC accumulation of Rs 7,000 per annum. This comes to around Rs 420 crore per annum. “There are more than 24 looms in a single unit and that it could go up to 100 and 150 machines as well. If we calculate the annual ITC amount then it is difficult for the powe rloom weaver to manage from the earnings. Without ITC refund, the industry will collapse” said Gandhi. President of Pandesara Weavers Association, Ashish Gujarati said, “About 1 lakh power loom machines have been sold in scrap in the last few months and the pace of modernization in the industry has been stalled. This is all due to the non-refund of ITC to the weaving sector”
Source: Times News Network
Citing alleged discharge of untreated industrial effluents beyond the permissible level, Tamil Nadu Pollution Control Board (TNPCB) has ordered closure of Madura Coats textile unit at Aladiyoor in Ambasamudram. Subsequently, Tamil Nadu Generation and Distribution Corporation (TANGEDCO) stopped electricity supply to the textile unit based on instruction from TNPCB District Environmental Engineer S. Sathiaraj. When the workers of the unit turned up for duty on Friday morning, they were informed that the mill was being closed temporarily following orders from the TNPCB and they left the spot around noon. The closure has come as a rude shock for the 700-odd families having their breadwinners as permanent employees of the mill and 3,300 others as contract workers. “Even as the unit was functioning, power supply was stopped around 12.50 a.m. on Friday and the officials’ efforts to resume production with the help of generators were thwarted by government officials,” said a worker who wase on duty on the night of Thursday. “As the sludge generated from the dyeing section is dumped on two acres of land close to drinking water sources, particularly near four wells, the TNPCB sent notice to the mill seeking explanation for this violation. Since the authorities failed to provide proper reply, the TNPCB asked Tangedco to snap power supply,” Collector Shilpa Prabhakar Satish told The Hindu.
Source: The Hindu
The State government told the Assembly on Friday that the ‘Sumangali scheme’ that had been exploiting the women employed in the textile industry in the State, as charged by the DMK, was not in practice any more. Rejecting charges levelled by DMK MLA A.P. Nandakumar (Anaicut) that some textile industries were not paying women workers properly and exploiting their hard work under the so-called ‘Sumangali scheme’, Labour and Employment Minister Nilofer Kafeel and Textile Minister O.S. Manian said the scheme did not exist. To a concern raised by the DMK MLA over the reported proposal to privatise Salem Steel Plant, Chief Minister Edappadi K. Palaniswami said the Centre had been urged not to pursue privatisation of the plant. Tamil Minister Ma Foi K. Pandiarajan rejected the claim of Mr. Nandakumar that the Centre was considering closing down the Ordnance Factory in Avadi, which was manufacturing clothing for military personnel. “[Union Defence Minister] Nirmala Sitharaman has informed the Chief Minister in a letter that the unit would not be closed,” he said. Replying to a charge that companies were closing down, Industries Minister M.C. Sampath said that compared to ₹33,074 crore foreign direct investment (FDI) received in the State between 2001 and 2010, the amount received in the seven years between 2011 and 2017 has been higher — ₹1,18,024 crore.
On laptop scheme
Information Technology Minister M. Manikandan and Backward Communities Welfare Minister S. Valarmathi rejected the charge of Mr. Nandakumar that there was a delay in the distribution of laptops and cycles respectively to school students. Rural Industries Minister P. Benjamin denied that over 50,000 MSME industries were closed down, contending that the comparison was not appropriate since the figures were only that of the units registered under the Udyog Aadhaar scheme.
Source: The Hindu
New Delhi: After setting its feet in fashion retail business, Reliance Retail, a unit of Mukesh Ambani-led Reliance Industries, now planning to venture into the wholesaling of fashion and lifestyle products through both offline and online channel, The Economic Times reported. Reliance Retail, which runs one of the biggest networks of fashion stores in India through Reliance Trends, aims to tap the bulk business of garments and accessories, which is largely unorganised. Through the wholesale business, it will target millions of small and medium retailers nationwide to supply products in bulk, including its own branded material, the ET report said citing sources. Reliance Retail plans to serve customers through a B2B portal, the ET report further said. The ET report citing sources further went to add that the Mukesh Ambani-owned company has put together a team that is working on a raft of private labels specifically to sell to small and medium retailers. It is enrolling small and medium independent suppliers as well for the venture, another person told ET. It may be noted that Reliance Retail is already operating a chain of cash-and-carry outlets called Reliance Market, which sells food products, FMCG, general merchandise as well as some amount of ready-made garments. The new venture likely to focus on the growing fashion market in India, especially in small cities and towns. Industry experts say it makes sense for Reliance to venture into wholesaling of fashion and lifestyle products given the nature of the unorganised wholesale market for such products.
Source: ET Now Digital
Mumbai: After crashing to life-time lows on Thursday, the rupee staged a spirited recovery to end higher by 33 paise at 68.46 against the US dollar on Friday, in line with a big relief rally in domestic equities. At the interbank foreign exchange market, the home currency opened sharply higher at 68.70 against the overnight close of 68.79 on fresh selling of the American currency by banks and exporters. Keeping the overall bullish trend, it touched a session high of 68.35 in late morning deals before concluding at 68.46, showing a steep rise of 33 paise, or 0.48 per cent.
Source: Business Line
New York – Canada released its full list of retaliatory tariffs against the U.S. today. It has a textiles component. Targeted consumer products include pillows, cushions and similar furnishings of cotton; quilts, eiderdowns, comforters and similar articles of textile material containing less than 85% by weight of silk or silk waste; other bedding and similar articles. According to a memorandum issued by the Home Fashion Products Association (HFPA) this afternoon, those articles fall under the customs codes of 9404.90.10 and 9404.90.90. HFPA legal counsel Robert Leo noted that the tariffs only apply to goods originating from the U.S. and eligible to be marked as a good of the U.S. in accordance with the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations. “Therefore, for example, if your comforter is not U.S. origin according to the NAFTA origin marking rules, then it would not be subject to the additional duty,” wrote Leo, a partner at Meeks, Sheppard, Leo & Pillsbury.The new Canadian tariffs fall mostly on U.S. steel and aluminum and take effect July 1 – which is also Canada Day.
Source: Home Textiles Today
China’s Hebei province will build seven industrial clusters and create five garment industrial innovation parks beginning this year. The income of enterprises above designated size in the garment industry in the province is expected to reach CNY 180 billion by 2020, with an average annual increase of about 10 per cent, according to the provincial government. The seven industrial clusters will include the Qinghe cashmere cluster, Xinji leather cluster, Ningjin casual wear cluster, Zhangjiakou winter fashion cluster and Cixian children's wear cluster. The five innovation parks will be the ‘innovative design + self-owned brand’ garments industrial park in Xiongan New Area, Shijiazhuang fashion design incubator base, the industrial innovation parks in Hengshui Industrial New District, the Langfang International Clothing City and the Cangzhou Fashion Creative Park. The general office of the Hebei provincial government released an action plan recently to promote the transformation in the garment industry related to technology, equipment, products and management, according to Chinese media reports. The province will encourage related government organs, social organizations and key enterprises to actively participate in the intelligent manufacturing development, put forward the technological development plan for niche markets. With focus on mass customization, government bodies will guide enterprises to transform from large-scale standardized production to personalized customization and from traditional product-oriented manufacturing model to a consumer-oriented model. The province will introduce well-known fashion design agencies and related talents, and encourage talented designers from all over the country to start business there.
Source: Fibre2Fashion
The ZDHC Roadmap to Zero Programme has published the document for ZDHC Wastewater Treatment Technologies that can be used as a guidance to improve the quality of wastewater discharge in the apparel, textile and footwear industry. The first guidelines were released in 2016. These rules set unified expectations on the quality of wastewater. The apparel, textile and footwear industry uses huge amounts of water in production processes, after which the water is often discharged in a way that harms the environment and surrounding communities. Especially in China, South and Southeast Asia and other production countries around the world, this has become a huge problem over the last few years"When we released the ZDHC Wastewater Guidelines, we took the first step for the industry to treat wastewater in a harmonised way. The Guidelines present a aligned set of parameters, limit values and test methods to ensure brands and suppliers are working to the same set of expectations," says Frank Michel, ZDHC executive director. "Now we are excited to publish the ZDHC Wastewater Treatment Technologies Document for the apparel, textile and footwear industry to support the supply chain in implementing the ZDHC Wastewater Guidelines and help improve the quality of wastewater discharge. We would like to thank Mohan Seneviratne, who wrote and gifted us with this great document," Michel added. Wastewater treatment is a complex process, and ZDHC hopes that in combination with regional training programmes and other relevant references, this technical overview of wastewater treatment technologies will help the supply chain to close the knowledge gap. It is also intended to motivate wet processing facilities and elevate their knowledge to implement the necessary treatment systems in order to meet the requirements of the ZDHC Wastewater Guidelines.
Source: Fibre2Fashion
Hanoi (VNA) – The tax incentive mechanism of the EU-Vietnam Free Trade Agreement (EVFTA) will bring great benefits to Vietnamese industries and products, according to Minister of Industry and Trade Tran Tuan Anh. He talked about the official conclusion of legal review process for the EVFTA and agreement on the bilateral investment protection deal in an interview granted to Vietnam News Agency in Hanoi on June 28 after his recent working trip to Belgium. The minister said at a working session with EU Commissioner for Trade Cecilia Malmstrom in Brussels on June 25, the two sides agreed to divide contents related to investment protection and investor-state dispute settlement (ISDS) into a separate deal called the Investment Protection Agreement (IPA). The EU and Vietnam have completed all contents in preparation for the signing and ratification of the EVFTA and IPA, he said, adding that the legal review process for the two deals has been finalised. Vietnam is striving to complete the final stages to reach the signing of the EVFTA at the end of this year, he said. He noted that up to 99 percent of EU tariffs will be removed for Vietnamese products. Farm produce, seafood, sugar, honey, processed agricultural products, timber products, garment-textile and automobile industry are expected to enjoy preferential tariffs from the deal. The EVFTA is hoped to boost Vietnam’s exports to EU, which will rise by 4-6 percent. A central benefit is that the structure of export and economy of Vietnam and EU is supplementary, not directly competitive, so businesses can gain win-win cooperation. Sectors like processing and manufacturing, automobiles, information technology, agriculture, livestock and processed food should also consider competitive pressure. Increasing competitiveness and building value chains with partners will help enterprises develop and bring investment efficiency. The EU is a leading trade and investment partner of Vietnam with nearly 22 billion USD. The EU is likely to invest in Vietnam in fields such as services, finance, automobiles, processing, manufacturing, information technology, high technology and processed farm produce. These are also fields that Vietnam needs investment and development. Minister Anh advised businesses to optimise opportunities and incentives from the EVFTA. He also underlined the role of the State and Government to help firms gain the most benefits from the pact. He advised small-and-medium-sized enterprises (SMEs) to study the market and adopt solutions such as creating high-quality and eye-catching products and meeting the requirements on the origin of products, technical and safety standards
Source: Vietnam News Agency
Within the framework of the visit of Mr. Avedis Seferian, the President and CEO of World Responsible Accredited Production (WRAP), Business Armenia has initiated a meeting with textile manufacturers. Attending the meeting were Armenia’s Minister of Economic Development and Investments Artsvik Minasyan, Business Armenia CEO Armen Avak Avakian and the CEO of the “National Accreditation Body” State Non-Commercial Organization Ms. Nune Mkrtchyan. WRAP (Worldwide Responsible Accredited Production certifies world leading companies operating in the textile industry for safe, lawful, humane, and ethical operations, verifying such things as the none-use of forced or child labor, as well as ensuring zero discrimination at the workplace. The certification audits also take into account the health and safety of the workforce and the proper payment of wages and benefits. WRAP provides certification for proper management systems that is given as a result of an expert review. And most importantly, it is a “gateway” to the American market for the export of textile products. The businessmen conducting their operations in the textile industry addressed questions to WRAP’s President and CEO Mr. Seferian about certification conditions, management systems requirements and best practices, and discussed Armenian textile development projects. WRAP is headquartered in Arlington, Virginia, USA and has branch offices in Hong Kong and Dhaka, Bangladesh, along with full-time staff in Europe, India, Southeast Asia (Thailand, Vietnam and Indonesia), and for Latin America. Its 11-member Board of Directors includes the President and CEO, our compatriot Mr. Avedis H. Seferian.
Source: Public Radio of Armenia
Labor intensive sectors continue to be the growth drivers for Vietnam’s economic development. However, as the world moves towards Industry 4.0, the government has to introduce significant reforms across all the main sectors of the economy, to increase the productivity, skills, and quality of labor to remain competitive.
Labor productivity
Since 2008, labor productivity in Vietnam has increased by 22.5 percent. In accordance with 2017 prices, productivity is estimated to be VND 93.2 million per worker (US$4,159), an increase of VND 10 million compared to 2016.
Not relative to economic growth
Productivity has not grown relative to the economic growth in Vietnam. In accordance with 2010 prices, the average annual productivity growth rate between 2011 and 2017 was 4.7 percent, while the growth in investment capital was higher at nine percent. In the same period, the economy grew from US$105 billion to US$220 billion. This discrepancy shows that the economy depends on other non-labor factors as well, in addition to productivity.
Wages vs productivity
The gap between the growth in economy and productivity has led to an increase in wages, faster than the productivity growth. From 2004 to 2015, the average wage increased by 6.67 percent, while labor productivity only grew by 4.96 percent. Wage growth with respect to productivity has increased the highest for FDI firms, while for private firms they have stayed at almost the same levels. For state-owned enterprises, the growth in wages was below the productivity growth. Industries with slow productivity growth such as mining, post and telecommunications, and transportation, have seen wages grow faster than productivity. For the utility sector, the wage growth has been much slower, while for manufacturing industries, trade, and construction, they have stayed at almost the same levels.
Effect of wages outgrowing productivity
If the wage growth continues to outgrow productivity, firms will see reduced profits, which would compel them to reduce hiring or shift their businesses to other competitive countries. Growth in wages, need to need to be at par with productivity if Vietnam wants to remain competitive. Historically, increase in minimum wages have led to an increase in average wages, reduced profits, and lower employment, especially for FDI and private firms. Labor-intensive sectors usually move towards automation, while capital-intensive sectors reduce investments in machinery.
Sectors
From 2008 to 2016, the sectors with high labor productivity were mining, production and distribution of electricity and gas, finance, insurance, technological activities, real estate, and water supply. During the same period, labor productivity was low for the processing and manufacturing industries and lowest for the agriculture, forestry, and fisheries sector.
Average Salaries
According to Vietnam’s General Statistics Office, the average monthly salary in 2017 was VND 6.6 million (US$290), up 9.3 percent compared to 2016. This was higher than the growth in the regional minimum wages in 2017, which was 7.3 percent. In 2017, monthly average salaries for FDI and private firms grew by 13.5 and 3.3 percent respectively, compared to 2016, to VND 6.7 million (US$293) and VND 5.6 million (US$246) respectively.
Cities with highest average salaries
According to a study by VietnamWorks, a recruitment company in Vietnam, below are the highest average salaries in Vietnam. Cities/Provinces Average monthly salary (US$) Ho Chi Minh City 456 Da Nang 452 Binh Duong 444 Bac Ninh 421 Hanoi 407
Labor supply
The number of employed laborers in Vietnam increased from 53.3 million in 2016 to 53.7 million in 2017. Employed laborers in agriculture, forestry, fishery decreased from 22.3 million in 2016 to 21.6 million in 2017, while industry and construction saw an increase from 13.2 million in 2016 to 13.8 million in 2017. Services also witnessed a growth from 17.8 million in 2016 to 18.3 million in 2017. Workforce between the ages of 15 and 39 years currently accounts for nearly half of the total labor force in Vietnam. The share of trained workers within working age in 2017 was estimated at 21.5 percent, higher than 20.6 percent in 2016. Urban areas accounted for around 32 percent of the employed laborers, while the rest were employed in the rural areas. Male employees accounted for slightly more than half of the Vietnamese workforce. In 2017, unemployment in the working age group stood at 2.24 percent, of which rates for urban and rural were 3.18 and 1.78 percent respectively. Underemployment of working age workers stood at 1.63 percent, of which rates for urban and rural areas were 0.85 and 2.07 percent.
Labor force distribution
According to the government’s Q4 2017 labor force survey, 67.8 percent of the labor force reside in the rural areas. The Red River Delta and North Central along with the South Central Coast account for the largest share in the labor force at 21.7 and 21.6 percent respectively. Mekong River Delta and Southeast follow at 18.9 and 17.1 percent respectively. The average national labor force participation stood at 76.9 percent. Highest rates are in the Northern Midlands and Mountains and the Central Highlands at 84.9 and 83.3 percent respectively. Areas with lowest participation rates were the Red River Delta and Southeast. Sector-wise, majority of the labor force in agriculture, forestry, and fishery reside in the Northern Midlands and Mountains, Central Highlands, and the Mekong River Delta. As for the industry and construction sector, the majority reside in Southeast (Ho Chi Minh City) and the Red River Delta (Hanoi). In addition, Ho Chi Minh City, Hanoi, and Mekong River Delta account for the majority of the labor force in services.
Challenges
The major challenges facing the labor market in Vietnam include lack of skilled labor, the impact of industry 4.0, and the need for labor reforms due to the upcoming free trade agreements.
Lack of skilled labor
FDI firms continue to struggle in hiring skilled labor in Vietnam. According to the 2018 Global Talent Competitiveness Index (GTCI), which assesses countries in terms of their ability to attract, develop, and retain talent, Vietnam ranks 87th amongst 119 countries. Major challenges include the lack of technology infrastructure, R&D spending, vocational, and technical skills. Lack of skilled labor will slow down the economic transition from labor-intensive industries to high-tech goods, which will reduce Vietnam’s competitiveness. Currently, around 40 percent of FDI firms in Vietnam find it difficult to recruit skilled employees. The government has taken steps to increase vocational and technical training in order to meet the requirements of the labor market. In March 2018, the government introduced Decree No. 49/2018/ND-CP that provides for the accreditation of vocational education. As of February 2018, there are more than 1,900 vocational training centers across Vietnam, including 395 colleges and 545 vocational schools, which offer programs in tourism, beauty services, IT, construction, fashion, garment and textiles, pharmaceuticals, precision mechanics and hotel management. The government aims to provide vocational training to 2.2 million people in 2018.
Effect of industry 4.0
Global businesses are fast moving towards Industry 4.0, and if the Vietnamese government does not take steps to enhance human capital, it will have a significant impact on the economy. According to the International Labor Organization (ILO), 86 percent of textile and footwear industries workers in Vietnam are at risk of losing their jobs due to technology. Majority of the unemployment will be seen amongst the workforce just entering the market.
Hence, the government has to introduce reforms in education and industrial training to bring it more in line with current industry demands. According to the World Economic Forum (WEF)’s Readiness for the Future of Production Report 2018, Vietnam was ranked among those that are not currently ready for Industry 4.0. It ranked 90th in technology and innovation and 70th in human capital, among 100 countries.
FTA commitments
Once the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and EU-Vietnam Free Trade Agreement (EVNFTA) comes into effect, labor costs are predicted to go higher. These agreements are beneficial as it improves market access for Vietnamese exporters. However, the government needs to focus on labor reforms, technical skills, and corporate governance to fully realize the benefits of the agreement. Labor rights are amongst the key provisions in both the upcoming agreements. They require members to adopt and maintain the rights as set out in the 1998 ILO Declaration in their laws, institutions, and practices. Although Vietnam has taken few steps to meet the requirements through institutional and legal reforms, more needs to done in terms of enforcement.
Source: Vietnam Briefing
