- Your Consultant
- Green Growth
|Production and export activities are being highly affected with current domestic and global restrictions. Photo: Le Toan|
Production activities at Pou Yuen Vietnam have been upset by the detection of an F1 case at the company’s factory, leading to mandatory quarantine for over 140 more workers who work at the same production line. Pou Yuen Vietnam, which belongs to Taiwanese Pou Chen Group, has been investing into Vietnam since 1996 and specialises in garments and sport shoes, with its factory in Ho Chi Minh City providing employment for around 56,000 people.
COVID-19 continues to negatively impact Pou Chen, the world’s largest sports shoe manufacturer, which has a total of eight factories in five cities and provinces of Vietnam. The current outbreak is showing no signal of stop, causing tremendous difficulties for Vietnam’s manufacturing industry, including textiles and footwear – the two most labour-intensive industries.
“We have had many orders but still make losses. The more this situation progresses, the more difficult it will become to keep the jobs for our workers,” said Phan Thi Thanh Xuan, general secretary of the Vietnam Leather, Footwear and Handbag Association (Lefaso).
Up to this point, many leather and footwear businesses have had orders until the end of Q3 of 2021, or even the end of the year. However, according to Xuan, the processing price of leather and footwear products is overall decreasing while input costs are increasing, by around 5-10 per cent.
Materials imported from China are still the cheapest, but prices there are also beginning to increase. Moreover, producers and wholesalers struggle with a lack of containers for shipping and consecutive price hikes for renting them. Among the most affected countries are primarily small and medium enterprises.
The latest outbreak of the pandemic exacerbated the difficulties of businesses when they had to bear additional costs of disease prevention and control. Xuan estimated, “A 900-employee enterprise, implementing pandemic prevention and control activities for two months, has to spend about $1 million buying tests and protective equipment and cover other costs.”
The problems that Xuan described affect most of the businesses in the leather, footwear, and textile industry. The situation forced the Vietnam Textile and Apparel Association (VITAS) to urgently send a dispatch requesting the government to support businesses to remove difficulties, such as reducing land rent and extending VAT payments until the end of 2021, said Vu Duc Giang, chairman of VITAS.
According to Giang, related Vietnamese enterprises have to face a downward trend in prices, especially those dealing in the textile segment. Yarn prices have increased by about 25 per cent since last December while the prices of sold fabric have not been adjusted yet, pushing many textile enterprises into the doldrums.
In the first half of 2021, the industry was not as frozen as in 2020, but businesses suffered great damage from the pandemic, especially those with infected people. Many enterprises have stopped production and had no income, with some of them not entitled for support, debt relief, and tax reduction, but still having to pay part of the basic salary for employees, while it remains possible that contract penalties from foreign buyers could be incurred.
In addition, the collection of infrastructure fees at seaports “is also putting great pressure on textile and garment exporters,” said Giang.
VITAS has also proposed to the government and related agencies to reduce road tolls and other fees. At the same time, it was suggested that the northern city of Haiphong continues reducing port fees and that Ho Chi Minh City will refrain from doing so, despite unadjusted plans to follow through with such fees.
The Ministry of Industry and Trade has acknowledged that the pandemic developments continued to severely affect production and export activities of enterprises. Nevertheless, industrial production in the first six months of 2021 increased by 8.91 per cent on-year, higher than the growth rate of 2.91 per cent in the first six months of 2020, but still lower than the growth rate of 9.13 per cent the same period 2019.
Through the first half of 2021, production of Vietnam’s industrial enterprises, particularly in the textile and footwear industry, was in the worst condition since February 2020, when the pandemic came to Vietnam. The inventory index of the entire industry increased by 24.3 per cent compared to the same period in 2020, an increase of 26.7 per cent as of June 30.
The global health crisis negatively impacted the growth target of the textile industry. In 2020, the value only reached $35 billion, down 9.82 per cent compared to 2019’s $38.9 billion and 2018’s $36.25 billion.
The total export turnover of the textile and garment industry in the first six months of this year reached $15.2 billion, up 14.9 per cent on-year, while footwear reached $10.4 billion, up 27.8 per cent on-year.
As input prices remain expensive, many businesses do not want to produce a lot of goods. At the same time, the country is struggling with securing vaccines to vaccinate 70 per cent of the population by the end of 2021.
Effective government measures have had a great impact in protecting the economy from the pandemic. The prime minister signed and promulgated Resolution No.09/NQ-CP dated May 18 on the purchase of vaccines against COVID-19. However, purchases have been forcing the government to use short-term solutions in pandemic prevention.
Xuan of Lefaso found that the supply chain of vaccines has many gaps at the moment. “Letting businesses take the initiative in funding as well as finding sources to import vaccines will bring greater efficiency and reduce the burden on the state,” suggested Xuan.
Many textile enterprises have already begun buying and injecting vaccines for workers. However according to Le Tien Truong, general director of Vietnam National Textile and Garment Group (Vinatex), about 300,000 doses of vaccine are needed for all those working at Vinatex and its member companies.
“Vinatex proposes that the government pays attention to prioritising vaccine sources for textile workers, and businesses like us are willing to bear all costs to vaccinate their workers,” said Truong.
According to him, global herd immunity would be required to help Vietnam’s textile and garment industry achieve a 10-per-cent growth in 2021. Despite this, Truong believed that the market will be more optimistic in the last six months of the year, when consumption of high-value items usually increases.
But businesses also have other options. VitaJean Co., Ltd. in Ho Chi Minh City is one of the country’s largest garment manufacturers. The company decided to expand its factory area to meet the social distancing requirements and continue its production largely unaffected. In addition, VietJean has had more than 1,000 workers already vaccinated.
Pham Van Viet, general director of VitaJean, said that the production gap and around 20 per cent of missing workers are the main reasons for the reduction in the company’s output. Because of this, VitaJean could not meet its target of producing 20,000 items per day, which are usually delivered to Japanese, American, and European buyers.
Nevertheless, Viet sees the fact that the United States and European countries are gradually or completely lifting order blockades as an important driving force to increase export value in the coming months.
According to Lefaso, businesses in the garment and textile industry like Pou Yuen Vietnam are now in critical need from the state for them to stay afloat. Slow-paced vaccinations can cause further disruptions in the production and supply chains and Vietnam’s textile and garment exports from now until the end of the year.