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FDI in textiles & garments slows

Released at: 08:00, 11/02/2017

FDI in textiles & garments slows

US withdrawal from TPP leaves a mark on foreign investment inflows.

by Quynh Nguyen

Inflows of foreign direct investment (FDI) into Vietnam’s textile and garment sector will slow down due to the collapse of the TPP, according to Mr. Le Tien Truong, CEO of the Vietnam National Textile and Garment Group (Vinatex) and Deputy Chairman of the Vietnam Textile Association (Vitas).

He emphasized, however, that the sector still has a bright future due to other free trade agreements (FTAs), in particular the EU-Vietnam Free Trade Agreement (EVFTA).

“Without the TPP, the speed of investment in Vietnam may fall but will remain strong in the future thanks to the FTA with the EU,” he believes.

The “yarn-forward” rule of origin, he went on, was a requirement in the TPP that would have brought FDI to Vietnam. The end of the TPP may therefore impact much more on investors in textiles and dyeing than those in fashion items.

The EVFTA, to take effect in 2018, has a “fabric forward” rule of origin, which will now become a focal point of investors. Most investors primarily invest in weaving and dyeing activities.

The EU is a larger market than the US. Demand for garments in the EU is about $240 billion; double the figure in the US. Vietnam’s textile exports to the EU remain modest, at about $4 billion per year, so the EVFTA represents a huge opportunity for foreign investors in Vietnam, Mr. Truong added.

Data from Vitas shows that 68.8 per cent of retailers and foreign brands choose Vietnam when moving from China or Bangladesh. China has become less attractive to investors while Bangladesh still faces political instability. Vietnam will therefore continue to be a popular destination for foreign textile investors. 

Exports of textiles and garments reached $28.5 billion in 2016, up 5.4 per cent against 2015. Key markets declined: in the US by 4.5 per cent and the EU 3 per cent, while only Japan increased, by more than 1 per cent.

2016 was a year full of difficulties. The 5.4 per cent growth was the lowest since 2010 but growth in absolute value was higher than in previous years. The difficulties stem from the problems besetting the global market.

Total global demand did not increase last year. Moreover, many countries that are not in the TPP but wished to retain their market share have already adopted policies to reduce its impact.

Vietnam’s textile and garment sector targets export growth of 6.5-7 per cent this year, to $30 billion.

The industry has recorded strong results because enterprises focused on increasing productivity and met deadlines when delivering goods, he said. 

Further, reforms to administrative procedures have improved the business environment and supported garment exporters by increasing their competitiveness. 

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