Foreign Investment in Vietnam Garment Industry Loses Steam

Tuan Minh

10:00 24/09/2016

BizLIVE - The foreign investment flow into Vietnam’s garment and textile industry has dwindled since the start of this year as investors await more news from the upcoming U.S. election.

Foreign Investment in Vietnam Garment Industry Loses Steam

Vietnam's apparel industry is struggling to achieve the export revenue target of $31 billion this year. Photo:

The foreign direct investment (FDI) flow into Vietnam’s garment and textile sector has slowed down since the beginning of this year, in contrast to a surge two years ago, as investors take a wait-and-see stance on the fate of the U.S.-brokered Trans-Pacific Partnership (TPP) deal.
This phenomenon comes in the context of complications in the U.S. election campaign, which make foreign garment players more cautious about making decisions, Nguyen Hong Giang, vice president of the Vietnam Cotton and Spinning Association, was quoted by the Saigon Times as saying.
Sharing the same view, Pham Xuan Hong, chairman of the Ho Chi Minh City Textile, Garment, Knitting and Embroidery, said that foreign-invested projects in this industry in Vietnam could experience sluggish or longer-than-expected implementation as they await news from the U.S. election.
Giang, however, affirmed that Vietnam’s investment climate remained appealing to foreign apparel manufacturers while production costs in Vietnam are quite competitive. Besides TPP, other free trade agreements with Japan, South Korea and the EU will entice investors.
Giang cited data of the U.S. Fashion Industry Association as saying that up to 68.8% of retailers and brands preferred Vietnam as the next destination to move their production bases instead of China. Therefore, the FDI wave into Vietnam will continue.
The official informed that Vietnam’s apparel exports reached just $18.7 billion in the first eight months of this year, rising 4.4% against the same period of 2015. This growth is slowing down and is lower than the target due to an order shortage and global weaker demand.
If this situation persists, the 2016 export turnover of this industry is unlikely to hit $29 billion and less likely to reach the $31 billion target set at the start of this year, insiders said.
Vietnam’s direct competitors now include China, India, Cambodia, Bangladesh, Myanmar and Sri Lanka. Among them, the neighboring countries Cambodia and Myanmar can enjoy tax incentives for their exports to the EU.
Meanwhile, apparel firms in Vietnam are facing some policy headwinds such as the recent hike of the minimum wage and several improper checkups. The local apparel industry is heavily reliant on materials imported from China and India.