The EU-Vietnam Free Trade Agreement expected to enter into force in 2018 will offer major opportunities for the Vietnamese garment and textile sector. However these businesses need to improve labor productivity, invest in modern machinery and equipment, and update management methods to strengthen exports to the EU.
Declining demand
The Vietnamese garment and textile sector grew 5.2 percent in 2016, the lowest growth in the last 10 years. Le Tien Truong, the general director of the Vietnam National Textile and Garment Group, explained the decline by a shrinking demand for garments and textiles in export markets. Other major manufacturers, such as India and China, also experienced a fall in export turnover of garments and textiles.
On the positive side, the US$28.3 billion export turnover of the garment and textile industry in 2016 reflects a continuing growth of market share in major markets.
The Vietnamese garment and textile sector is forecast to face more difficulties in 2017 because the world economy has not been thriving. But the Vietnamese government continues to maintain macroeconomic stability and apply the daily central exchange rate, so that no policy change is expected in support of export businesses. At the same time, garment and textile exporters in other countries have received tax and exchange rate benefits, making their prices cheaper compared to Vietnamese goods in the last six months of 2016. This trend appears set to continue in 2017.
With these forecasts, the Vietnamese garment and textile sector is forecast to grow 6.5-7 percent in 2017, reaching US$30 billion.
Positive signals
Le Tien Truong nonetheless points out some positive indications for the Vietnamese garment and textile sector in 2017. With US economic indicators improving, a hope for growth in consumption could also be in the cards. Therefore, whether or not the Trans-Pacific Partnership is executed, a six percent export growth, to US$700 million, of Vietnamese garments and textiles to the US market is feasible.
In addition, the Vietnam-Eurasia Economic Union Free Trade Agreement is also expected to boost the market share of Vietnamese garments and textiles in Russia and to grow from two percent to 10 percent, reaching more than US$1 billion.
The legal review of the EU-Vietnam Free Trade Agreement is expected to be completed in 2017 towards implementation in 2018, meaning that this year is crucial for Vietnamese business in preparing to get in on the ground floor and take advantage of the pact.
Potential for garment and textile exports to the EU remains huge. The EU consists of nearly 30 countries with different cultures, some with small populations of less than 10 million. Therefore, accessing each individual country on the continent is particularly difficult. In addition, about 50 percent of garments and textiles in the EU are manufactured in member states such as Greece, Portugal and Spain. However, with the support of the EU-Vietnam Free Trade Agreement, Vietnam is expecting to record steady export growth.
The EU is seen as a major playing field for the Vietnamese garment and textile sector in 2017. The sector has thus set itself a task of accelerating the pace of its exports to that market. One of the keys to attainment of this target lies in effectively exploiting modern machinery and equipment.
Viet Nga / VEN
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