As Vietnam’s apparel producers are grappling with excess inventory and declining orders, local manufacturers are having to move on in the face of financial constraints and weakening global demand. During an interview with The Saigon Times, Truong Van Cam, vice chairman and general secretary of the Vietnam Textile and Apparel Association, spoke about the predicament of domestic textile manufacturing on the sidelines of the Vietnam Banking Forum 2023 held on May 10. He also gave insights into policies that could help local businesses get out of the woods. Excerpts:
The Saigon Times: The global demand has weakened since the end of 2022, placing a significant burden on Vietnamese apparel enterprises. What do you think of this?
Truong Van Cam: Garment and textile businesses in Vietnam have faced arduous challenges due to a drop of 15-20% in fresh orders since the end of the third quarter in 2022. At the time, product prices declined by 20-30%, with some even plunging by half.
This year, the market has got worse, as seen during the January-March period. The global economy has seen sluggish growth due to rising inflation and interest rate hikes, which has contributed to widespread uncertainties. As a result, many businesses in the apparel industry have had to cut prices to stay afloat.
In the first quarter of 2023, the export revenues of the garment and textile industries reached a mere US$8.7 million, down 18.6% year-on-year. Expected to end by June, the market’s bleak outlook now seems like it could last at least until the third quarter.
Local businesses not only saw a drop in demand last year but also struggled with financial obstacles. What is your expectation for the market situation in 2023?
This year’s financial strain, in my humble opinion, might be more acute than that of 2022. A large number of new orders with competitive pricing marked the first half of 2022 for the operations of local firms. When difficulties arose in the second half, Vietnamese manufacturing still managed to run smoothly overall.
This year, however, domestic production has been hit hard by protracted pressures since 2022. To survive, businesses have been left with little choice but to lay off employees and cut working hours. Many orders were placed following the pandemic, but they were unable to be delivered, causing the store to become overstocked nationwide.
But what exactly are the financial constraints?
First, getting a bank loan seems hard as interest rates are still high.
Second, the challenge comes from the heightened pressures of loan payments and interest costs in a shaky market. Meanwhile, there is a high demand for investment capital in the apparel industry, particularly when discussing green transformation, renewable energy and a circular economy. Moreover, stringent environmental and workplace standards requirements in markets such as the U.S. and Europe have added to the burden on companies already struggling with market instability.
What are the most serious market concerns at the moment?
If the conflict between Russia and Ukraine keeps escalating, it might cause sweeping sanctions that hurt economies worldwide. Meanwhile, as inflation remains stubbornly high, central banks could hike interest rates and hold steady in response.
Slowing economic growth combined with high inflation might lead to stagflation in the U.S. and Europe. This is arguably the primary danger looming large over Vietnam’s monetary policy and the main obstacle to lowering interest rates.
Monetary policy easing has made progress in steering the economy toward stability, but its effects on the market have yet to be seen clearly. How do you rate current policy effectiveness?
It should be noted that coordination across policy implementation is critical in improving monetary management efforts.
To be honest, I believe that the initial results were promising, but there is still a long way to go before the effort can stimulate the economy as expected. For instance, even though the Government has urged local authorities to expedite the implementation of public investment projects, the rate of capital disbursement in some provinces and cities has been below expectations.
The relevant ministries and agencies have made efforts to remove obstacles in the real estate and finance markets, but the expected outcome could not happen overnight. The same story goes for a relief package worth VND40 trillion by the Government, which offers an interest rate of 2% for loans to enterprises, cooperatives and business households.
What are your suggestions for improving the situation?
In my opinion, it is critical to speed up the disbursement rate of the supporting package by tangible initiatives, which should be more appropriate and easier for local firms, especially the 2% interest rate support package. Furthermore, the banking system ought to restructure the lending limit across industries and sectors to prevent an imbalanced economy that may be prone to market volatility.
The garment industry, for example, accounted for 12% of overall exports, as well as a quarter of the country’s employment in the industrial manufacturing and processing sectors. Still, a credit crunch has created significant hurdles as the sector needs substantial investment in green transformation programs, renewable energy projects and material supply enhancement initiatives.
The State Bank of Vietnam’s Circular No. 2 in 2023 would be more helpful in the eyes of local firms if it is carried out promptly to help stakeholders in need. The effort was timely assistance by the SBV on the rescheduling of debt payments and the maintenance of debt groups by credit institutions and foreign bank branches.
For now, Vietnamese enterprises are in a bind due to protracted financial obstacles. Some businesses have even received orders not within their scope of expertise, which results in poor production, just to prevent the factory from closing.
Last but not least, Vietnam should issue policies to support the long-term development of the business community, including those in the garment sector. Bangladesh might be an example in this respect, as local firms there have been given a 2% profit tax discount provided they fulfill green manufacturing requirements, in addition to other assistance for green transformation initiatives.
Reported by Dung Nguyen