Vietnam's textile and garment exports have witnessed a decline of up to 10 per cent over the past two years, marking the most significant drop among the world's top five textile-exporting nations.
Le Tien Truong, chairman of the board of directors of the Vietnam National Garment and Textile Group (Vinatex) addressed these concerns during a meeting with the government and the State Bank of Vietnam along with credit institutions earlier today.
Drawing upon data collected from affiliated businesses, which contribute to 5 per cent of the industry's workforce and 8 per cent of its export value, Truong highlighted the primary reasons behind the industry's sharp export decline.
He pointed to the disadvantageous exchange rate situation compared to currencies of other major textile-exporting countries in the top five.
Over the past two years, following the Covid-19 pandemic and subsequent recovery, large garment-exporting countries such as China, Vietnam, India, Bangladesh and Turkey have all adopted measures to stimulate exports, including currency depreciation.
Truong revealed that Turkey depreciated its currency the most by 50 per cent over the past two years, followed by Bangladesh at 21 per cent, China at 11 per cent and Vietnam at just over 3 per cent.
Considering the exchange rate correlation over the past two years, Vietnam's garment and textile products have generally become more expensive compared to those of other top five countries by about 15 per cent, Truong said.
The second reason lies in the interest rate and credit policy. Presently, the average interest rate in most countries stands at 3.5 per cent while in Vietnam, the average lending rate hovers around 7 per cent for good businesses and about 9 per cent for struggling ones.
While Bangladesh's current interest rate stands at around 8 per cent, their inflation rate surpasses 10 per cent, making Vietnam's real interest rate the highest among garment and textile-exporting countries.
The interest payments to banks in 2023 by Vinatex, as reported in their consolidated financial statements, increased by 10 per cent compared to 2022, while the total debt decreased by 11 per cent.
The increase in interest payments despite a decrease in debt implies that the cost of goods sold in 2022 was higher than in 2021.
Based on the credit contracts the group has in the first two months of this year, it has not been demonstrated yet that the total interest payments for 2024 will be lower than in 2023.
Moreover, access to credit has become increasingly difficult for textile enterprises.
Currently, all banks are reducing credit limits for fiber companies or demanding 100 per cent collateral for short-term loans in 2024 while last year the rate was only about 20 per cent.
Currently, the interest rate for borrowing from state-owned commercial banks for the fiber companies is about 7 per cent, while it is about 9 per cent for non-state-owned commercial banks.
Countries like China are maintaining strong support for electricity prices. For the fiber industry, China currently applies a rate of 4 cents per cent kilowatt, only half of Vietnam's,and implements a 50 per cent subsidy on domestic transport costs, since March 1, 2023.
Bangladesh is still applying non-compulsory health insurance policies and very low minimum wages of $15 per month.
From this context, it is evident that the global textile industry is currently facing losses, akin to the aviation industry during the Covid-19 pandemic.
Therefore, as Truong pointed out, without the support of banks and government guidance, the fiber industry may face collapse.
"If we reduce the credit limit, it may seem safe in the short term, but it is actually risky in the long term because without production, there is no money to repay long-term loans," Truong emphasized.
Additionally, the fiber industry currently employs 150,000 workers, paying them approximately $1 billion in wages annually.
Importantly, the fiber industry consumes a lot of electricity, paying about $500 million annually. Many districts, such as Dinh Quan district in Dong Nai province, derive 60 per cent of their revenue from fiber factories.
Truong believes this is a global economic cycle issue, affecting all fiber companies, thus necessitating continued support for fiber enterprises in 2024, without reducing credit limits and not requiring fixed asset collateral, to maintain their production levels.
According to Truong, while interest rates are decreasing, accessing disbursement is very difficult.
On the other hand, the market reality of 2023 is much more challenging than in 2021 and 2022, as China has opened up and become the world's largest competitive country.
By December 2023, China's reports have only mobilized 60 per cent of the textile industry's capacity, so they continue their supportive policies to increase this ratio.
Therefore, Truong believes that having supportive policies like during the Covid-19 period is crucial for the recovery phase and exports of various industries.
And finally, regarding the exchange rate, if it has only decreased by 5 per cent over the past two years, exporting industries are facing many difficulties compared to other countries.
"We dare not say how much it should be reduced, but perhaps 5 per cent is too little and difficult for export industries to recover," Truong concluded.
