Optimistic signs for leather, footwear industry

Like other industries, the leather and footwear industry has also encountered many difficulties due to the influence of the Covid-19 pandemic. However, according to many experts, with the pandemic being controlled fairly well and the EU-Vietnam Free Trade Agreement (EVFTA) taking effect from the beginning of August, the leather and footwear industry will recover soon.
Handbag production at Binh Tien Company in Dong Nai Province. (Photo: SGGP)
Handbag production at Binh Tien Company in Dong Nai Province. (Photo: SGGP)
The latest report on industrial production and trade activities of the Ministry of Industry and Trade (MoIT) showed that the production of leather and related products in the first seven months of this year decreased by 4.2 percent compared to the same period last year. Footwear export turnover in the first seven months of this year was estimated at US$9.53 billion, down by nearly 8 percent compared to the same period last year. Manufacturing enterprises have faced dual difficulties from both sides, including the shortage of imported raw materials and interrupted export in the main export markets, namely the US and Europe. This has led to a sharp decrease in export turnover in the first months of this year compared to the same period last year.

However, the Import-Export Department affirmed that the successes in the prevention and fighting against the Covid-19 pandemic of Vietnam, along with tariff reduction commitments as soon as the EVFTA comes into effect will be important leverage to attract footwear export orders from the European market.

Vice-Chairman cum General Secretary of the Vietnam Leather, Footwear, and Handbag Association (Lefaso) Phan Thi Thanh Xuan said confidently that the implementation of EVFTA will help leather and footwear enterprises to accelerate exports, increase turnover, and make up for losses from the beginning of the year until now. Because the EU is a market with great potential, accounting for nearly 30 percent of the industry’s export turnover, with an annual value of about $6 billion. It is forecasted that footwear export turnover in the third quarter and the fourth quarter of this year will post growth again, maintaining the growth rate of 10 percent in the last months of this year.

The representative of Lefaso cited that up to now, many new contracts have been negotiated by footwear enterprises. Some large-scale enterprises, such as Gia Dinh Group Joint Stock Company and An Thinh Leather and Trading Production Company Limited, have negotiated with some partners, especially from the EU market, on orders which are expected to be signed in the last months of this year. Currently, these enterprises are preparing for plans to boost production again.

According to Lefaso, besides tax reduction to zero percent, the EVFTA is considered to have fairly open regulations for Vietnamese enterprises when allowing them to use raw materials from member countries in the EU and countries that have signed free trade agreements with the EU, including South Korea and Japan. Especially, up to now, Vietnamese leather and footwear enterprises have met over 98 percent of the conditions on the origin when implementing the Generalized Scheme of Preferences, so they can satisfy the conditions of the EVFTA.

China currently accounts for 60-70 percent in the global supply chain of the leather, footwear, and handbag industry; India, Vietnam, Indonesia, Philippines, Myanmar, Bangladesh, and Cambodia hold about 30-35 percent; African and South American countries account for 5 percent. According to experts, enterprises all over the world in this field are repositioning their supply chains to lessen dependence on China.

Particularly, enterprises plan to reassign their supply chains by reducing China's supply chain to 45-50 percent and moving 15-20 percent of the supply chain to Vietnam and the other countries. Therefore, this will also be an opportunity for Vietnam to welcome the flow of foreign direct investment capital for the leather and footwear raw materials manufacturing industry and the footwear and handbag manufacturing industry. Noticeably, amid the shift of the global supply chain of the leather, footwear, and handbag industry, Vietnam receives the most attention of many corporations because of its stable political system and an improved investment environment. Moreover, Vietnamese enterprises have already been able to produce mid-range and luxury leather, footwear, and handbag products.

‘When the global supply chain of leather, footwear, and handbags moves, it will give priority to choosing Vietnam. Vietnam also has the additional advantage of being a country that has signed many free trade agreements, so products manufactured and exported from Vietnam to many major markets will receive tax incentives,’ said Vince Tran, Walmart’s Senior Manager in Vietnam.

Although the leather and footwear industry has seen good signs, to respond and overcome the Covid-19 pandemic that is developing complicatedly around the world, many experts said that the Government needs more measures to support businesses, such as reducing land rent and corporate income tax, as well as helping them to access the salary payment support package. Because although the Government has had many support packages for enterprises, up to now, access to the support packages is said to remain difficult. For instance, recently, the Government has had two large support packages. The first one is the VND280-trillion package, mainly for loans with lowered interest rates and the second one is the VND62-trillion package to support employees following the Decision No.15/2020 of the Prime Minister.

However, so far, almost none of the footwear and handbag enterprises have received support from these packages yet. Therefore, along with solutions to improve the governance capacity of domestic enterprises, it is necessary to focus on reforming administrative procedures and management mechanisms of competent authorities. For example, the promulgation of regulations on controlling codes and barcodes has many inappropriate terms, causing difficulties in the export activities of many enterprises. 

‘Therefore, to take advantage of great opportunities, not only enterprises, but regulations must also be changed accordingly,’ Lefaso’s Vice Chairman Diep Thanh Kiet suggested.

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