Shifts in investment flows for export-oriented industries

Vietnam is no longer an attractive destination for labor-intensive, land-intensive or low-productivity industries, and this shift in investment is considered a natural and expected development.

The country's textile, garment, and footwear industries have long relied on imported raw materials, causing foreign enterprises to shift to other countries, said insiders.

In response to concerns raised by delegate Pham Van Hoa of Dong Thap province at the National Assembly's question-and-answer on June 4, Minister of Industry and Trade Nguyen Hong Dien said: "Vietnam is no longer a haven for labor-intensive, land-intensive or low-productivity industries with cheap labour costs."

According to Minister Dien, over the past 10 years, textile, garment, and footwear products have accounted for a significant portion of Vietnam's export structure, contributing to the nation's economic growth and creation of jobs.

This was more prevalent in the initial phase, about 10 years ago, when it helped restructure the economy.

But the shifting of foreign enterprises in these industries to other countries is now considered normal, as Vietnam no longer offers the advantages that initially attracted these low-productivity industries.

Going forward, Dien emphasised that all the country's export manufacturers must aim for greater control over raw material supplies. Relying on imports would limit profitability, as it is essentially just doing processing work.

To address this, the Ministry of Industry and Trade (MoIT) has recommended the government implement comprehensive national, sectoral and local master plans. In the industry and trade sector, four national plans have been developed covering energy, electricity, petroleum and mineral resources.

The ministry emphasised that the four national master plans are crucial to providing raw materials for manufacturing and exports.

These resource-based industries can not only meet the needs of export-oriented manufacturing, but also contribute significantly to local and national budget revenues.

The authority said that all exporting manufacturers, not just in the textiles and garment industry, must strive to utilise domestic raw material sources.

This would allow them to move beyond low-cost processing and increase the added value of their exports, Minister Dien stressed.

Recent customs data shows the textile and garment sector is facing challenges, with exports declining 11.4% year-on-year to $33.3 billion in 2023, while textile fibre and yarn fell 7.6% to $4.4 billion.

As a result, total textile and garment exports reached around $40 billion.

Meanwhile, Vietnam's leather and footwear export value dropped 14.2% to $24 billion. Footwear exports, which make up the majority of the industry, dipped 15.3% to $20.2 billion, accounting for 5.7% of the country's total exports.

Exports of related products like handbags, suitcases, hats and umbrellas also fell, down 7.8% to $3.78 billion.

The industry still relies heavily on imported raw materials. The import value of raw materials for the textile, garment and leather-footwear sectors reaches tens of billions of dollars annually.

The localisation rate, or use of domestic raw materials, in these export-oriented industries is relatively low, currently estimated at 45-50 per cent, according to the MoIT.

A growing chip manufacturing hub

Southeast Asia and India stand to be net beneficiaries of companies diversifying manufacturing capabilities to complement existing bases in China, a recent report from Jones Lang Lasalle (JLL), a global commercial real estate and investment management company, showed.

Particularly, Vietnam will grow significantly and become a hub with strengths extending beyond electronics manufacturing. Therefore, the investment wave is now turning to this industry.

The country's semiconductor industry is witnessing strong development, with numerous multi-million dollar FDI projects arriving.

Leading chipmakers like Intel, Samsung and Hana Micron have made significant investments in Vietnam over the past few years.

Intel opened the world's largest chip assembly and testing facility in the country in 2021 as part of around $1.5 billion in total investment.

Samsung also revealed plans in 2022 to start producing semiconductor wafers in Vietnam by late 2023, while South Korea's Hana Micron inaugurated a $600 million manufacturing project in the country in 2023, with plans to invest over $1 billion by 2025.

Amkor Technology, another South Korean semiconductor company, inaugurated a new $1.6 billion factory in Bac Ninh Province. The facility specialises in the production, assembly and testing of semiconductor materials and equipment.

In early December 2023, a delegation from the US Semiconductor Industry Association (SIA), with top executives from leading US semiconductor companies such as Intel, Synopsys, Ampere Computing, Marvell and ARM, visited Vietnam to explore investment opportunities and support connections between businesses in the two countries.

Statistics from the Ministry of Information and Communications showed that Vietnam has emerged as a major semiconductor exporter to the US, accounting for over 10 per cent of total semiconductor chips imported into the market. It ranks third in terms of semiconductor chip export revenue to the US, trailing only Malaysia and Taiwan.

These investments by top global semiconductor firms highlight Vietnam's growing status as an important hub for high-tech electronics manufacturing and its favourable conditions for attracting more FDI in the industry.

Source: The Investor