The Leather and footwear industry continues to grow without TPP

Leather, footwear sector forecasts US$18 bln of export earnings

TPP expected to continue despite US withdrawal: VCCI

Without TPP, the commercial position of Vietnam is still strong

Production of export footwear at Vien Thinh Footwear Company. Photo by: Nguyen Hue

Mr. Diep Thanh Kiet, Vice President of Lefaso, said that the Vietnam Leather and footwear industry continued to grow and had a good position with total export turnover in 2016 of over $US 13 billion, up 8.6% compared to 2015. In the first two months of 2017, the import and export turnover of the Leather and footwear industry also increased by nearly 11% with $US 2.1 billion.

According to Mr. Diep Thanh Kiet, from now to 2030, even by 2035, compared to China, Vietnam's Leather and footwear industry was still competitive on labor cost, GDP per capita, economic policies and export markets. From 2014 to now, China's average GDP increased by $US 8,000/person/year, with average salary of laborers of over $US 400 per month. This reduced the footwear production from China, thereby reducing exports.

According to Mr. Kiet, for 2010-2016, the average GDP of Vietnam was only $US 2,200/ person/year, while the average GDP of China was $US 8,200/ person/year. In the period from now to 2030, GDP growth is expected to remain at 6.2% and the actual wages of laborers will increase by an average of 4% per year, and average GDP of Vietnam should increase to more than $US 5,000/person/year by 2030. This shows that, from now to 2030, Vietnam will still be eligible for development due to its continued positive competition on GDP per capita and wages for laborers.

In addition to the comparative advantage of average GDP and labor costs, Vietnam’s current economic policies are also creating favorable conditions for export growth of the Leather and footwear industry in the coming time. The Vietnamese Government is still negotiating many Free trade agreements to seek better export opportunities for the Leather and footwear industry as well as other sectors.

Regarding the polices on raw materials development, currently, the domestic leather tanning industry has not met enough raw material for export production of the Leather and footwear industry. However, in the past 5 years, the capacity of leather tanning production has increased by 15 times compared to the current capacity of about 300 million Ft². In line with the policies promoting supporting industries, the possibility of increasing leather tanning production in the coming time is very promising.

For the export markets, Vietnam is still the second largest exporter of footwear to the US market with an export turnover growth of 14.2% in 2016, while China's export turnover declined. In the EU market, although the growth of Vietnam's footwear exports was not great, in the context where most countries had negative growth, maintaining positive growth of Vietnam was very positive.

From these above factors, according to Diep Thanh Kiet, despite loss of TPP, the Vietnam leather and footwear industry will continue to maintain steady growth, but there will not be dramatic growth. With TPP, the Vietnam Leather and footwear industry would have a better opportunity to approach the US market, the volume of footwear export to this market may account for 50% of total export volume of the Industry.

"But without TPP, the Leather and footwear industry with its competitive advantages still maintained the second position for footwear exports in the world and the US still accounted for over 30% of the total export volume. The decisive factor for the export growth of the Leather and footwear industry was the "development" of the US economy in particular and the world economy in general. If the "development" of the importing countries’ economies was not good, Free trade agreements would not promote the effect, due to consumers would not buy or only buy with low price”, Mr. Kiet stressed.

Plan B for Vietnam: RCEP instead of TPP The TPP is not the only game in town and other possibilities exist, according to analysts.

Commenting on the growth potential of the Vietnam leather and footwear industry, the representatives of a foreign shipping company said that, despite loss of TPP, foreign customers still believed in Vietnam and considered Vietnam as a reliable destination. According to the representative of this shipping company, the demand of buying Vietnam’s goods, including footwear products was rising sharply and showing good belief in the industry. In 2017, Vietnam would be the second choice and replace China.

Agreeing with the above opinion, Mr. Matt Priest, the President of the Footwear Distributors and Retailers of America said, in spite of the slight decline in 2016, the US importers still bought $US 1.2 billion of footwear from Vietnam, this shows that export growth of the Leather and footwear industry in the US market is still strong and reliable. Along with the economic reform, it is forecast that the leather and footwear industry will continue to grow strongly in the coming time.