Against the Storm: The Vietnam Garment and Footwear Industry in the 2021 Covid-19 Outbreak

On March 24, 2022

In an effort to capture the impacts of the 4th wave of Covid-19 on garment and footwear enterprises and workers in Vietnam, as well as their responses and the effectiveness of the State support packages, the Public-Private Partnership Working Group for the sustainable development of garment and footwear industries of Vietnam (PPP-WG) authorised the Research Center for Employment Relations (ERC) to conduct this research. The research was based on three surveys on workers, enterprises, and international buyers between September and December of 2021. The research not only studied the impacts on the two industries during the final months of 2021 but also provided an insight into the ongoing challenges such as labour shortages, wage competition, labour force shifting, automation, and the prospectives for the industry development.

Some of the key findings are:

About 60 percent of workers in the Directive 16 area (under lockdown) had their income reduced or completely lost; 30 percent of workers had to borrow money and 80 percent of workers had to cut down their expenditure. However, by September 2021, 30 percent of workers could not maintain the minimum standard of living and had to skip meals. The pandemic also had a strong impact on the mental health of 70 percent of the surveyed workers. Workers were provided with cash, food, discounts, etc. as assistance. However, the support was small and often provided once only. Only 30 percent of workers received allowances from enterprises after 14 days of suspension. Being financially and mentally exhausted, 60 percent of the migrant workers wanted to return home after the lift of social distancing measures; yet 89 percent said they wanted to go back to work after “recovery”.

Up to 48.4 percent of enterprises experienced delays in delivery, nearly 20 percent had orders canceled and 23.8 percent were not sure if they could complete orders by September 2021. As a result, 68.1 percent of the surveyed enterprises had to pay air freight costs for at least one delayed order. However, while the factories in the Southern provinces were facing difficulties in operation, those in the Central and Northern regions were still performing well. The growth of fiber exports due to high cotton prices resulted in the V-shaped recovery of the export of textile and garment industry in Q4 of 2021. By December 2021, enterprises in the South had also recovered between 70 and 90 percent of their capacity compared to the pre-lockdown level.

Vietnam’s financial stimulus and support packages account for 7.9 percent of GDP, a relatively low rate compared to the ASEAN region’s average of 15.7 percent. Meanwhile, the VND 38 trillion package from the unemployment insurance fund was already disbursed in 2021. The VND26 trillion package is considered too small and only 52 percent had been disbursed, mainly due to the limited reserve budgets of provincial governments. The experiences from other Asian countries showed that recovery support measures should prioritise the small and micro enterprises instead of even distribution across the economy.

Digital transformation and sustainable development are the two biggest opportunities of the fashion industry in 2022. At the same time, the logistics crisis and the risks of labor and environmental standard violations are also the challenges that major brands have pointed out. The average purchase price will increase by 3 to 15 percent in 2022, but it is still not enough to cover the increases in raw materials, labor, and transportation. Manufacturers, therefore, need to focus on digital transformation, increase productivity and ensure compliance with labor and environmental standards in the turbulence of the global fashion industry.

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