Vietnam leather and footwear: Efforts to overcome difficulties, growth expectations

In 2020, the widespread Covid-19 pandemic has seriously affected the world economy as well as all socio-economic aspects of the country in general and the production and business activities of enterprises. In particular, Vietnam's leather and footwear industry, with 90% of its output being exported, encountered many difficulties when supply chains were broken, demand for goods dropped sharply, and export activities declined. Footwear export turnover in 2020 reached 16.8 billion USD, down 8.3% compared to 2019. Products including handbags, wallets, suitcases, hats, umbrellas reached 3.1 billion USD, down 16.5%. In general, in 2020, the export turnover of the leather and footwear industry reached 19.9 billion USD, down 9.7% compared to 2019 and accounting for 7% of the total export turnover of the country.

About export market: The US is still Vietnam's largest export market for leather and footwear exports. In 2020, footwear export turnover to the US reached 6.3 billion USD, down 5.2% compared to 2019 (accounting for 37.5% of total footwear export turnover). Products including handbags, wallets, suitcases, hats, umbrellas reached 1.27 billion USD, down 19.6% compared to 2019. In general, the export turnover of the leather and footwear industry to the US market in 2020 reached 7.57 billion USD, down 8% compared to 2019 and accounting for 38% of the whole industry.

The EU is still an important export market for Vietnam's leather and footwear products. Industry export turnover to this market in 2020 reached 4.52 billion USD, down 14.1% compared to 2019, accounting for 26.9% of export turnover of the whole industry. In which, footwear exports reached 3.8 billion USD, down 13.7% compared to 2019; handbags, wallets, suitcases, hats and umbrellas reached USD 719.5 million, down 16.4% compared to 2019.

China is a bright spot in the general context of the export market for Vietnamese leather and footwear exports. Specifically, the export turnover of footwear to the Chinese market in 2020 reached 2.1 billion USD, up 16.3% compared to 2019. Products including handbags, wallets, suitcases, hats, umbrellas reached 138.8 million USD, down 12.9% compared to 2019. Footwear exports to the Japanese market reached 848.4 million USD, down 12.8% compared to 2019 and handbags, wallets, suitcases, hats, umbrella reached 341.8 million USD, up 19.0% compared to 2019.

Export market of Vietnam's leather and footwear industry in 2020

Unit: billion USD

Source: Calculated according to the data of the General Department of Customs

Regarding production and business situation: Like some other industries, the leather and footwear industry in 2020 faces many difficulties due to the impact of the Covid-19 epidemic. At the beginning of the year, the lack of supply of production materials from China seriously affected the production, business and export activities of most enterprises in the industry. By the second quarter of 2020, the total demand from major export markets of the leather and footwear industry such as the US and EU began to decline seriously.

Some Free Trade Agreements signed in 2020 such as EVFTA; Regional Comprehensive Economic Partnership (RCEP); UKVFTA has had a good effect on footwear exports in the last months of the year. In particular, the most obvious impact is the EVFTA with preferential import tax rates of 0% for some leather and footwear products such as sports shoes and canvas shoes, that is an advantage for Vietnam's export of this item into the EU market. However, with the impact of Industry 4.0 and the volatility of world trade and increased protectionism, the leather and footwear industry will continue to face many difficulties in export activities in the coming years.

According to experts, assessing the general development prospects of the leather and footwear industry, currently Vietnam's leather and footwear products are at an average level with an export price of 16.64 USD, while the average export price of the world is 19.7 USD. This shows that Vietnam's footwear products reach the world average level and have a high value compared to other commodities. At the same time, due to the impact of the Covid-19 epidemic, new supply chains are being re-established, thus this is an opportunity for Vietnamese footwear enterprises to participate more deeply in the global supply chain.

2021 is the year expected that the leather and footwear industry will have a strong growth in orders and export turnover because Vietnam has the advantage of recovering production after Covid-19 compared to other countries. In addition, FDI enterprises continue to make new investments and expand production, that will help the leather and footwear industry maintain export growth. Free trade agreements such as the CPTPP, EVFTA, UKVFTA and RCEP Agreements have been signed and taken effect, especially the Free Trade Agreement with the UK has just completed negotiations and is expected to implement in 2021, will be a great driving force for the growth of the leather, shoe and handbag industry in the coming time.

According to the report of the Ministry of Industry and Trade, the leather and footwear industry in the first quarter of 2021 has shown more signs of improvement than the same period in 2020. Although the epidemic is still unpredictable, up to now, businesses has found a suitable direction, the world leather and footwear market has gradually become active again. The fact that countries continuously put Covid-19 vaccines into injection for people has increased people's confidence, contributing to boosting consumer demand, including the return increasing of leather and footwear consumption. Although the quantity and unit price of products have not yet increased to the level of 2019, it is a signal that the market has gradually recovered. Export turnover of shoes and sandals of all kinds in the first quarter of 2021 is estimated at 4.74 billion USD, up 13.5% over the same period in 2020. The industry's target in 2021 is to achieve export turnover of over 20 billion USD to compensate for the losses in 2020. Therefore, in the context that the Covid-19 epidemic is still complicated in the world, leather and footwear businesses need to take advantage of opportunities and improve production capacity, anticipating the trend of shifting production out of China to other countries, including Vietnam. Because it is estimated that with about 5-10% of orders in China moving to Vietnam, in the next 3-4 years, Vietnam's leather, footwear and handbag industry could achieve 30-40 billion USD. The leather and footwear industry needs to be consistent with that strategy, which is the main focus for export, and strongly participates in the value chain. From the Covid-19 pandemic, it showed that the disruption of the supply chain had an extremely serious impact on production, which has forced the whole industry to rethink its strategy. Therefore, if the footwear industry depends mainly on the import of raw materials and accessories, when a supply chain problem occurs, businesses will be very passive.

Therefore, the coming time is a very good opportunity for the whole industry and the Government to re-establish stronger policies for the development of supporting industries. This is also an opportunity for Vietnam to develop domestic production of raw materials. In addition, the industry needs to innovate and improve the efficiency of corporate governance in the new situation, strengthen digital transformation in business management and operation.

It is necessary to focus on developing and expanding the raw material production industry, increasing the percentage of added value, being more proactive in the supply chain, and meeting the requirements of rules of origin. In particular, the leather and footwear industry need to pay attention to the issue of sustainable development, because in the new generation FTAs, the content of sustainable development is mentioned. This forces all businesses to pay attention to environmental and labor issues.

With new opportunities in difficulties and innovation in production, Vietnam's leather and footwear industry is expected to return to growth, gradually removing technical barriers and entering deeper and wider into the world market in the near future./.

Source: Vietnam import and export report in 2020

Vu Huy Hung

Department of Information, Library and Trade Promotion - VIOIT.