Snapshot: Manufacturing in Vietnam, January 2024

Each month the-shiv provides a snapshot of the manufacturing sector in Vietnam covering the latest developments, key performance indicators, and government data.

January overview

The year 2023 was the most difficult year in 30 years for the textile and garment industry in 30 years, Le Tien Truong, vice chairman of the Vietnam National Textile and Garment Group, told Vietnam News at the beginning of January. Supply chain risks and increased input costs had seen garment and textile turnover drop by 10 percent and there were no clear signs these challenges would let up in the near future with Vietnam News noting that “export orders were expected to continue to decrease”.

It wasn’t just the garment and textile industry that was suffering either. Vietnamnet was reporting that many businesses, of late, have had to downsize with some forced to shut down altogether, partly due to high production costs. Specifically, the publication pointed to additional costs for local firms like ‘under-the-table fees’ and union fees. Furthermore, there were also employee social insurance payments which it claimed are higher in Vietnam than among its neighbours.

But it wasn’t just fees weighing on local businesses. Production costs also received an unhelpful bump in January. On the back of Red Sea tensions, the price for shipping a forty-foot container from Ho Chi Minh City (HCMC) to Northern Europe hit an average of US$3,700, 90 percent higher than in December of 2023. It wasn’t just shipping to Europe that was affected either, with reports this had pushed up shipping prices across the board–The cost of sending a forty-foot container from HCMC to the West Coast of the US increased by 55 percent to US$2,950.

On a more positive note, however, it was reported that South Korea’s KP Aero Industries, a supplier to Boeing, intends to spend US$20 million on a new assembly plant in Vietnam. This follows announcements in September that both Vietjet and Vietnam Airlines had signed agreements with Boeing to purchase a combined 100 aircraft, and reports shortly thereafter that Boeing was encouraging its South Korean and Japanese suppliers to consider making some parts in Vietnam.

It was also reported in January that U.S. Undersecretary for Economic Growth and the Environment, Jose Fernandez, had told a press conference in Hanoi that US firms had US$8 billion earmarked for investment in Vietnam. They were, however, waiting for clarity on regulations around the development of Vietnam’s renewable energy market. He also noted that this included semiconductor manufacturers but that the power-intensive industry would need a steady and sufficient supply of renewable energy. 

Moving forward, the manufacturing sector will likely see a drop in output in February with manufacturing plants and factories closed for the Lunar New Year. There should, however, be an uptick in local consumption at the beginning of the month.

Key developments, Vietnam manufacturing, January 2024

There were several big developments in Vietnam’s manufacturing sector in January. Several big projects started operating and several other sizable projects were announced in both northern and southern Vietnam. These include:

• Singapore’s Nexif Ratch Energy completed its acquisition of the Minh Luong hydropower plant in Lao Cai in Northern Vietnam. The 30-megawatt plant has been in operation since April 2018 and has a 20-year power purchase agreement in place.
• Japan’s AEON Group started work on a new mall near Halong Bay in northern Vietnam’s Quang Ninh province. When complete it is expected to serve up to 10 million customers a year and employ around 2,500 people.
• Nestle announced that it would spend another US$100 million on its factory in southern Vietnam’s Dong Nai province. This will bring Nestle’s total investment in the factory to around US$500 million. Nestle produces a broad range of coffee products in Vietnam–see also: Vietnamese Instant Coffee: Quick Guide 2024
• US firm Ecolab opened a new manufacturing plant in southern Vietnam’s Dong Nai province. The factory covers 3,000 square metres and costs about US$3 million. It is expected to employ 100 locals producing water purifiers and sanitation equipment.
• Hong Kong’s Crystal International announced it was considering investing up to US$200 million in producing cloth, fibre, and garments in northern Vietnam’s Nam Dinh province. Set to be developed in phases, the first component would employ an estimated 800 people and produce 55 million metres of textiles each year.

Key performance indicators, Vietnam manufacturing, January 2024

Vietnam’s exports increased in January over December. They also increased over January of last year, however, note that the Lunar New Year, which usually heralds a drop in exports, fell in January in 2023 but in February in 2024.

Exports

Vietnam’s total exports, January 2024

*FIE = Foreign Invested Enterprise

Source: General Department of Customs

Vietnam’s top manufactured exports, January 2024

Source: General Department of Customs

S&P Global’s Purchasing Managers’ Index

S&P Global’s Purchasing Managers’ Index recorded a decline in business conditions for the fourth month in a row in December. The well-known index recorded 48.9 points up from 47.3 in November. A score of 50 indicates no change, above 50 means the sector is growing, and below 50 means it is contracting.

Key points

• New orders were down, on the back of low demand;
• There was a small rise in selling prices;
• Input costs increased substantially;
• Lead times improved on the back of the lack of demand and competition among suppliers; and
• Backlogs increase for the first time in 12 months.

Vietnam’s Industrial Production Index

Vietnam recorded 5.8 percent growth in its industrial production index in December over a year earlier. For the year the country recorded just 1.5 percent. The GSO says underperformance is the result of falling global demand.

Performance by sector

• The manufacturing and processing sector grew by 1.6 percent;
• Electricity, gas, hot water, and air conditioning by 3.5 percent; and 
• Water supply and waste-wastewater treatment by 5.8 percent. 
• The mining sector recorded a fall of 3.9 percent.

Performance by sub-sector

• Plastics and plastic products at record the highest growth with 11.8 percent, followed by
• Mining of metals at 13.2 percent, 
• Tobacco at 10.1 percent; 
• Chemicals and chemical products at 9.5 percent; and 
• Metal mining at 9.5 percent.
• The worst performers were electronics, computers, and optical products which recorded a drop of 0.6 percent;
• Wood processing and wooden products -1.5 percent; 
• Manufacturing of vehicles with engines -2.4 percent;
• manufacturing of other vehicles -10.7 percent, and 
• crude oil and natural gas exploitation -5.7 percent.

Vietnam manufacturing outlook for February

At a glance, for Vietnam’s manufacturing sector, January showed promising signs. However, it’s worth remembering that the Lunar New Year in February will see most manufacturing firms close down for five days. This should see outputs drop and exports slow relatively to last year–last year the Lunar New Year fell in January. The point being, that comparing January of 2024 to January of 2023 is not comparing like for like.

To keep track of how the manufacturing sector performs in February, operators in the sector should make sure to subscribe to the-shiv.