Emerging COUNTRIES IN GARMENT MANUFACTURING

www.threadsol.com Emerging COUNTRIES IN GARMENT MANUFACTURING

www.threadsol.com Index ETHIOPIA: The Next Hub For Apparel Sourcing?...1 Kenya A Rising Power In Apparel Industry?...5 Growth Opportunities In Colombian Textile & Apparel Industry...8 IRAN An Emerging Power in Textile and Apparel Industry...15 Emerging ASEAN Economies Impact On The Garment Industry...19

ETHIOPIA The Next Hub For Apparel Sourcing?

Country Overview Ethiopia is a country with a diverse mixture of many ethnicities and linguistic backgrounds. It is the second most populated country in the Sub-Saharan Africa region and one of the fastest growing economies globally. Despite the global economic crisis, Ethiopian economy recorded an annual economic growth of around 10% over the past few years, owing to their infrastructure and mining projects. The value of exports and imports together form 37% of the country s GDP. The Ethiopian economy is a transitioning economy dominated by a large public sector. The Ethiopian government is taking steps to move towards a market economy by privatizing many state-owned businesses. The Ethiopia s history of textiles dates back to 1939 when the first garment industry in the country was established. In the past decade, the textile and apparel industry has grown at a whooping rate of 51%. In the past 5 to 6 years, more than 65 international investment projects in the industry have been approved for the foreign investors and brands. The Ethiopian government has also set up an industrial development strategy that gives another boost to the country s apparel and textile production. The total manufacturing sector in the country equals around 4% of the country s GDP, with textiles and leather dominating the exports. Ethiopian Textile and Apparel Industry At present, the Ethiopian textile and apparel industry consists of approximately 130 medium and large-scale factories out of which 37 are foreign owned. In 2014, the total exports of the textile and apparel sector accounted for around USD 113 million and employed 37,000 workers. Skill-Set of workers According to a research done by students of Nagoya University, following points could be figured out: Top level management feels that obedience, discipline, and punctuality, are the most valuable skills for new workers in the garment factory whereas TVET (Technical and Vocational Education and Training) trainers appreciated garment production skills. The skills of garment factory workers largely consist of sewing, ironing, and finishing the products. Workers do not have the skills to make patterns or compare garment dimensions. ETHIOPIA: The Next Hub For Apparel Sourcing? 1

There is a large variation of workers sewing skills. These differences tend to be related to the characteristics of the factory where they work rather than the pre-service training in TVET (Technical and Vocational Education and Training). Investment Environment Swift Economic Growth: Ethiopia is attracting a lot of global attention due to its low manpower, raw material and energy costs. It has experienced an average 11% p.a. GDP growth since 2004 and this rapid growth is expected to continue. In recent past, many European brands like Primark, Tesco and H&M have started sourcing garments from Ethiopia. Also since 2013, the whole East African region has become a lucrative sourcing destination for apparel. Political stability: The country has a stable political environment and the government is also actively incentivizing private sector investments. Under the Growth and Transformation Plan, the government is offering attractive tax holidays and duty-free packages for investments. Labor Cost and Availability: 40% of the country s huge population (around 85 million) is below the age of 15, which offers a rich labor market. Moreover, Ethiopia has one of the lowest minimum wages in Africa. Also, the standards of spoken and written English are good in the country. Ethiopian wages for garment workers is below $60 monthly. The work-permit costs for foreign workers are also 1/10th of what its neighbour Kenya offers. Large market size: Ethiopia s domestic market is huge, it being the second most populous Sub-Saharan country. Ethiopia also enjoys the geographic advantage to being located on the crossroads between Africa, Middle East and Asia which gives it a preferred access to many big international markets. Infrastructure Investments: Ethiopia has a projected national investment of $73 billion in soft and hard infrastructure development projects. Low cost electricity access is also improving, owing to its investment in hydroelectric power projects. Favorable Investment Laws: The Constitution & Investment Law, MIGA & BITs of Ethiopia offers guarantee against nationalization to investors. Also, they get full repatriation of profits, payments (principal and interest) and dividends out of the country in convertible currency. Investors have ETHIOPIA: The Next Hub For Apparel Sourcing? 2

the right to use expatriate employees. The country also has bilateral investment promotion and protection treaties signed with 27 countries. And, double taxation avoidance treaties with 18 countries making it further investment friendly. An exemption from income tax is available for 2 to 9 years, and the incentive policies of the government do not discriminate between their domestic and foreign investors. African Growth and Opportunity Act (AGOA): Ethiopia is eligible for preferential access to the U.S market under the African Growth and Opportunity Act (AGOA). In 2015, Ethiopia was approved for AGOA privilege extension for the coming 10 years until 2025. It provides duty-free access and trade preferences for quota into the US. Ethiopia is a signatory to the following trade agreements: Treaty Establishing the Common Market for Eastern and Southern Africa (COMESA) (Kampala, 5 November 1993) Agreement Establishing Intergovernmental Authority on Development (IGAD) (Nairobi, March 1996) African, Caribbean, and Pacific Group States (ACP)-European Union (EU) Economic Partnership Agreement (Cotonou, 23 June 2000) At the continental level, Ethiopia has signed and ratified the Abuja Treaty that aims to establish an Africa Economic Community among the connents 54 countries. Challenges faced by the Ethiopian Garment Industry Low production Efficiency: The efficiency of garment manufacturers in the country is as low as 40-45%. Underdeveloped processes, and low skill and education level of workers result in this. Longer Lead Times: The lead time of the country s manufacturers can even go up to 150 days due to unavailability of raw materials. Only 40% of the total need of the country s garment industry is manufactured domestically. Rest 60% need is fulfilled through imports, making the industry ETHIOPIA: The Next Hub For Apparel Sourcing? 3

susceptible to international cost and availability fluctuations. When compared with its competitors, Ethiopia takes 45 to 60 days more in delivering the orders. Lack of Marketing: Many Ethiopian facilities with state-of art equipment and machinery are sitting idle in the country due to lack of marketing efforts.technological Restrictions: Underdeveloped basic digital transaction processing technologies and over-reliance manual order management hampering Ethiopia s growth prospects. Other potential sub-saharan African Countries as Apparel Sourcing Hub As per UN projections, the sub-saharan African region will see the highest growth in the working-population over the next 20 years. So, by 2035, the regions working population is expected to be as big as 900 million, which is around what China has today. Within the Sub-Saharan African countries Ethiopia, Kenya, Uganda and Tanzania has garnered the highest interest of apparel buyers. Governments in these countries are taking vigorous steps towards the development of their domestic textile and apparel countries. Amongst these, where on one side, Ethiopia offers cost advantages, whereas, Kenya boasts its higher productivity. References: 2017 Index of Economic Freedom. Retrieved from: http://www.heritage.org/index/country/ethiopia Economy of Ethiopia. Retrieved from: https://en.wikipedia.org/wiki/economy_of_ethiopia#manufacturing Economic Overview. The World Bank In Ethiopia. Updated: Apr 24, 2017. Retrieved from: http://www.worldbank.org/en/country/ethiopia/overview Overview of Ethiopian Investment Opportunities and Policies. April 2014. Ethiopian Investment Agency 32. Retrieved from: https://www.flandersinvestmentandtrade.com/export/sites/trade/files/news/127140508115349/127140508115349_2.pdf About AGOA. info. Retrieved From: https://agoa.info/about-agoa.html The textile industry in Ethiopia and Ethiopian garment production. Alliance Experts. Retrieved from: https://www.allianceexperts.com/en/knowledge/countries/africa/trends-in-the-textile-industry-in-ethiopia/ Achim Berg, Saskia Hedrich, Bill Russo. East Africa: The next hub for apparel sourcing? August 2015. Mckinsey. Retrieved From: https://www.mckinsey.com/industries/retail/our-insights/east-africa-the-next-hub-for-apparel-sourcing ETHIOPIA: The Next Hub For Apparel Sourcing? 4

KENYA A Rising Power In Apparel Industry?

Country Overview The Republic of Kenya is an East African country bordering the Indian Ocean, located between Ethiopia, South Sudan, Uganda, Somalia, and Tanzania. The country is heavily populated, especially along its western region, the capital city of Nairobi, and the southeast region along the Indian Ocean. Kenya has experienced a theatrical population growth since the mid-20th century. It was due to the high birth rate and declining mortality the country experienced. Challenges faced by the Kenyan Apparel Industry Lack of Local Upstream Industry Due to lack of local upstream industry, Kenyan manufacturers turn to fabric imports to support their operational needs. This results in longer lead times, higher costs and unpredictability within the supply chains. The industry in Kenya needs to embark on the path of vertical integration to experience sustainable growth in the coming years. for overseas manufactured fabrics to come from the abroad and reach the factory, making its way through customs can add up to 40 days in transit to the total order lead time in Kenya. Higher Costs Kenya, when compared to other Sub-Saharan competitors, has higher labor costs. The monthly wage of garment workers in Kenya ranges from $120 to $150. The energy costs in Kenya are also higher, as the power supply is not smooth in the KENYA A Rising Power In Apparel Industry? 5

country. The factories thus rely on generators to ensure continuous operations. Power generated by generators is four times the cost of power obtained from a grid in Africa. Inefficient Infrastructure Just like other developing economies, the existing infrastructure is a huge hurdle for the lead-time focused apparel industry in Kenya. Inefficient hard infrastructure, inefficient customs processes, limited capacity of Mombasa port (it cannot serve mother vessels), and prevalence of weighbridges on the roads (adds waiting time for truck transports which accounts for around 94% of the total apparel transports), pose serious challenges to the industry s lead time and cost efficiencies. Compliance Issues Kenya needs to address compliance issues to attract more international brands to the country. Corruption, poor social compliance, high crime rates, etc are the major challenges that alienate international buyers from the Kenyan apparel industry. Overdependence on AGOA Kenya s around 92% of garment exports go to the US, due to the duty-free access advantages it enjoys due to its AGOA membership. Apart from AGOA, Kenya also has European Partnership, which many of its players are still reluctant to take full advantage of. This mainly due to the EU s preferential agreements with the low-cost Asian countries and the duty-free benefits they get, which makes the competition tougher for Kenyan players. Also, European buyers are much more demanding than their US counterparts. AGOA has always been on short renewal cycle only, and any loss of AGOA would directly and harshly impact the Kenyan apparel industry. Limited Availability of Skilled Employees Kenyan manufacturers are hindered in their capacity expansion efforts due to the skill gap they experience in the technical roles. Employees having education backgrounds from local Kenyan institutes are also generally unfamiliar with the demands of mass production. Thus, the lack of qualified technologists and qualified managers is a huge challenge faced by the industry. Hence, the share of expatriates within in the Kenyan factories is very high, which affects their total labor costs. KENYA A Rising Power In Apparel Industry? 6

Other potential sub-saharan African Countries as Apparel Sourcing Hub East African countries have recently gained a lot of attention in the global apparel and textile industry. Governments in these countries are taking steps to develop their domestic industries to ensure they are viewed as potential prospects by international apparel brands. Amongst all the sub-saharan countries Ethiopia and Kenya are garnering the most interest amongst global apparel buyers. Ethiopia offers cost advantage while Kenya boasts on its higher production efficiency. Although Sub-Saharan countries are still struggling with poor infrastructure, a dearth of technical as well as managerial talent, cumbersome customs processes, and compliance struggles, the future of these countries as apparel and textile hubs is bright owing to their cost and geographical advantages. References: Africa: Kenya. The World Fact Book. Central Intelligence Agency (US). Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html 2016 Human Development Report (PDF). United Nations. 2016. Retrieved 9 April 2017. Achim Berg. Bill Russo. Saskia Hedrich. August 2015. East Africa: The next hub for apparel sourcing? McKinsey & Company. Retrieved from: https://www.mckinsey.com/industries/retail/our-insights/east-africa-the-next-hub-for-apparel-sourcing Achim Berg. Benedikt Berlemann. Saskia Hedrich. Karl-Hendrik Magnus. Ben Mathews. Bill Russo. Sourcing in a Volatile World. The East Africa opportunity. Apparel, Fashion & Luxury Group April 2015. McKinsey & Company. Kenya tipped to be the next hub for apparel sourcing. Monday, 17 August 2015. Standard Digital (Kenya). AGOA.info. Retrieved from: https://agoa.info/news/article/5806-kenya-tipped-to-be-the-next-hub-for-apparel-sourcing.html Evelyn Noah. Margeret Waithaka. Kenya s Apparel & Textile Industry 2005. Export Processing Zones Authority. Copyright 2005. Retrieved from: http://epzakenya.com/user- Files/files/ApparelTextile.pdf Kenya Apparel and Textile Industry-Diagnosis, Strategy and Action Plan. Ministry of Industrialization and Enterprise Development, Republic of Kenya. Retrieved from: http://www.industrialization.go.ke/index.php/downloads/322-kenya-apparel-and-textile-industry-diagnosis-strategy-and-action-plan KENYA A Rising Power In Apparel Industry? 7

COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry

Colombia, the fourth-largest country in South America, is rightly taking on the title of being the fashion center of Latin America. Medellin city in Colombia has now become the center of the country s integrated and widespread garment industry that exports apparel, leather goods and footwear. Industry Overview The country s textile and apparel industry is alone accountable for the nation s 7.5% manufacturing GDP, 0.8% of total GDP, 17% manufacturing sector employment and 2.4% of the total exports. The United States are the main commercial partner, with a 33 % participation in the Colombian apparel exports, followed by Venezuela (19%), México (11%) and Ecuador (7%). Source: trademap.org, DANE COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry 8

The beginning of 90s is marked by economic reforms that the Colombian government made to open the economy for FDI. These reforms consisted of tariff reductions, privatization of state companies, financial deregulation and a flexible exchange rate. Colombia is at strategic advantage geographically also. It is located close to the United States, is a middle point between North and South America, has Caribbean and Pacific coastlines with ports on both, and thirteen highway projects underway to support overland transportation. Landmarks in the Fashion Industry Colombia is a reference point for Mexico and other countries in Latin America regarding the design and development of textile apparel products, which translates into products with a high aggregate value. Alejandro Faes, Mexican industrialist and ex-president of the International Apparel Federation IAF. Colombia s fashion industry has become a priority sector for the country driven by the Productive Transformation Program (public-private alliance) working towards strengthening the country s apparel and textile sector. In the last decade, country s fashion industry achieved a compound annual growth rate of 4.2% making it the third most prominent country in the region, closely after Argentina and Brazil. Apparel sales for the country have grown at 9.9% CAGR. (Euromonitor International 2015) 13 free trade agreements, 10 international investment agreements, three times lower logistical cost than shipping in from China, competitive location with easy access to global markets, 700 direct international flights per week, more than 4900 domestic flights per week, a National Training Service offering free training to companies and workers with more than 26 specialized programs for the textile and clothing sector with national coverage, a business network of more than 450 textile and 10,000 apparel production units, and preferential access to more than 1.5 COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry 9

billion consumers (due to geography and FTAs) makes Colombia a very attractive location for the global fashion sourcing. According to Euromonitor International, Colombia is expected to generate $870 million over the 2013-2018 period. Colombia s R&D push is also attractive to foreign players, as incentives like 175% of tax deduction of the R&D investment value and VAT exemption for import of equipments and other items used in R&D centers attract innovation. Also, the income generated by companies to finance innovation projects is non-taxable. The country offers investment opportunities to foreign players to set up their textile and apparel production units to replace textile imports within the country. Also, establishing logistics distribution centers to Latin America and the Caribbean to milk country s strategic location and FTA advantages, as a forward integration opportunity is also a lucrative option. Major foreign companies like Kaltex, Mexico, Polymer Group, USA, Coats, UK, ParkDale Mills, USA, have already chosen Colombia as a lucrative place to invest by setting up their plants in the country s free trade zones. Latin America s Fashion Potential Textile and Apparel Trade shows across Latin America can be seen growing and upgrading their offerings in the recent years. There is a visible growth in the region s B2B fashion trade as a result of high quality of imports and exports in the region. Mexico, Argentina and Colombia are the three biggest names in the region for textile and apparel trade and industry. Industry experts are actually forecasting that Latin America s growth trajectory (7.2%) is in line with their forecasts for Asian countries (China s forecast: 7.8%) in the industry. (Source: BMI Research, an emerging market analysis firm) Affordable brands like H&M, Mango and Forever 21 are aggressively expanding their footprint across the region. International fashion brands and growing e-platforms are marking the fashion retail landscape of Latin America. According to figures released by New World Wealth, by 2025, Latin America is predicted to be the home to US$ 841,100 millionaires (with a 42% growth within the last decade). Latin America s fashion industry has already begun a long overdue process of amalgamation and consolidation. As per the BMI Research, the Latin American fashion market was already worth more than $160 billion in 2016, which is far larger than the size of COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry 10

the fashion market in the Middle East. Spending on clothing and footwear in Latin American region is forecasted to increase at a CAGR of 7.2% over the next five years surpassing $220 billion by 2021. So, it not just the sheer size, the growth opportunity that the region offers, is actually the core attraction for foreign brands here. The region can easily outpace North America (1.8%) and Europe (1.9%) over the same period as per the research. Stronger underlying economic activity and the cooling inflation are set to boost disposable income and spending in this region further ahead. Advantages of being a Duty-Free Sourcing Destination Free- Trade Zones Colombia is home to 106 free-trade zones, with 67 of them being permanent-single company zones (status of free zone to a company to develop an investment project that has a highly positive social and economic impact). These free-trade zones not only serve as an instrument to create more employment and attract capital investment to the country, but also promote competitiveness in the region. They help the country to develop highly productive and competitive industrial processes, simplify the procedures for trade and generate economies of scale. Companies operating in these zones enjoy: A flat income tax rate of 15% (against the general tax rate of 25% in the country), Exemption from the import duty and VAT Tax, Exemption from income tax for equality, CREE, Remittance Tax Foreign exchange freedom, Temporary admission to the national customs territory, Benefits of international treaties signed by Colombia, Elimination of customs procedures, Internal credits, Legal certainty, COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry 11

Lower costs associated with security and public services, Customs transit and multimodal transit operations available from international ports and airports to free zones and between zones, Freedom to Re-ship abroad without re-loading or re-exporting procedures, and without policy or consular visa, Freedom to conduct operations other than those required for the type of activity without official permits, Waiver of a percentage of the nationalization goods produced, and Waiver of a percentage of local purchased inputs standards. Free-Trade Agreements: Columbia enjoys many free trade agreements with major global fashion sourcing countries like US and Europe: Colombia is a member of the Andean Community (since 1969), which constitutes a free trade agreement with Bolivia, Ecuador, and Peru. This Andean Community has signed a free trade agreement with the Mercosur countries (Brazil, Argentina, Paraguay and Uruguay) (in 2005). The United States-Colombia Trade Promotion Agreement (CTPA) that came into force on May15, 2012. Colombia has various FTAs with individual countries and associations, including the Central American Northern Triangle (El Salvador, Guatemala, and Honduras), Canada, Mexico, Chile, the European Free Trade Association (EFTA) countries (Switzerland, Norway, Iceland and Liechtenstein), and the European Union. Colombia has also signed FTAs with South Korea, Costa Rica, Panama and Israel in 2013. These FTAs have yet not come into force but they are soon expected to. Currently, Colombia is negotiating with Turkey and Japan for FTAs with them. Colombia also enjoys Bilateral Investment Treaties (BITs) with Switzerland, Peru and Spain. Additional BITs have also been negotiated with China, India, and the UK. These FTAs make Colombia an attractive investment destination, and also opens the country s domestic market for the investors. Lower labor costs and FTAs together can prove to be efficient in the cost saving efforts being taken by major fashion brands across the world. COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry 12

Trade Organization Memberships Colombia enjoys membership in the Andean Community, Pacific Alliance (founding member), Caribbean Community (CARICOM) Agreement, World Trade Organization and Latin American Integration Association. Conclusion In the article Colombian fashion is a rough diamond, published in 2007 in the newspaper El Espectador,the fashion expert Lee Shafkowitz said that the design in Colombia is at the height of Italian, French, and Spanish proposals, only with an added value to the consumer: its lower price. Colombia s competitive advantages of tradition (more than 100 years of experience), flexible production, design integration with the manufacturing and distribution processes, innovation push, multiple FTAs, qualified and skilled labor market, environmentally responsible industry and shorter delivery times (45 to 60 days against 120 to 150 days in China) make it a lucrative investment location for apparel and textile industry globally. References: Colombia: Taking another Look at This Duty-Free Destination. Friday, May 19, 2017. United States Fashion Industry Association. Retrieved from: https://www.usfashionindustry.com/news/off-the-cuff-newsletter/2964-colombia-taking-another-look-at-this-duty-free-destination Robb Young. May 18, 2017. Latin America s $160 Billion Fashion Opportunity. Business of Fashion. Retrieved from:https://www.businessoffashion.com/articles/global-currents/latin-americas-160-billion-fashion-opportunity Worldmark Encyclopedia of Nations. Retrieved from: http://www.encyclopedia.com/places/latin-america-and-caribbean/south-american-political-geography/colombia#industry The Advantages of Duty-Free Zones in Colombia. RGX Online. April 8, 2016. Retrieved from: https://www.mastercardbiz.com/caribbean/2016/04/08/the-advantages-of-duty-free-zones-in-colombia/ Colombia Trade Agreements. Published:July 31, 2017. Colombia Country Commercial Guide. Export.gov. Retrieved from: https://www.export.gov/article?id=colombia-trade-agreements Colombia trade agreements. Wikipedia. Retrieved from: https://en.wikipedia.org/wiki/colombia_trade_agreements COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry 13

Colombia s Textile Industry. Inexmoda. Retrieved from: http://www.inexmoda.org.co/textileapparel/sectorsinformation/colombiastextileindustry/tabid/307/default.aspx Marleny Natalia Malaver Rojas. Hugo Alberto Rivera Rodríguez. Melissa Sierra Posada. Diego Fernando CardonaMadariaga. Art and strategy: the case study of the fashion industry in Colombia. ISSN 1657-6276 DOI: http://dx.doi.org/10.14482/pege.36.5570 Colombia Free Trade Agreement. US Department of State. Retrieved from: https://www.state.gov/e/eb/tpn/bta/fta/c76139.htm Colombia s Textile Industry Reinventing Itself. November 10,2015. Market Watch. Texperts. Retrieved from: http://www.thetexperts.com/market-watch/colombias-textile-industry-reinventing-itself/ Colombia, Open and Ready for Business. Revised on 30 August, 2014. Business of Fashion. Retrieved from: https://www.businessoffashion.com/articles/market-gps/colombia-open-ready-business Colombia Country Factfile. Euromonitor International. Retrieved from: http://www.euromonitor.com/colombia/country-factfile Investment in Fashion System. Procolombia Exports Tourism Investment Country Brand. Retrieved from:http://www.investincolombia.com.co/sectors/manufacturing/fashion-system.html COLOMBIA Growth Opportunities In Colombian Textile & Apparel Industry 14

IRAN An Emerging Power in Textile and Apparel Industry

Iran has had a long and successful history of manufacturing textiles. The Gulf state was one of the world s premier exporters of textiles and silks to Europe, Asia and the rest of the world. The first textile mill in Iran was established over a century ago in the capital Tehran. The Iranian Textile Industry is mostly known for its carpet industry which includes the production of machine made and hand-made carpets and blankets. However, the local production of textile products like fibre, yarn and fabrics etc. remains insufficient to fulfil the growing needs of textile and garment industry. Lifting of International Trade Restrictions Sanctions regarding trade are one of the most potential threats to Iran that can affect Iran s economy and foreign investment. The nature of the sanctions variably depends on the extent and fluctuations of it. After the signing of the nuclear agreement, the world is eyeing to do business with Iran. The lifting of international trade sanctions will lead to regional trading boom in the textile industry. For booming up the trade, Iran requires a great support from trade partners to improve textile weaving, designing and printing to become a promising country in the field of trade. Iran has been making huge efforts to increase industry s competitiveness. It aims to resume the import of fabrics from the countries producing the best quality material. Iran is very keen on welcoming foreign companies for investments regarding the new machineries. This would also result in enhancement and development in the production process for Iran. For example: TK Chemical Corp, a spandex manufacturing group of Japan successfully established a long-term relationship with Iran in 2016 after its exports rose enormously from 2001 to 2015. The company also aims to set up joint ventures with many local companies to spread their business. Market potential of Iran In the recent past, the domestic textile and clothing production in Iran has been rather limited. Nonetheless, there is a huge potential in Iran to emerge as a future textile and garment hub. IRAN: An Emerging Power In Textile And Apparel Industry 15

Iran is around $2billion market for Textile and Clothing which is a huge number. There are numerous factories in Iran which are specialised in producing different kinds of high-end fabrics for export to Europe. Below are some of the factors that prove Iran can turn out to be an emerging country in the field of textile and apparel trade. Iran imported nearly US$ 1.5 billion of man-made fibre textiles during 2013 from countries like China, Korea, Turkey, Germany, etc. Iran s textile and apparel exports grew up by 8.1% in the fiscal year ended March 20, 2017. The statistic shows that nearly 5,700 tonnes of hand-woven Iran carpets, valued at US $ 345.7 million, were exported during the said period, marking a 7.5 per cent and 18.4 per cent Y-o-Y growth in volume and value terms, respectively. Iran also performed well in the apparel segment. The country exported with 3,800 tonnes of apparel items worth US $ 46.2 million, up 2.6 per cent in volume and 3.9 per cent in value when compared to previous fiscal. Iran s development plan Vision 2025 has identified textile and clothing as one of the potential industries for expansion. The plan basically emphasises on the need for technological advancements and improvement in productivity. Iran has a good availability of raw materials, manufacturing facilities and cheap labour which works as an attraction to foreign countries. Iran has a huge untapped potential which could be beneficial to a lot of foreign investors. Certain nationalities, including Italians, are fascinated by Iranian culture such that university professors praise and promote Iran s culture and traditions in their classes. IRAN: An Emerging Power In Textile And Apparel Industry 16

Benefits for other countries With Iran eyeing to normalise the trade with other countries, other countries see a huge potential. The companies of Hong- Kong may find better opportunities for supplying machinery, fabrics and other ancillary items. Among European countries, Italy is the leader in terms of clothing exports to Iran, Italian products accounting for 52 per cent of European apparel items exported to the country. France ranks fourth in this respect. India s market share is around 4% and hence the Iranian market offers substantial scope for Indian exporters. Moreover, the agreement between India and Iran to facilitate 100% trade in rupee terms in view of the sanctions imposed by the US and EU on Iran, has opened vast opportunities for exports of Indian products to Iran including textiles, garments, etc. Bangladesh also entered contacts with Iran for the export of Viscouse fibre and Jute yarn. Steps to boost the domestic industry The Iranian Textile and apparel industry has about 9,818 active units, constituting 11% of all the industrial entities in the country. These units have created more than 2,90,000 direct jobs accounting for 13% of all the industrial jobs in Iran. The country is planning to set up a new apparel industrial town with the aim of limiting exports, and boosting domestic production. The main agenda is to make the price of Iranian clothing more competitive. This establishment can prove to be highly beneficial for the country as it will lead to increase in quality and will help in reducing the production costs. A recent article published in Fibre to Fashion mentioned Ali Yazdani (Chairman of Iran s Small Industries and Industrial Parks Organization) quoting The private sector of Iran is responsible for developing the manufacturing and trading spaces, while the public sector will develop its infrastructure. About 3,000 to 5,000 square metres of area is dedicated to each of the service and production unit. Close to 30 trillion rials ($791.139 million) will be invested to develop an area of 1 million square metres. This clearly shows the potential that the Iranian Govt. is putting into the textile and apparel sector in order to create their own space in the global market. IRAN: An Emerging Power In Textile And Apparel Industry 17

Conclusion From the recent past, Iran has seen a progressive reduction in tariffs from 300 per cent during sanctions to the present 55 per cent. The high tariffs had resulted in unofficial imports being over 10 times the volume of official imports. Hence the Trade associations have been working with the government for reduction in import duties to international levels. Iran has great potentials to become a fashion centre in the world, as the textile manufacturers can produce unique fabrics with traditional and innovative designs. Iran is also capable of producing fine garments by using Iranian Islamic designs that are different and more intricate as compared to the western clothes. Although it is a small market if we compare to the other potential markets, there is a scope for growth in the immediate future. Reference: 1. Iran: A land of apparel opportunity. Just Style. 2002 https://www.just-style.com/analysis/a-land-of-apparel-opportunity_id92975.aspx 2. Iran Unbound: Evaluating the Manufacturing Prospect. HKTDC Research. China, 2016. http://economists-pick-research.hktdc.com/business-news/article/research-articles/iran-unbound-evaluating-the-manufacturing-prospect/rp/en/1/1x000000/1x0a8778.htm 3. Jha D, India explores Iran textile market. Business Standard. Mumbai, 2016. http://www.business-standard.com/article/economy-policy/india-explores-iran-textile-market-116070600228_1.html 4. Textile Industry in Iran. Iranica Online. 2005. http://www.iranicaonline.org/articles/textile-industry-in-iran 5. Iran. The Synthetic and Rayon Textiles Export Promotion Council http://www.srtepc.org/mr-iran 6. IRAN TO BUILD APPAREL PARKS TO BOOST DOMESTIC INDUSTRY. FASIONATING WORLD.2017. https://www.fashionatingworld.com/new1-2/iran-to-build-apparel-parks-to-boost-domestic-industry 7. First apparel industrial park to come up in Iran. Fibre to Fashion. 2017 http://www.fibre2fashion.com/news/textile-news/first-apparel-industrial-park-to-come-up-in-iran-206876-newsdetails.htm 8. Iran Textile & Apparel Exports up by 8.1%. Apparel Resources. 2017. http://news.apparelresources.com/trade-data-news/iran-textile-apparel-exports-up-by-8-1/ IRAN: An Emerging Power In Textile And Apparel Industry 18

ASEAN ECONOMIES Emerging ASEAN Economies Impact On The Garment Industry

Association of Southeast Asian Nations, ASEAN The Association of Southeast Asian Nations, ASEAN, was formed on 8th August 1967, by Indonesia, Philippines, Malaysia, Singapore, and Thailand. Today ASEAN membership has expanded to include Cambodia, Lao PDR, Brunei Darussalam, Myanmar, and Vietnam. It is an intergovernmental regional organization formed between ten Southeast Asian countries to promote inter-country trade, governmental cooperation, and economic, political and socio-cultural integration of the member countries, and globally. ASEAN was also formed to protect the member states regional stability and instill peace amongst them in times of conflict resolution. In 2015, ASEAN organization s nominal GDP (combined) was around $2.8 trillion. This makes ASEAN a global powerhouse. ASEAN as a single entity shares its physical borders with major apparel trade giants like India, China, and Bangladesh. ASEAN has been the foundation of several establishments like East Asia Summit, EAS, and Regional Comprehensive Economic Partnership, RCEP (FTA between ASEAN, Australia, China, Japan, South Korea, New Zealand and India). ASEAN Free Trade Agreements Free Trade Agreements within the ASEAN countries are led by the ASEAN Trade in Goods Agreement (ATIGA) and the Agreement on Customs. The ASEAN Free Trade Area (AFTA) is a trade bloc agreement which launched the Common Effective Preferential Tariff Scheme (CEPT). CEPT states that the tariff will be reduced to 0-5%, on the goods being traded within ASEAN region, if the goods meet a 40% ASEAN content requirement. AFTA s main goals were to make ASEAN competitive in the global market as a production base, by the elimination of the tariff and the non-tariff barriers and to attract more Foreign Direct Investment within the ASEAN countries. Apart from the establishment of AFTA within the member states, ASEAN trade bloc has also signed various free trade agreements with some major Asia-Pacific economies. These FTAs include the ASEAN-China FTA (ACFTA), the ASEAN-Australia-New Zealand FTA (AANZFTA), the ASEAN-Korea FTA (AKFTA), the ASEAN-India FTA (AIFTA), and the ASEAN-Japan Comprehensive Economic Partnership (AJCEP). Emerging ASEAN Economies Impact On The Garment Industry 19

These FTAs aim at encouraging and promoting businesses in the ASEAN trade bloc, irrespective of their size, by enabling regional and international trade without any tariff barriers. They also offer businesses an easy access to the new export markets with simplified import and export. ASEAN s FTAs Emerging ASEAN Economies Impact On The Garment Industry 20

The ASEAN Competitive Advantage The ASEAN Free Trade Area competes predominantly in the trade of unprocessed products or raw material for the textile and clothing industry. For consumer and finished products the ASEAN countries do not face a high degree of competition, and product diversification has enabled ASEAN economies to aggressively export to the global textile & apparel market. Apparel and textile industry is vital to the ASEAN economies and many ASEAN players are the front-runners in the industry globally. The ASEAN Free Trade Agreement (AFTA) and the regional integration efforts have significantly contributed to the industry s advancement. Within the apparel supply chain, the demand comes mainly from the developed countries and developing nations specialize in the value chain activities, mostly the ones that benefit from lower labor costs. The availability and relative cost of labor are two important determinants of success in the apparel industry. Cross-border integration is nurtured within ASEAN countries, by investment from the fabric producing countries in ASEAN like China into the lower-cost-apparel manufacturing countries of Vietnam and Cambodia. The intra-asean trade is an integral part of building the value chain in the apparel industry. The process of trade liberalization through AFTA, various FTAs and the ASEAN Economic Community s creation in 2015, has not only led to tariff reduction and elimination but also in integration and elimination of the non-tariff barriers that ASEAN players face in the industry. As a testament to this advantage, we have seen the exports value of ASEAN5 namely Malaysia, Thailand, Indonesia, Philippines and Vietnam s exports of apparel and textile products nearly triple from USD 24.4 billion in 2001 to USD 71.8 billion in 2014. Vietnam amongst the ASEAN countries leaped far ahead of the pack with a 10-fold increase in the apparel and textile exports value in the same time period. Apart from the ASEAN advantage Vietnam s accession to the World Trade Organization (WTO), 2007 was also an additional factor that allowed Vietnam to export to larger markets without tariff barriers. Emerging ASEAN Economies Impact On The Garment Industry 21

ASEAN exports related to textiles and clothing, 2016 The ASEAN India FTA 1st January 2010: India achieved a milestone in pursuance of its aim to expand its economic and political relationship with its neighbors, through the ASEAN-India FTA (AIFTA). This agreement led to duty liberalization between India and ASEAN countries to enhance bilateral trade. Under AIFTA, each trading partner can keep some products out of the agreements, as far as they amount to less than 5% of bilateral traded imports. Although, AIFTA has a bigger significance for India in political management than trade, given the economic and development strength of the ASEAN countries combined, this FTA is expected to trigger a positive trade between India and ASEAN countries. The agreement set tariff liberalization of over 90% of products traded between India and ASEAN. Emerging ASEAN Economies Impact On The Garment Industry 22

Before AIFTA, India s exports of apparels & textiles to ASEAN have virtually been constant for years and have not shown much traction. India s competitive advantage in the industry is the presence of the entire textile value chain, but the trade of its most exported items to ASEAN like cotton fiber, yarn and fabrics did not grow, as India wasn t able to explore and leverage its strengths to the fullest. This FTA can offer a gateway for market access to China, North East Asia and the EU for India. Moreover, AIFTA is expected to bring investments from ASEAN textile manufacturers in the Indian manufacturing sector, catering both to the country s domestic and export markets. Lastly, apart from trade advantages, AIFTA offers other benefits to the trading partners. Both India and ASEAN countries posses traditional weaving styles and this FTA can help them to structure integration arrangements for the designers and institutes within the trading bloc and India to develop fusions which global markets will cherish. Reference: PR: ASEAN industry urged to leverage India s strengths in textile value chain. Jan 23, 2018. FICCI. Retrieved from: http://ficci.in/pressrelease-page.asp?nid=3001 Rodolfo C. Severino, Jr. ASEAN and the Growth of Regional Cooperation in Southeast Asia. August 1st, 1999. Retrieved from: http://asean.org/asean-and-the-growth-of-regional-cooperation-in-southeast-asia-by-rodolfo-c-severino-jr/ ASEAN s Free Trade Agreements: An Overview. December 7, 2017. Dezan Shira & Associates. ASEAN Briefing. Retrieved From: https://www.aseanbriefing.com/news/2017/12/07/aseans-free-trade-agreements-an-overview.html Textile and Apparels: where to invest? Invest in ASEAN. Retrieved from: http://investasean.asean.org/index.php/page/view/textiles-and-apparels P Nayak. ASEAN India FTA: Sensitive Analysis of the Textiles and Clothing Sector of India. Textiles Committee, Ministry of Textiles, Government of India Mumbai. Retrieved From: http://www.fibre2fashion.com/industry-article/4655/asean-india-fta-sensitive-analysis-of-the-textiles-and-clothing-sector-of-india Mohammed Faiz Shaul Hamid, Malaysia Mohamed Aslam. Intra-regional Trade Effects of ASEAN Free Trade Area in the Textile and Clothing Industry. Journal of Economic Integration. Vol.32 No.3, September 2017, 660~688 http://dx.doi.org/10.11130/jei.2017.32.3.660 Association of South East Asian Nations (ASEAN). European Commission. Retrieved From: http://ec.europa.eu/trade/policy/countries-and-regions/regions/asean/ Stitching Together Garments With Asian Trade Deals. March 15, 2016. Asian Trade Center. Retrieved From: http://www.asiantradecentre.org/talkingtrade/2016/3/15/xhe8blzmhmywg4equ0s9lpd69gbvq1 Emerging ASEAN Economies Impact On The Garment Industry 22