Fix the Textile Problem

EghtesadOnline: Iran’s textile industry is as old as history. Carpet weaving, loom weaving, spinning, dying, embroidery, crochet, etc. was common among Iranians before industrialization set in almost a century ago with the arrival of the first machinery into the country.

News ID: ۷۳۶۷۱۵

07 September 2016

Industry has seen more than its share of ups and downs since then,  but today producers are rather buoyant about the future of their trade.

Irantex 2016 was held in Tehran from September 3-6, in which Iranian producers and foreign firms showed their products and latest achievements. Old hands in the business as well as the newcomers were full of aspirations and concerns.

“I will describe the present situation as good. We have a young and educated workforce. What we lack is technology. We invited the Italians to Isfahan and asked them to share their technology. Anyone who invests in the Iranian market will have the opportunity to expand business to the regional markets,” chairman of the Isfahan Trade Association of Textile Industry Employers, Habibollah Shahkarami, told the Financial Tribune.

He believes that with proper planning and modern technology, Iran can and will generate $12 billion in annual textile exports within five years.

“Last year we made $940 million. Consumption of textile products in the region amounts to $40 billion annually. We must not let this opportunity slip away, more so because we have the ability and competence to assert ourselves in the international market.”

Shahkarami who also is CEO of Iran Nobaft Co. producing yarn, thread and textile, complains that barely 5% of all investments in Iranian industries goes to the textile industry, while it has created 13% of all jobs.

“We export yarn to Turkey and have orders from other foreign customers with whom our handmade products are very popular. But we cannot compete with China or India in industrial-scale production.”

Import Factor

In the global village of today, according to Shahkarami, no nation is fully self-reliant and this obviously includes the textile production chain, reports Financial Tribune.

“More than 60% of the raw material is domestically supplied. Part of it needed for producing synthetic fibers is provided by our petrochemical plants. The rest along with most of the cotton and viscose is imported.”

The seasoned businessman believes the main threat to the industry is smuggling. He says more than 40% of the textile in the market is contraband.

“It is difficult to get bank credits and interest rates are prohibitive. The tax system works to the benefit of foreign investors in that their return on investments is tax exempt and they can benefit from years of tax holidays. But this is not the case with Iranian producers who pay 25% tax plus 9% value-added tax.”

Technical deputy with the Association of Iran Textile Industries Mohammad Kazem Amid, says there are close to 10,000 large textile factories in the country employing almost half a million people and majority of the firms are privately owned.

“The last stage of the textile industry chain is the apparel industry which has a market worth $12 billion in Iran. Unfortunately, smuggled clothing accounts for $7 billion of this figure and the result is that most of our factories now work at 50%  capacity.”

Amid says the tax regime is taking a toll on the business. Value added tax, he says, should be paid by customers who buy the end products. “This is while the government levies different kinds of taxes including VAT on every step of the way which is simply unreasonable. Even the Department of Environment levies a 2% tax on us on the pretext that ours  is a polluting industry.”

The tax burden has also created problems in sales. The Ministry of Economic Affairs and Finance has mandated that sellers mention clearly in the contracts to whom they sell so they can tax them.

“When our customers face this reality they avoid giving any information and instead approach smugglers for their needs. This policy does not increase the government’s tax revenues, rather it encourages smuggling and illegal trade.”

Shortage of Cotton

Amid says domestic demand for cotton is 200,000 tons a year while average production in the past few years is hardly 50,000 tons.

“The rest needs to be imported. Meanwhile the Islamic Republic of Iran Customs Administration has recently increased import tariffs from 4% to 10%. There are also high tariffs for other raw materials including nylon, acrylic, polyester, wool and hemp.

“Profit margin in the business never exceeds 10%. But interest on bank loans at least 18%. All these and other factors contribute terribly to higher production costs which consequently raise the price of our finished products. Thus, our textiles cannot compete in the international market.”

According to Amid, a quarter century ago the situation was more favorable as Iran was ahead of Turkey that presently ranks among the first three countries on the global textile map.

“It is regrettable that mismanagement and spontaneous decisions by people oblivious of production and market conditions have sucked the marrow out of the textile industry.”

The young production manager at Afra Home Co. producing blankets and sleeping gowns, Saeed Ghafouri is spirited and says the future looks bright for the youth.

“One measure that needs to be taken is to encourage our people to buy domestically-made products because the quality of our textiles has significantly improved over the past few years.  I must add that producers should make every effort to enhance quality and seek reasonable prices.”

Foreign Optimism and Challenges

Yasin Ozdemir export director of MEM Textile Co. based in Turkey says they entered the Iranian market two years ago.

“The market is growing fast and I see many opportunities in Iran. We decided to participate in this exhibition to get to know Iranian businesses and identify new trade partners and customers.”

Complaining about high transportation costs and irritations with money transfer, he said, “We export legally but cannot conduct our financial affairs through Iranian and Turkish banks. Another problem is the customs regulations. Clearance formalities take to long in Iran and is a nuisance,” he told the Tribune.

Alex Wang CEO of China’s Jiangsu Goostars Hometextile Co. believes the Iranian market is lucrative with immense capacity for growth.

“We are looking for a partner in Iran for joint cooperation. We produce the fabric and we want the sewing to be done in Iran where the products will ultimately be sold.”

He too complained that Chinese traders cannot directly transfer money from Iranian banks to China due largely to the residual US sanctions that have  kept most big banks and insurance companies away from Iran.