Iran’s Shoe Industry: Risks & Opportunities

EghtesadOnline: Iran currently produces close to 250 million pairs of shoes per year, while the production capacity stands at nearly 500 million pairs, according to the head of Iranian Guild Association of Shoe Producers.

News ID: ۷۸۷۲۱۰

26 October 2021

“Our goal is to produce one billion pairs of shoes per year. This is a big, time-consuming goal and for it to materialize, we need serious planning. At the same time, we have our eyes on expanding exports, especially to littoral countries of the Persian Gulf, members of the Commonwealth of Independent States, Central Asia as well as member states of the Shanghai Cooperation Organization,” Ali Ajdarkosh was also quoted as saying by Fars News Agency.

The official said the industry plans to reach annual exports of 700 million pairs of shoes within the next few years.

“Given that the global average price of a pair of shoes is around $8.5, when the goal is achieved, our revenues would reach $6 billion per annum,” he added.

The official noted that as per the global average, three pairs of shoes are used by each individual annually, meaning that in Iran’s neighboring countries, with a population of more than 700 million, there is a market that demands 2.1 billion pairs of shoes every year.

“Right now, our share of this sizable market is not at all eye-catching. This is an opportunity that can’t be overlooked or neglected. We produce raw materials with agreeable quality. Yet, there is a need to import some of the industry’s required raw material from countries active and renowned in the field,” he added.

In the fiscal 2018-19, imports of 1,400 types of commodities were banned to support local producers of these goods. Footwear and bags were among this long list.

“Just as this regulation came into effect, foreign exchange rates experienced an upsurge, making prices of foreign shoes unaffordable for Iranians. Therefore, the smuggling of these goods also declined, making way for domestic producers to show their capabilities and at the same time work on increasing the quality of their products and updating their knowledge of contemporary global fashions,” he said.

Ajdarkosh added that Iranian businesses active in footwear production need to do serious work in terms of branding in order to do better in domestic and international markets.

“At present, in view of the current production figures, footwear industry has created some 200,000 direct jobs in production and more than 200,000 indirect jobs in distribution and retailing,” he said.

Alireza Jabbarian, the head of Tabriz Cordwainers Union, says that before the footwear import ban took effect around three years ago, the local shoe industry was under serious threat from contraband entering the country in huge consignments.

“Around that time, the country’s shoe industry saw a 40% decline in production, mainly because Chinese shoes were being either imported or smuggled into the country. These were mostly cheap shoes, lacking in quality,” he said.

“Since the ban on shoe imports has been implemented over the past three years, Iran’s shoe industry has seen significant growth. At present, domestic companies are producing footwear with qualities on par with international standards, which can also appeal to Iranian customers.”

Cheap Shoe Imports Hurting Domestic Industry

The import of cheap and low-quality footwear has caused serious harm to the domestic shoe industry, says Ali Lashgari, a board member of Iran’s Chamber of Commerce, Industries, Mines and Agriculture.

According to the official, from the fiscal 2013-14 to fiscal 2019-20 (last Iranian year), a total of $2.12 billion worth of shoes were imported to Iran, mostly from China, the UAE, Turkey, Italy, India and Thailand.

“Considering the role of the UAE in [re-]export of Chinese products to Iran, it is estimated that about 88% of imported shoes come from China and the rest from Turkey, Italy, Thailand and India,” he was quoted as saying by ICCIMA’s news portal.

Lashgari noted that Italy has the highest average shoe export price with $57.72 per pair.

“The average for Chinese-made shoes is at $4.68. For Turkey, it stands at $3.38 and India $9.5. The average price of a pair of imported shoes in the world increased from $9.7 to $11.2 from 2010 to 2018. Europe has the highest average import price ($14.94) and Africa has the lowest import price ($2.67),” he said.

The official stated that the average price of shoes imported to Iran from five countries in 2018 included China with $4.68, Italy with $57.11, Turkey with $3.29, India with $8.28 and Thailand with $10.99 while the highest export price of Chinese shoes in the same period pertained to leather shoes with $14, which figure was $73.61 for Italy and $14.10 for Turkey.

“Since the largest share of Chinese shoes exports to the world [about 42%] at an average price of $3.72 belongs to the 6402 Harmonized System code [aka HS code], which belongs to plastic shoes. The country's export share in Iran is about 88%. It can be concluded that the main imported shoes in Iran had the average price range of $3.7 and less than $4,” he added.

According to the official, the orientation of imported shoes at prices much lower than the world’s average did not help develop domestic production. He added that this as a major obstacle for the shoe industry’s employment and production sectors, which has led to the closure of some small- and medium-sized shoe production units, because most of the imported shoes could have been produced domestically.

Decline in Exports

The Producer Price Index for shoe industry has exceeded the general inflation and Iran-made shoes have lost their comparative advantage in exports, according to Lashgari.

Shoe exports in the first quarter of the current year (March 21-June 21) decreased by 6.8% in value and 16% in weight compared with the same period of last year, he added.

“The average export of shoes over the past four years [March 2017-21] stood at 32,000 tons worth $98 million annually, i.e., $3.3 per kilogram on average. A total of 46,000 tons of shoes worth $105 million with an average price of $9.2 per kilogram were exported last year [March 2020-21] indicating a 28.9% and 36.7% increase in value and weight year-on-year respectively,” he was quoted as saying by Tehran Chamber of Commerce, Industries, Mines and Agriculture’s news portal.

The official announced that Iran exported 7,345 tons of shoes worth $18 million ($2.47 per kilogram on average) during the first quarter of the current year, registering a decrease of 8.6% in value and 16% in weight compared with the same period of last year while the average export price per kilogram of this item rose 8.6% year-on-year.

“Iraq, Afghanistan and Azerbaijan account for 90% of Iran’s shoe exports; Iraq with 50%, Afghanistan with 18% and Azerbaijan with 13.8% are Iran’s main trading partners in the export of shoes in terms of value. They are followed by Pakistan, Turkmenistan and Armenia,” he said.

He blames fluctuations in foreign currency exchange rate in the early months of the Iranian year and the 40% inflation rate for the decline in export of shoes.

“Producer inflation for shoe industry exceeded the general inflation rate in Q1. Despite the depreciation of local currency against the US dollar, costs incurred by factors beyond the control of industrial managers have resulted in an immense pressure on the industry and a runaway inflation. For example, the annual inflation rate of shoe industry stood at 42.7 in the month ending June 21 compared with 37.9% in the month ending April 20. Year-on-year inflation rate of shoes stood at 51.6%, 53.8% and 56.3% in the months ending April 20, May 21 and June 21, respectively, compared with annual and year-on-year inflation of 34.5% and 26.4% in the month ending June 20, 2020,” he said.

Noting that the shoe industry creates as many jobs as the car manufacturing industry in Iran with 500,000 jobs, Lashgari said, “The rise in overhead expenses, including wages, transportation and fuel overshadows the costs of raw materials, which increase cannot be compensated even with the depreciation of the local currency against the US dollar.”