“The sector’s turnover cannot be accurately calculated due to the fluctuations in foreign exchange rates as well as changes in the Iranian household expenditure basket. Yet, we estimate it to hover between $6 billion and $8 billion annually,” Majid Nami was also quoted as saying by Mehr News Agency.
Smuggling: Biggest Challenge
The official said smuggling is the biggest challenge facing the sector and overcoming the issue needs a huge amount of effort and determination.
“The Headquarters to Combat Smuggling of Goods and Foreign Exchange currently puts the amount of contraband apparel entering the county at $600 million per year. But how they have come up with this figure is a big question since tracking and detecting smuggled goods in the market is impossible,” he said.
Putting the value of apparel smuggling at $600 million per annum, Ali Moayedi Khorramabadi, the head of Iran’s Headquarters to Combat Smuggling of Goods and Foreign Exchange recently said, “In the past, smuggled apparel accounted for as much as 90% of all clothing available in the country. Now, 80% of demand for clothes are met through local production, thanks to the efforts made by 26 agencies of Iran's Headquarters to Combat Smuggling of Goods and Foreign Exchange.”
Saeed Jalali Qadiri, the head of Textile and Apparel Production and Exports Union, told Mizan Online last year that close to $1.8 billion worth of contraband apparel enter Iran every year.
Nami said the main reason for Iranian customers’ willingness to buy contraband clothing is their relatively cheaper prices.
Bahram Havali Shahriari, the deputy head of Iran’s Apparel and Textile Producers and Exporters Association, said the rise in end prices of domestic products, depreciation of Iranian rial against the US dollar and the reopening of some international borders after the relative success in controlling the spread of the Covid-19 pandemic, which increased foreign travels, has helped contraband apparel enter the country after years of the effective battle against the illegal activity.
“Around three years ago, a ban was imposed on apparel imports. Yet the measure was not effective since the lion’s share of these products were smuggled into the county in the first place. At the time, an average of $2.5 billion worth of apparel were estimated to have been smuggled into the country annually, while official and legal imports during the same period stood at around $60 million,” Shahriari was quoted as saying by the news portal of Tehran Chamber of Commerce, Industries, Mines and Agriculture.
The official noted that after the Headquarters for Combating the Smuggling of Commodities and Foreign Exchange set out to curb contraband apparel around the same time, smuggling declined and has reached close to $1.8 billion at present.
“We are also losing our export destinations because of the faulty measures taken by the Central Bank of Iran demanding forex repatriation as well as the fact that Iran has not joint the Financial Action Task Force. At present, our exports hover between $50 million and $60 million per year, which is a paltry amount, compared with our ample capacities,” he added.
Based on data released by the Islamic Republic of Iran Customs Administration, Iraq, Kuwait, Australia, Armenia, Azerbaijan, Uzbekistan, Russia, Afghanistan, Pakistan, Turkmenistan, Kyrgyzstan, Germany, South Korea, Japan, the UAE, the UK, Venezuela, Ivory Coast, Italy, Turkey, Canada, Qatar, Oman, Nigeria, Switzerland, Yemen, Georgia, Spain and Denmark are Iran’s main apparel export destinations.
Shahriari further said Iranian apparel businesses are close to building brands, adding that to do so they need to have access to a variety of textile textures and patterns to meet the tastes of all types of customers.
“But this is also a problem facing producers. Access to raw material, especially different types of fabric and threads, are difficult as the production or import of these commodities are monopolized.”
Upsurge in Raw Material Prices
Nami stressed that due to the faulty economic structure, raw material prices have surged over the past few years.
“For instance, the industry’s required raw material can be bought at prices 20-30% cheaper in Turkey than in Iran. This alone has a considerable effect on making end prices more affordable and smuggling of these goods more profitable.”
Noting that one of the main raw materials in the apparel industry is cotton, he said that, at present, the annual domestic demand for cotton is around 180,000 tons.
“Of this demand, only 60,000 tons to 70,000 tons are locally produced and the rest has to be imported. The problem is that domestically-produced cotton is not of high quality, therefore, not quite suitable for meeting customers’ standards.”
According to Afsaneh Mehrabi, director general of the Ministry of Industries, Mining and Trade’s Textile and Clothing Department, prices of imported cotton have increased due to the depreciation of local currency. “Measures taken by the Agriculture Ministry to increase import tariffs appear unjustifiable. Furthermore, sanctions have made imports even more challenging,” she was quoted as saying by Mehr News Agency.
Alimardan Sheibani, a board member of the Association of Iran Textile Industries, said many years ago, Iran used to export 270,000 tons of cotton but in recent years, cotton production has declined to 50,000-60,000 tons per year.
“Given the machinery installed at factories, the country needs to import 120,000 tons of cotton annually. Textile industries consume the locally-produced cotton in its entirety. In fact, they are facing a shortage of cotton,” he was quoted as saying by IRIB News.
“The 5% tariff on cotton imports in Iran comes as producers have to import cotton at the currency rates set in accordance with the exchange rates of the so-called secondary forex market, known by its Persian acronym Nima.”
Ebrahim Hezarjaribi, an Agriculture Ministry official, said setting tariffs on imports will encourage farmers to increase cotton production.
“Cheap dollars and revocation of import tariffs led to a decline in cotton cultivation from 300,000 hectares to 70,000 hectares in the early 2010s. The removal of tariffs resulted in the closure of 150 cotton mills. Today, only 70 factories are operating at a fraction of their capacity.
Noting that the country has achieved 40% self-sufficiency in cotton production, the official said, “Iran’s cotton production is estimated to reach 80,000 tons in the current fiscal year [March 2020-21]; land under cotton cultivation will increase to 120,000 hectares next year.”
According to Nami, Iran imports 100% and 20% of its requirement for viscose and tricot respectively, but produces all its required polyester locally. He said sufficient capacity for the production of raw materials in the industry has not been created and even most apparel accessories, such as zips and buttons, are also imported.
“After apparel imports into the country were banned, many sites and Instagram pages started selling contraband items, and since they don’t have to pay import duties or taxes, their businesses have thrived,” he said.
Nami complained that by offering no facilities and funding, the banking system has forsaken the apparel sector that is run by private entrepreneurs from top to bottom.
“Based on official figures, Iran exported close to $113 million worth of clothing in the last Iranian year [March 2020-21], which mostly headed to Iraq, Afghanistan, Central Asian countries and the littoral states of Persian Gulf,” he added.
Nami noted that due to banking problems and issues concerning the opening of letters of credit, all of which are rooted in economic sanctions imposed on the country, most foreign traders purchase their goods in Iran, pay in rials and take them to their intended destinations.
“These purchases are obviously not included in the country’s export figures,” he added.