Economy, Business And Markets

Domestic Apparel Industry Plagued by Smuggling

Domestic Apparel Industry Plagued by Smuggling
Domestic Apparel Industry Plagued by Smuggling

Large amount of textiles smuggled into the country have threatened the domestic textile industry and have become a lucrative business during the past decade, the major beneficiary of which are the clothes shops and retailers.

More than 800 kilometers of shared border with three countries including Turkey, Iraq, and Azerbaijan, have enabled smugglers to easily carry goods, especially Turkish garments, into the country.

The retailers of smuggled clothes including many shop owners in Tehran and  border provinces such as Kurdistan and West Azarbaijan frequently travel to Turkey and get their orders transported to depots on Turkish side of the border; after which, local smugglers and villagers carry the goods into Iran on the back of mules and in vehicles.

A combination of smuggled Turkish clothes and the importation of inexpensive Chinese products have caused Iranian garment makers to lose their competitive edge with many of them either announcing bankruptcy or joining in on the lucrative smuggling business, said Mohammad Mehdi Raeiszadeh, the secretary of association of Iran textile industries (AITI) to the Financial Tribune at the 20th edition of Irantex – an international trade fair of textile machinery, raw materials and finished products.

At the fair’s domestic manufacturers section, producers demanded officials to take action to fight smuggling along the country’s borders.  Aydin, a manufacturer, said their 23-year family business has been threatened in recent years. He added that since 4 years ago, they have been merely maintaining their workshop in southeast of the capital Tehran and have been importing Chinese products. Aydin’s older brother mainly lives in the Chinese city of Guangzhou, managing their orders and facilitating their import process.

Based on official statistics released by the country’s Customs Administration, more than $2 million worth of clothes were imported during the first nine months of the Iranian calendar year 1392,which ended March 20, 2014, indicating a 86.5% decrease compared to the same period a year earlier. The drop could be the result of the policy adopted by the new administration to slow down imports, especially soft commodities and textile products. It could also be due to devaluation of the national currency two years ago, which slowed imports. Meanwhile, smuggling during the period didn’t decrease, but underwent substantial increases. The official number on textile imports during the first quarter of the current Iranian year (March 21-July 22) exceeded $1.5 million. During the same period, the country also imported $26 million worth of special fabric to make black veils (Chador) for women.

“We are not against import of textile products. After all, the country is willing to join the world trade organization and in that case we wouldn’t be allowed to manipulate the market. What the domestic industry demands is a long-term stable solution to smuggling,” Naeim Bahrol’olum, a manufacturer of knitting products, told Financial Tribune at Irantex 2014, which is hosting 130 domestic companies as well as 185 foreign companies from countries such as Turkey, India, China, Japan, South Korea, Italy, Taiwan, Spain, and Germany.

This year, the Irantex, considered the biggest event in the country’s textile industry, is being held at Tehran’s 26,000-square-meter permanent fairground. The exhibitors at the 20th Irantex showcase textile machinery, parts, sewing machines, embroidery machines, blankets, curtains, bed sheets, towels, table cloths, yarns, fibers, dyes and finishing materials.

The textile industry significantly grew in 1960’s after dozens of factories were established across the country which made Iran self-sufficient in producing woolen and cotton fabrics. For many years, Iranian tweed was exported to the UK. The 1970’s, though, was the country’s golden era for textile industry, as it was for India and Pakistan. But the situation, over the past 40 years, has always deteriorated.

Out of some 8,000 registered industrial textile units across the country, less than 2,000, or 22% of them, are currently manufacturing clothing, while the remaining 78% mainly manufacture carpets, blankets, and flooring textiles. Investors’ lack of motivation to invest in manufacturing clothes and garments stems from the serious challenges posed by smuggling. Even the newly termed ‘suitcase smuggling’ causes substantial damage to the domestic production every year.

No official or reliable statistics are available regarding the volume or value of smuggled clothing, Ebrahim Mahmoudian, a textile market researcher, told the Financial Tribune. The expert noted that one cannot blame customs for smuggling because they are only responsible for import of goods through official channels and borders. He said the country’s textile industry needs to come up with quick solutions in order to overcome numerous challenges, the most important of which would be the industry’s inability to efficiently respond to the market needs, the impact of foreign advertisements, and the difficulties in dealing with smuggled clothing.

The domestic textile manufacturers, like many other sectors, cannot compete with manufacturers in cheaper economies such as China. Utilization of technical research, modern production methods, and targeting the consumer’s taste are among the key factors that have made China unrivaled. Very few clothes manufacturers in Iran have research and development departments.

The Iranian apparel industry in general rarely invests in the development of new products owing to smallness of the majority of its firms. However, in recent years, some large firms have tried to adopt western fashions and mix them with domestic consumers’ tastes to produce original products.

To maintain their market, some domestic manufacturers sell their products by imitating foreign brands. Walking in many malls around Tehran, one can find thousands of fake brands, many of which are sold as original.

Iranian manufacturing, regardless of the type of business, relies on imported raw materials and machinery. The most common raw materials imported are fabrics and yarns, mainly imported from China and Turkey.

Iran’s textile industry faces many challenges. However, there is still optimism the sector can add greatly to the GDP through the government’s Five-Year Economic Development Plan. Experts in the industry unanimously believe the textile industry should take care of value-added exports, machinery, and marketing if it wants to move in the right direction.