Headwinds Facing Domestic Apparel Producers

Close to 4,000 people lost their jobs when Plasco, a 17-floor commercial high-rise in downtown Tehran with close to 560 production units and sales outlets producing apparel, shoes and sportswear, caught fire last week and collapsed. 

However, this is neither the first, nor the last of apparel producers’ headaches.

Around $2.6 billion worth of clothes are imported every year and according to members of apparel unions, twice this amount is smuggled into the country. This whopping amount of foreign apparel in the domestic market is like a noose around the neck of Iranian producers that throttles their growth. 

“Production in Turkey and China costs half the amount it does in Iran,” Shahriar Eshraqi, apparel designer and producer, told the Persian daily Shahrvand, adding that this is one reason Iranian producers prefer to set up their businesses in those countries rather than in their homeland.

“A number of renowned Iranian brands are now producing 60-70% of their products in Turkey and China in order to reduce prices,” he said.

Turkey is among the top five producers of apparel in the world and its annual revenues from the business, which stand at $21 billion, are almost equal to Iran’s earnings from oil exports.

It is estimated that in the current Iranian year (March 2015-16) Iran’s oil revenues will reach some $25 billion. 

Eshraqi said the apparel industry was hit hard during Mahmoud Ahmadinejad’s presidency (August 2005-13), the impacts of which still plague domestic businesses.

“We always had a problem with imports as well as contraband items that would find their way into our market. Yet, these were not considered serious nuisances to the business until Ahmadinejad took office. From then on, contraband goods and excessive imports turned into threats to domestic production,” he said.

“Moreover, the sudden hike in foreign exchange rates, together with an increase in tax rates over this period made production all the more strenuous.”

It was then that, according to the businessman, some producers decided to move all or part of their businesses overseas.

“Some production units too were forced to downsize their businesses, lay off part of their workforce and make do with the minimum in order to survive,” he said.

  Bane of Smuggling

Eshraqi explains that unfortunately, some people, using rents and connections, import millions of dollars of brand and non-brand apparel via private wharfs. 

“Smugglers don’t pay customs duties or tax. This is while producers are made to pay 25% tax once on production and another time on sales by the Iranian National Tax Administration. As such, domestic businesses lose their competitive edge in the market,” he said.

According to figures released by the Anti-Smuggling Organization, apparel tops the list of goods smuggled into Iran. 

Director General of the Association of Iran Textile Industries Mohammad Mehdi Raeiszadeh said more than 90% of foreign brands sold in Iran are fake and only 25 to 30 brands have sales permits from the main companies and/or their representatives.

Javad Sadeqi, a producer in the field, says most of the businesses are operating in old and dilapidated buildings and basements due to the backbreaking rates of renting or purchasing a proper place.

“Apparel production units are mostly set up in residential or office buildings. This is while the municipality mandates that these businesses work in commercial units. This would cost them dearly,” he said.   

According to the head of Tehran Knitwear and Socks Producers and Sellers Association, the preferential tariff agreement between Iran and Turkey has given rise to the export of cheap Chinese apparel from Turkey to Iran under the guise of Turkish brands.

Ali Asghar Behbahani said these exports take advantage of low tariff rates.

“This is while domestic producers are capable of manufacturing all types of knitwear of higher quality compared to the Chinese,” he was quoted as saying by ILNA.

“The influx of cheap Chinese brands has effectively reduced domestic manufacturers’ competitive edge in the local market.”        

According to the official, $5 billion worth of Chinese products flood the Iranian market every year. 

President of Istanbul Readymade Clothing and Confection Exporters’ Association Hikmet Tanriverdi said Turkish garment exports to Iran hit $237 million during the eight months of 2016, showing a 219% increase compared with the previous year’s corresponding period.   

The domestic apparel market is worth an estimated $12 billion per year.

Close to 1,500 domestic apparel manufacturing units and more than 20,000 retail outlets are active in Iran, employing 30,000 and 250,000 people respectively. These units have an annual nominal production capacity of 340,000 tons.