Textination Newsline

PLANNED ABOLITION OF EU IMPORT QUOTAS ALLOWS MORE FOREIGN COMMITMENTS

Minsk (GTAI) - The textile and clothing industry of the Republic of Belarus faces great challenges. It has to become more efficient, should produce more market-orientated and make greater use of its export potential. The sector has great hopes on the by the European Union planned abolition of quotas for Belarusian textiles and clothing products. There are then more than ever good opportunities for the subcontracting finishing process.

The textile and clothing industry has traditionally been one of the most important sectors of the manufacturing industry in the Republic of Belarus. As a result of the sharp decline of the local purchasing power and of the main export market Russia, the sector has suffered a severe setback in the years 2013 to 2015. Since the second half of 2016 it is on an upswing again. According to preliminary data, the output has risen in 2016 by 4.6% to EUR 1.41 billion compared to 2015. Produced were 146.8 million sqm. of fabrics, 40.4 million pieces of knitwear, 147.0 million pairs of stockings and 19.9 million sqm. of carpet products.

Nevertheless the textile and clothing industry continues to suffer from a weak capacity utilization, an inadequate management and marketing as well as from a considerable backlog in the technological renewal of the equipment park. The implementation of an industry support program for the period from 2016 to 2020 should provide for a remedy. The program comes from the Belarussian State Group for production and sale of goods of the light industry Bellegprom. (http://www.bellegprom.by).

Sector program shows planned projects until 2020

Under the umbrella of the State Group 17 textile, 12 knitting and 21 garment companies are active. With an output of just under USD 0.9 billion, these manufacturers were involved with nearly three-fifths of the total output of the Belarusian textile and clothing industry in 2015. The companies have exported goods for nearly USD 500 million in 2015. The main customer was Russia (USD 357 million). The investments of the Bellegprom companies are expected to reach a volume of at least EUR 250 million in the years 2017 to 2020.

The envisaged projects for this period include:

• the continuation of the comprehensive modernization of the Orschaer linen combine Orscha (production of linen yarn, -fabrics and finished products, processing of imported raw materials);
• technological renewal in the company OAO Mogotex, Mahiljou / Mogilew (spinning and textile finishing);
• the development and production of new competitive wool and wool blended fabrics in the company OAO Kamwol, Minsk;
• the expansion of the production of hosiery, including an enlargement of the assortment of medical hosiery in the company SOOO Conte Spa, Grodno;
• the commencement of production of seamless underwear in the company OAO Kupalinka, Salihorsk and
• Investment in the production of fine thread Ajour-fabrics in OAO Switanak, Shodsina.

1)  Without regard to micro- and other small enterprises; at the end of 2015 225 textile and clothing companies were active in Belarus, the average number of employees in these companies was 58,800 persons per year;
2)  in terms of the national currency of Belarussian Ruble
Source: National Committee for Statistics, calculations by Trade & Invest in Germany.

In order to create complete value chains, it is envisaged to set up joint ventures between manufacturers of fabrics as well as producers of finished products. The Bellegprom Group is keen to focus the expansion potential on the production of linen fabrics and high-quality finished linen products.

Belarus is one of the world's five largest linen producers. For 2017 a volume of 55,000 tons is expected. In the year 2016 29 companies have processed flax straw into fibers. Of the in these factories installed 54 processing lines only ten are considered to be highly productive. According to the administration of the Mahiljou region, a Chinese investor wants to set up a factory in the region for the processing of flax for semi-finished and ready made goods in the near future.

Abolition of EU quotas planed

The EU plans to abolish the since 2010 existing autonomous quotas as well as the contingents for passive finishing processing for Belarus. The restrictions currently apply to a variety of textile products, including cotton and linen yarn as well as garments made out of cotton and woolen fabrics. Market observers agree: the abolition of the quotas with the related bureaucratic procedures would provide a solid basis for stimulating foreign investments in the Belarusian textile and clothing industry.

Belarus has many advantages: geographical proximity to the EU market, a well-developed infrastructure, long-standing industrial traditions, available production capacities, skilled labor and, last but not least, favorable labor costs. In a first phase of cooperation with Belarusian partners, the interest of foreign companies is likely to focus more on subcontracting. There are already successful projects that use the favorable framework conditions for this business model.   

The German Langheinrich Vertriebs GmbH, for example, produces high-quality table cloth and bed linen for the contract area in the small West-Belarussian town of Diwin (Kobryn district, Brest region). According to the director general of Langheinrich Konfektion GmbH, Walentina Paschkewitsch, the company, founded there in 2005, employs now between 90 and 120 employees depending on the order situation. Sales in 2016 amounted to around EUR 1 million. The in the company paid wages and the additional granted social packages are the guarantor of a very low fluctuation of the workforce. Among the companies from neighboring Lithuania, which are producing textiles and clothing in Belarus, the leading Baltic manufacturer of sportswear Audimas stands out.

• Special Economic Zone (SEZ) Ontustik becomes important Sector Center

Almaty (GTAI) - Although the Kazakhstan textile industry is far away from the production figures in earlier Soviet times, increases have been achieved in recent years. Against the general trend, imports of textile machinery have grown strongly in 2015. The lack of skilled workers and the small domestic market has a negative effect on the development of the sector. The Special Economic Zone (SEZ) Ontustik in Shymkent could become an important center of the light industry.

The textile, clothing and leather goods industry used to be one of the most important economic sectors in Kazakhstan. After the collapse of the Soviet Union, these three sectors, identified as light industry in the country, have however lost much of its importance. In 2015 they contributed only 1.2% of the total output of the manufacturing sector. Compared to 2008 (0.9%), the proportion rose at last slightly again.

Hand in hand with the devaluation the output of the industry, measured in USD, pointed significantly down. The overall output amounted to USD 320 million in 2015. In reality in 2014 (+ 4.0%) and in 2015 (+ 3.4%) a production growth could be achieved.  

¹⁾ Change at the respective annual exchange rate; ²⁾ real change in %
Source: Agency for Statistics, Astana

Investments in the light industry rise

Gross fixed investments in the light industry show an upward trend in recent years.  According to the Kazakhstan Statistics Agency the investments grew from 2012 to 2015 from USD 18.5 million to USD 45.6 million. A role hereby played the support of modernization projects by government subsidies. 

 *) Change at the respective annual exchange rate  
Source: Agency for Statistics, Astana

The recent increase in investments is reflected in imports of machinery and equipment for the sector. Against the general trend the import of textile machinery (HS positions 8444-8453, without 8450) increased nominally by 28.3% to USD 35.2 million in 2015. However, one reason for the strong growth are the weak prior years (2013: USD 40.3 million; 2014: USD 27.5 million) also. The imports however develop well above the level of 2010 and 2011 with average imports totaling nearly USD 16 million. Most important supplier of textile machinery is the PR of China. According to the Federal Statistical Office exports from Germany numbered to EUR 4.3 million in 2015, (2014: EUR 4.4 million).

The light industry suffers less from the economic crisis than other sectors

Currently the Kazakhstan economy is suffering from the slump in commodity prices and the consumers had to endure enormous losses in their purchasing power due to the devaluation. The light industry however is less affected by the negative economic situation. An advantage is the price increase of imported textiles and a gain in competitiveness due to the lower wages. Nevertheless - the sector is highly dependent on imports of both machinery and primary products.

According to the latest available information provided by the Bureau of Statistics, the average income in the textile industry in 2014 was 52,800 Tenge (T) per month, equivalent to a value of USD 294. Converted to the current exchange rate however, the amount - excluding wage increases - has shrunk to USD 150.

Hand in hand with the increased purchasing power Kazakhstan’s import of textile products had multiplied from 2006 to 2014 from USD 332 million to just under USD 2.1 billion. In 2015 the upward trend was halted. Imports broke nominally by 38.6% to USD 1.3 billion, they came down to a level of 91% of the market volume in 2014 and 2015.

¹⁾ HS tariff positions 50 - 67; ²⁾ nominal Change %
Sources: UN Comtrade, Customs Committee of the Republic of Kazakhstan, Eurasian Economic Commission

¹⁾ HS tariff positions 50 - 67; ²⁾ nominal Change %
Sources: UN Comtrade, Customs Committee of the Republic of Kazakhstan, Eurasian Economic Commission

The light industry offers potential for development

Preconditions for a greater development of the light industry are given in Kazakhstan, but weak points remain. According to information of Lyubov Chudowa, president of the association of the light industry enterprises, these include the great shortage of skilled labor. In addition there are the small size of Kazakhstan's local market and the great distances in the country.

On the other hand the steppe republic has a great potential in the livestock farming sector, that can provide resources like leather and wool. In addition there is the cultivation of cotton in the territory of South Kazakhstan. Though - on the global scale in these areas Kazakhstan is a small player only.
The processing of crude products is still weak. According to information provided by the regional administration of South Kazakhstan, 90% of the in the country produced cotton is being exported. At the same time the sector companies need to import most of their primary products.

SEZ Ontustik in Shymkent

The in 2005 in Shymkent (South Kazakhstan region) founded Special Economic Zone (SEZ) Ontustik, could become an important center of the light industry. Key aspect of the SEZ is presently the light and paper industry.

As in the other SEZs in Kazakhstan for the settled companies a variety of reductions in custom duties and taxes and simplifications for the employment of foreign workers applies. In addition there are tariffs for electricity, water and gas, which are 35% below the local level.

In the SEZ so far eight companies have started to operate, USD 144 million were invested in the buildings. According to the company which runs UK SEZ Ontustik, until 2020 twelve more companies are expected to come. With the establishment of the Eurasian Economic Union the interest of foreign companies in manufacturing settlements has increased. The management of the park aims to expand the profile of SEZ to other areas of the manufacturing sector, such as for example the pharmaceutical industry.      

Concentration process in light industry

From 2010 to 2014 the number of sector companies has declined from 565 to 455.  An overview of the most important companies is available on the website of the association of light industry enterprises.

Internet addresses
Special Economic Zone Ontustik
Internet: http://www.sez-ontustik.kz
Association of Light Industry Enterprises of the Republic of Kazakhstan
Internet: http://www.aplp.kz