Argentine textiles emerge from the slump
Argentina's textile industry fortunes plunged in 2002 during the height of the country's four-year economic recession. But now that Latin America's third economy has emerged from its doldrums, the industry is looking up, observers tell just-style.
"The internal market has been reactivated, factories have increased production, and there's been a lot of hiring," says Diego Aramovsky, executive director of baby clothing maker Linea Globito.
A shift to national manufacturing and lower reliance on imports has also boosted fortunes he adds.
"During the dollar-peso peg we imported a lot, but after the peso's collapse this changed dramatically,"Aramovsky points out. "Now we are substituting exports and importing cotton and fibre to power our mills."
Marcelo Azqueta, president of upmarket clothing chain Legacy, agrees that the industry has turned around.
"People weren't buying clothes for a long time but salaries have improved and there are more jobs," he says, adding that the industry's sales should reach pre-recession levels next year.
Boosting his business, Argentines have recovered their appetite for purchasing high-price wears, a category that plunged nearly 40 per cent during the recession.
"A lot of expensive foreign brands were replaced by cheaper ones but that trend has begun to decelerate," Azqueta recalls. "Repressed consumption" should keep retailers in the money next year, he adds, as Argentines stock up on items they could not buy during the economic downturn.
Balance sheet boost
Companies' balance sheets are looking healthier and should break even next year after posting heavy losses during the crisis, which brought the demise of many textile companies, including Gatic, a giant sports apparel and shoe maker that is currently liquidating.
The textiles and apparel industry accounts for 5 per cent of Argentina's gross domestic product. According to official estimates, the economy is expected to expand by 8.2 per cent in 2004 and 5 per cent in 2005. Salaries should rise 9 per cent this year against 1.5 per cent in 2003, and a 13.9 per cent decline in 2002.
Inflation is forecast to jump 5.4 per cent versus a 3.7 per cent increase in 2003 while unemployment is down to 13.8 per cent form 17.3 per cent last year.
Amid this improved scenario, the value of Argentina's textile and apparel production is expected to leap 10 per cent to $5.3bn this year.
Apparel exports are forecast to reach $60 million, up 25 per cent from 2003, and should maintain that momentum next year as Argentine producers promote their designs abroad.
"Argentina is poised to become more known in the foreign markets," says Hector Kolodny, executive director of Argentine apparel federation Camara Industrial Argentina de la Indumentaria, which represents 232 suppliers. "Companies are doing a lot to sell their product as a high quality, trustworthy good."
International textile sales have also performed strongly, Kolodny says, fuelled by rising demand for cotton thread. In 2005, they should rise even further, aided by robust demand from China.
Like other global producers, Argentina is looking warily at the emerging quota-free textiles world which is seen triggering an onslaught of Chinese exports.
Argentina, Brazil and Chile recently granted China "market economy status," a move that will allow the Asian country to step up sales to Argentina at better prices, further hurting local suppliers, Kolodny says.
Under Argentina and China's current trade deal, China has to pay a 65-70 per cent duty (up from the 35 per cent average tariff) if export volumes fall within a certain level.
The Camara and other textile federations are urging the government to maintain those safeguards and toughen its grip on "a very lax" customs system. If this is not done, the textile and apparel industry could fall 5 per cent, Kolodny warns, down from a matching growth forecast this year.
"Argentina has until 2007 to keep this protection. But most people think the government will maintain it and that everything will be okay," he says.
Aramovsky adds that 60 per cent of Argentina's apparel floats in the black market. This situation has spawned an "Asia-like" industry where producers engage in illegal commerce to compete.
"A lot of cheap apparel makers are buying and selling in the black market and this practice also has to stop," he says.
To survive China, Argentine producers need to specialise in value-added wears and bolster manufacturing efficiencies, Aramovsky points out.
Well-known Argentine brands and designers such as Kosiuko, Maria Vazquez and Trosman-Churba must continue to export their wears abroad and help promote the "made in Argentina" label.
Mercosur-EU accord? Yes but…
Observers say that while Argentina hopes to gain from a Mercosur-EU free-trade deal, a future accord needs to offer more than scraped quotas and duties.
"If we are talking only about tariffs, this is not enough," Aramovsky says. "But if other things are included such as more European investment and corporate alliances that can help strengthen our manufacturing processes and product offer, then
Argentina can benefit."
Argentina's import duties should be lifted more gradually than in Brazil to protect the local market from cheaper exporters in Eastern Europe.
"Brazil has a lot more production muscle and capital while we are just now beginning to strengthen our brands and building international franchises," Kolodny adds.
Apparel to outperform textiles
Currently, apparel manufacturing accounts for 35 per cent of the industry's output versus 26 per cent for textiles. That equation is expected to increase for apparel in coming years, Kolodny predicts, as companies' marketing efforts pay off.
"We have great clothing designs and finishes, particularly in prêt-a-porter," Kolodny boasts. "As our exports grow, we are going to want them to be as value-added as possible, and that comes from finished wears."
By Ivan Castano.
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