Guatemala's textiles industry may be in a rut but it has big hopes for the future, fuelled by the much-awaited Central American Free Trade Agreement and efforts to produce more innovative fabrics and garments. Ivan Castano reports.

Last year, Guatemala's textile and clothing industry succumbed to China's aggressive expansion into the US, its mainstay market.

As China and other Asian producers stepped up exports, Guatemala saw sales drop 5% to US$1.6bn. As a result, 58 apparel factories plunged into ruin, leaving 38,000 workers on the streets, 18,000 more than first predicted.

But industry observers hope matters will improve when the much-awaited Central American Free Trade Agreement (CAFTA) is implemented in Guatemala in March.

If the highly controversial pact starts on time, the industry could grow 5% this year to $1.68bn and much more in 2009, predicts Carla Caballero, general manager for Guatemalan Apparel and Textile Industry Commission (Vestex).

This is because Guatemala will be able to export its garments duty free, bringing big savings for producers and motivating foreign players to set up shop in the country, Caballero says.

Improving facilities
But God helps those who help themselves, and the industry is rushing to prepare for the new trade scenario.

Spinners are improving their output facilities and working to produce more innovative fabrics and garments in efforts to woo crucial foreign investment, Caballero says.

"We want foreign companies to move production here to strengthen our raw-material chain and manufacturing base," she notes. "The other goal is to compete through niche products that require specialisation and a quick turnaround."

Antonio Bechara Hace, general manager of local textiles producer Eltitex, agrees that things will get better with CAFTA, if it is indeed launched in March.

"Without CAFTA nothing will happen," he warns, adding that the deal still faces some hurdles (particularly related to the regularisation of intellectual property) before it can be approved in late March or even April, he estimates.

Hace hopes the industry will grow 3% this year. However, that statistic amounts to a drop in the ocean for an industry that has lost so many jobs.

"This is a weak recovery. It's going to take growth of 15% for my company to recover from the job losses," Hace notes.

Like his peers, Elasticos Textiles (Eltitex), which makes stretch fibres, is specialising in product niches to beat the Chinese.

"If we are efficient we [the industry] can compete with china. We are obviously not going to make T-shirts. We have to attract investment by improving our know-how. We need to move into fashion, into more specialised garments such as lingerie, coats etc," Hace says.

Big growth seen in 2009
Once CAFTA rolls into play, foreign producers are expected to shift some manufacturing to Guatemala, which has cheaper labour than the US.

A big undisclosed multinational is considering investing nearly $80m to build a new denim and tagging factory, Caballero reveals, adding that foreign multinationals could invest up to $300m by 2009.

Guatemala has a strong manufacturing base for synthetic fibres, denims, woven fabrics and twills, Caballero explains, and already makes technical products such as insect repelling, soil relief and dry-fit fabrics.

Caballero hopes foreign investment will consolidate in CAFTA's second year, boosting output for its key products and driving turnover up 25% in 2009.

Full production chain
Guatemala has a full textiles and garments production chain. Industry observers claim it has the best textile factories and most qualified handwork in Central America, giving it a competitive edge.

"If you install a factory in Guatemala you will be able to get your feedstocks faster and with better coordination than any where else in the region," Hace notes. "An apparel maker can buy everything he needs in Guatemala. There are at least 60 textile companies

Adds an industry executive who asks for anonymity: "Guatemala has been a textiles country since the 1950s. Past governments had a protectionist attitude toward the industry and invested a lot in it."

The country has the biggest cotton factories in the region, the executive adds. "Nicaraguan and Salvadorian plants are less specialised and in some cases even obsolete," he says.

Guatemala's garment exports fetch an average of $3.99 per square metre in the US, up from $2.13 for Honduras, $1.89 for El Salvador, and higher than Mexico, the US's number one exporter, Caballero says.

Currently, 70% of Guatemala's exports go to medium-priced and high-street markets but the country hopes to increase its luxury exports by 10% in five years, according to Caballero.

"We want to make expensive knit tops and garments with more sophisticated cuts, more stitching, more wash finishes and more decorations," she says.

By 2010, "we hope to be one of the leading producers of differentiated and high-design products."

By Ivan Castano.