Colombia's textiles industry is experiencing hard times these days as a surging rate of illegal Asian imports and sagging domestic demand has put a dent on its fortunes. However, the sector is confident that recent measures to fight the import surge and the upcoming signature of a free trade deal with the US will boost its prosperity. By Ivan Castano.

Turnover in Colombia's textiles and apparel chain is expected to fall as much as 7 per cent to $2.8 billion this year as slumping domestic demand overshadows gains in exports, which are in turn seen rising 10 per cent to $1.3 billion, down from a 17 per cent hike in 2004.

Because of stronger exports, driven by sales to new markets in the US, Mexico and Venezuela, production is expected to reach 200,000 tonnes versus 187,000 tonnes in 2004. Colombia consumes 75 per cent of its produced textiles and exports the remaining 25 per cent.

So far this year, the industry has faced anemic demand rates, hurt by a high unemployment rate (about 13 per cent) and a drop in consumer interest for apparel products, says Roque Ostina, director or fashion and export-promotion group Inexmoda.  

In common with other nations facing a surge of Chinese exports in the quota-free world, Colombia has been negatively impacted by the onslaught of cheap Asian wears.

However, a more serious problem - a contraband blitz from Panama, is giving the industry a fresh set of headaches.

"There is high unemployment and people are consuming less apparel than before," in part driven away by a hi-tech-gadget craze," Ostina says. In the past year, contraband rates have tripled to represent 40 per cent of the textiles market, he adds, while Colombia's currency the peso continues to rise against the US dollar, crippling exports.

Colombia's economy is growing between 3-4 per cent a year. However, it needs to grow above 5 per cent for the unemployment problem to subside, he says. He adds that the industry's unemployment has increased after several producers lowered production or closed shop altogether.

Colombia's textiles industry employs over 200,000 people directly and 600,000 indirectly, accounting for 12 per cent of the country's manufacturing workforce.

Technical contraband
Industry observers classify the massive Asian imports, which also include goods from Korea and Taiwan, as "technical contraband." The goods from Panama (which has a free-trade deal with Colombia) arrive as original Panamanian products, "but when you open the boxes they are mostly from China or other Asian countries," says a textiles-industry official requesting anonymity.

"This is making it very hard to stop these products from coming into the country." More traditional textiles contraband is also a problem, albeit of smaller proportions, in Colombia, the official says, adding that authorities are having an easier time curbing it.

Complicating matters for the industry, drug-dealing groups are increasingly using the Panamanian imports for money laundering purposes, giving a further impetus to the illegal trading activity.

"The low demand problem is being worsened by this contraband problem which is also acting as a money-laundering mechanism for drug dealers," says Carlos Eduardo Botero, director of the Cámara de Algodón, Fibras, Textiles y Confecciones de la Andi, the country's biggest textiles and apparel federation.
 
The Colombian government is quickly moving to fix the problem, however.

In recent weeks, it has moved to restrict textiles imports from Panama and nine Asian countries if their value falls below minimum price levels.

Moreover, the Tax and Customs Department (DIAN) has introduced a battery of measures to restrain the imports, reports Ivan Amaya, head of textile-manufacturers lobby Asociación Colombiana de Productores de Textiles (Ascoltex).

Panamanian and Chinese imports must now enter only through the Barranquilla sea port and Bogota's airport, he says, while the government has established rules forcing shippers to advise port officials of arrivals 8-19 days prior to docking. The number of customs inspectors and staff has also been increased, Amaya says.

Colombia is also considering launching a series of safeguards against China's imports that could include import duties of up to 600 per cent on some fabrics, compared to 20 per cent now.

"We are confident that the government will implement these measures. We can't stand this Asian attack any more," notes Amaya. He adds that Chinese imports of socks, jeans, women's underwear and bathing suit imports have reached draconian proportions.

Equilibrium
If the government introduces the safeguards, the industry's state of health could improve next year, Amaya says.

The sector's revenues already fell 7 per cent in the first half, he says, and even though the industry will get a boost from holiday-season apparel sales, the anti-competitive measures would not be introduced until later this year, he explains.

Even so, "growth next year won't be too strong but we should reach a state of equilibrium because we expect exports to Mexico, Venezuela and the US to continue to rise," Amaya muses.

Spinners and weavers think innovation, fashion
Apart from tightening custom controls, the industry must make its domestic wears more competitive and innovative, Inexmoda's Ostina points out.

At a time when Colombian consumers are turning their eyes away from fashion apparel and spending their pesos on technological gadgets such as ipod music players, plasma TVs and Cds, innovation has never been more crucial.

"There has been a change in consumption patterns, so we are urging apparel makers to make their offer more attractive, to make better designed, higher quality wears," Ostina says.

The industry is already moving in that direction, he says, with leading companies such as Leonisa, Confecciones Colombia, Hermeco and Fabricato making huge investments to modernise production and sharpen design methods.

Acoording to Botero, the industry has spent $200 million in the last two years to modernise production and reach higher levels of specialisation. Last year, Fabricato, based in Colombia's renowned textiles capital Medellin, spent $50 million to expand its denim-fabric plants in the area. 

Coltejer, also based in Medellin, will earmark a similar amount to step up its denim
output. Other firms have invested to improve their thread-making processes and grow in the synthetic-fibre business, Botero adds.

Harnessing Colombia's know-how
All this is part an industry drive to harness Colombia's know-how in unisex underwear, jeans and home textiles and produce larger numbers of more value-added wears in these categories. 

Spinners are also striving to churn out more sophisticated cotton, nylon and polyester fabrics, and improve customer service.

One such company is Bogota-based Protela. Market research director Oscar Linares tells just-style that the company is moving to improve production to provide better customer service.

"We offer an integrated services package that starts with the thread and moves to the fabric and we are now offering special finishes that blend more fashionable colours," he notes.

Linares agrees that China's soaring textile imports are hurting Colombian producers but that those who work to innovate and differentiate their products will do well in the future.

"The Asian problem is a only temporary one," he says, "and there is still a lot of growth to be mined from this market."

Free trade deal seen key to prosperity
Protela makes a range of fabrics including nylon, polyester and special microfibres and microcapsules. It also makes underwear and casual wear. However, the company's textiles products currently pay duties to enter the huge US market.

This will change if a much-vaunted US-Andean free trade deal wins approval late this year. The accord would stitch together agreements between Colombia, Peru and Ecuador. Bolivia and Venezuela have so far opted to remain out of the negotiations. The five countries form part of the Andean Community (CAN) trading block.

Echoing many observers' views, Linares says that a future free-trade zone between Colombia and the US will significantly boost the entire chain's fortunes.

It would "increase our interaction with the US which is interested in Colombian products," Linares says, adding that Colombia would sharply increase its exports and production base in the US and save spinners money in raw-material sourcing.

Other observers harbour even grander expectations from the upcoming deal.

Under the Andean Trade Promotion And Drug Eradication Act, about 6,000 Colombian apparel products enter the US duty free. However, that treaty expires in December 2006.

If the trade accord is signed, "we will have a much more superior, long-term preference system that will strengthen our commercial relationship with the US and benefit the whole apparel and textiles chain," notes Botero, adding that Colombia's exports to the US will likely double from $610 million last year.

US and foreign investment will also increase sharply, Amaya says. International investors, notably in the US, Brazil and Asia, are taking "a wait and see" approach to expanding in Colombia and they are expected to make a strong entry if the deal gets a nod, he explains.

It looks like the industry can look to brighter times ahead. Asked where he sees the industry in three years, Botero notes confidently: "Colombia has a big culture for fashion and design and many companies are working in this direction. We hope to have a very strong national and export market with many innovative products."

By Ivan Castano.