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Guatemalan makers pin growth on trade wars

By admin-demo 11 Jun 2019

Guatemalan makers pin growth on trade wars

Guatemala’s textiles and apparel industry expects to grow sales by 10% to $1.8bn this year as the US’s escalating trade war with China turns eyes towards Central America. Simultaneously, neighbouring Honduras and Nicaragua are also boosting its fortunes by buying more Guatemalan fabric to make America-bound apparel.

“This year we had more brands asking for short and niche orders,” says Lucia Palacios, promotion director at Vestex, the Guatemalan apparel and textile industry association (Asociación de la industria del Vestuario y Textiles). “More companies asked for information and price costs and engaged in costing exercises.”

To be sure, a rising number of fashion brands sourcing in China and Asia are setting their sights on Guatemala and the region, boosting investment and helping lift this year’s growth outlook.

Growth surge

According to Vestex executives, the industry could match 2018’s growth hike as more brands begin moving out of China and more Central American nations buy Guatemalan fabric – a trend that has been increasing over the past three years.

Guatemala now exports roughly 60% of its apparel north of the border and 40% to neighbouring countries, especially Honduras and Nicaragua where political strife has dented production. In 2019, polyester yarn fabric shipments are forecast to rise 16% while clothing exports to the US should grow 6%, up from similar figures last year, according to Vestex.

Guatemalan clothing exports to the United States were up 9.2% year-on-year in 2018, rising to US$1.458bn from US$1.335bn in 2017

According to the US Department of Commerce, Guatemalan clothing exports to the United States were up 9.2% year-on-year in 2018, rising to US$1.458bn from US$1.335bn in 2017.

Apparel exports from Guatemala enjoy duty-free access to the US through the Central America Free Trade Agreement and the European Union through the EU-Central America Association Agreement.

During the latest Apparel Sourcing Show in Guatemala City, the government announced that Grupo Karim, SAE-A and Tejidos Imperial will plough $200m, $70m and $25m respectively to boost technical textiles output across the nation, notably polyester and synthetic yarn needed to make value-added garments including sportswear. SAE-A is said to be favouring factory investments in Guatemala but may also put capital to work in Honduras or El Salvador, says one insider.

More integrated supply chain

But while makers bask in hopes that more business will come to their shores, sourcing executives say roughly $10bn is needed to bolster Guatemala and Central America’s synthetics output to build a more integrated supply chain to help US customers cast a wider sourcing net.

“Nike wanted to make more synthetics and activewear in the region but they can’t yet so they had to cancel some orders,” says Federico Zimeri, owner of Eco Yarn producer Industria Textil, a company that makes upcycled yarn from recycled polyester and other fabrics.

EcoYarn, which supplies to Wal-Mart and The North Face, has been in business for a few generations so banks know it and will provide it with finance. Still, as apparel loan interest rates can run high, the firm will use its own cash to build a new $2m spinning facility.

‘Mortgage your life’

Other makers are struggling to obtain financing, especially from Guatemalan banks that ask for too many guarantees to issue high-interest loans, executives say.

“The government and the banks do not support the industry,” says Seung Hee Kim, president of Korean-owned clothing maker Startex, during a visit to his 1,000-strong factory on the outskirts of Guatemala City.

Executives say the best way for Guatemalan and Central American firms seeking expansion capital is to find a US or international label that wants to grow hand-in-hand with them

Kim claims he recently tried to negotiate a $30m loan with a local bank but the institution would only approve $10m for a six-years loan and asked for full guarantees.

Startex is in the midst of a major expansion to boost synthetics output and revenues to roughly $50m in three years. As part of the effort, the firm will make 4m pounds of synthetic yarn and other technical fabrics by 2022 compared to 3m now. Garment production for the likes of Polo Ralph Lauren and The North Face will rise to 15m units monthly versus 7.5m currently.

But Kim wonders how future expansion will be achieved as some banks, including Banco Industrial (which recently won $30m from Korea’s export credit agency Kexim to help Korean firms expand in Guatemala), continue to shun the industry.

“We are financing everything with our revenues, bit by bit,” Kim adds. “The banks including Banco Industrial don’t lend to textiles and instead prefer to lend for malls or real-estate. “Banco G&T Continental has no money and Banpro [a Central American lender] also does not lend.”

One solution to boost financing is to offer invoice receivables as collateral, something that some US banks, including Miami International Bank, have been willing to consider as they see opportunities to help US manufacturers that outsource production in Guatemala expand their operations.

“Factoring with US clients is expensive, running at about 1.5% monthly,” says Startex executive director Syed Safarat, versus 2% to 3% with Guatemalan lenders.

Team with your brands

Executives say the best way for Guatemalan and Central American firms seeking expansion capital is to find a US or international label that wants to grow hand-in-hand with them.

“It’s easier to obtain capital if you have sourcing commitments from the brands,” says one observer, adding that he expects Kexim and its Chinese counterparts to begin providing more guarantees to help Korean and Chinese manufacturers boost their synthetics output in Central America.

“The US has a 32% to 35% duty on synthetic polyester fabric so Asian companies want to save that by making it here in Guatemala and export to the US duty free under DR-CAFTA,” adds Kim. “China is doing more production for its local industry and is not as interesting in exploring anymore, so this part of the world is going to grow more.”

To prepare for a busier future, the industry is boosting innovation, says Zimeri. At Eco Yarn, work is underway to boost upcycled yarn and polyester production for third parties and the company’s own brands to become more of a “sustainable fashion” boutique.

And on the floor at the Apparel Sourcing Show, where 200 stands received 35 to 40 international buyers [among hundreds of attendees], the first-ever cotton T-shirt underwent digital sublimation in a process not seen before in Guatemala or regionally.

This was thanks to a partnership between the US Cotton Council, Disieri, Epson and Moda Pais, a new fashion designer incubator.

“We did the first digital print on 100% polyester cotton and used eight designers for the T-shirts,” Vestex’s Palacios says, adding that Moda Pais hopes to open doors for Guatemalan designers with strong sale prospects. “Moda Pais will help promote Guatemalan brands abroad, in places like Macy’s or boutiques. But we are not looking to be couture. We are more interested in fast-fashion,” she concludes.