There is a big opportunity for existing textile and apparel plants to expand and for new entrants to set up shop, especially in the wake of a stepped-up crackdown which the government launched about a year ago against smuggled clothing.
Last year, Iranian producers were so buoyed by the measure that they replenished the market with local quality brands during the period leading up to the new Persian year, usually marked by a shopping spree, Presstv reported.
The Iranian rial’s depreciation has provided the additional boon by cutting imports and smuggling which are the nagging problem of the industry.
Smuggled clothing costs Iran and its apparel producers some $2.6 billion in lost revenues a year, deputy director of Iran Textile Exports and Manufacturers Association Majid Nami said in Tehran Tuesday. To put this in perspective, Iran’s official imports of clothing is put at a minuscule $60 million.
Retailers in Tehran and other major cities have a teeming emporium of contraband clothing which has thrived for more than a decade.
By comparison, the share and growth of the textile and clothing industry in the economy of Iran and Turkey, which have dominated the geopolitical and economic landscape of the Middle East for centuries, has gone in opposite directions.
According to World Bank data, cited by state news agency IRNA, textile and clothing accounted for 20% of Iran’s economy in 1991 against 15% for Turkey’s. By 2009, this share dropped to 3% in Iran and rose to 17% in Turkey.
For more than 100 years until the early 1990s, the textile industry remained one of the largest sources of employment within Iran’s non-petroleum sector.
The first industrialized textile factories were established in the 19th century during the Safavid dynasty. Despite remaining a cottage industry, textile production continued to play an important role in the economy.
The industry consists of companies engaged in spinning, weaving, knitting, dyeing, and printing, and of finishing plants that process yarns from natural and synthetic fibers to produce a variety of woven and knitted fabrics. The major textile items are blankets, machine-made carpets, handmade carpets, serge, as well as fabrics and garments.
The discovery of oil resulted in the formation of an economy focused primarily on the development of the petroleum industry. In recent years, however, the limitations and harmful effects of an oil-independent economy have prompted Iranian officials to think about streamlining the sources of revenue.
The US government’s decision last year to choke off Iran’s oil revenues has given added momentum to reviving traditional industries, with the textile sector being the prime focus of the push.
Yazd is the capital of Iran’s textile industry, where as many 2,000 factories manufacture traditional products, cotton fabric and synthetic fibers and spin cotton yarn and polyester fibers.
In 1994, there were more than 40,000 plants operating in the Iranian textile industry, more than five times the current number. Iran’s textile industry is overwhelmingly dominated by privately-owned small- and medium-sized firms.
Iran’s northwestern neighbor is currently among the world’s most important textile and apparel manufacturing countries, with annual sales of $27 billion which it plans to raise to $100 billion by 2023.
After vehicles, clothing is Turkeys’ most successful export product. In 2017, ready-to-wear clothing accounted for about 18 percent of Turkey’s $157 billion exports.
Iran’s textile and clothing exports last year stood just above $1 billion, according to deputy minister of industry, mine and trade Saeed Zarandi.
Across the country, there are 7,900 textile and apparel units with 260,000 employees. Officials say this figure can double or triple with sufficient government backing.
The road, however, is not without hurdles despite the best opportunity in many decades beckoning.
Before the sanctions, the government was hoping to modernize Iran’s textile industry through joint ventures with foreign companies in Japan, Germany, China, and South Korea.
It planned to extend low-interest loans to the Iranian private textile companies for purchasing required equipment, raw materials, and technical expertise.
Local producers now say the government’s crackdown on contraband should not be spasmodic, where smugglers lurk in the fringes and wait for a letup to resume their illegal trade.
They also face the shortage of raw materials and foreign exchange. One primordial drawback of Iran’s textile industry is its reliance on overseas for raw material.
“Our main problem today is the shortage of liquidity and the lack of raw materials. When a manufacturing unit does not have sufficient liquidity, it certainly cannot source its needs for raw material at non-official foreign exchange rates,” Reza Naqshineh, a producer of scarves, told Tasnim news agency.
For raw materials such as yarn, local companies do not directly deal with foreign suppliers. They have to source their needs from intermediaries who further inflate the prices.
“Most of the raw materials are controlled by intermediaries and manufacturers have to source them at very high costs in order to start production,” Majid Eftekhari, a member of the Association of Iran Textile Industries, said.
The same goes for imports of technology and spare parts to replace outdated and ageing machinery.